Gold Rate of Return Calculator
Understanding Your Gold Investment Returns
Calculating the Rate of Return on Gold is crucial for investors looking to understand how their precious metal assets are performing relative to other investment vehicles like stocks, bonds, or real estate. Gold is often seen as a hedge against inflation, but quantifying its exact profitability requires accounting for purchase price, selling price, quantity, and associated fees.
How This Calculator Works
This tool computes two primary metrics for your gold investment:
- Absolute Return: This is the simple percentage growth of your investment. It tells you how much you gained in total over the entire holding period.
- CAGR (Compound Annual Growth Rate): This metric smooths out the returns to show what you would have earned on an annual basis if the investment grew at a steady rate. This is essential for comparing gold performance against annual bank interest rates or stock market returns.
Calculation Formulas
The mathematics behind gold returns involves the following steps:
1. Total Initial Cost:
(Buy Price × Quantity) + Making Charges
Making charges are often a percentage added to the base gold price, usually ranging from 3% to 25% depending on the jewelry intricacy.
2. Total Current Value:
Sell Price × Quantity
3. Absolute ROI (%):
((Total Current Value – Total Initial Cost) / Total Initial Cost) × 100
4. CAGR (%):
((Total Current Value / Total Initial Cost) ^ (1 / Years)) – 1
Example Calculation
Let's say you bought 50 grams of gold 5 years ago.
- Purchase Price: $4,500 per unit
- Making Charges: 10%
- Current Selling Price: $6,200 per unit
Your Total Cost would be 50 × 4,500 × 1.10 = $247,500.
Your Current Value would be 50 × 6,200 = $310,000.
Your Profit is $62,500.
Your Absolute Return is roughly 25.25%.
Your CAGR (Annualized Return) is approximately 4.6%.
Why Calculate Gold ROI?
Gold does not pay dividends or interest. Its return is generated purely through capital appreciation. By calculating the CAGR, you can determine if your capital is beating the inflation rate. If the inflation rate is 6% and your Gold CAGR is 4.6%, your purchasing power has technically decreased, despite the nominal profit.