Gold is one of the asset classes available for investment. We Indians are in love with Gold since ages. But most probable our parents and grandparents ended up buying physical goals in the form of jewellery. Very few used to buy gold coins and bars (if you really afford). So such kind of Gold is mainly for consumption purpose and the considered it as a hedge to any unfortunate event that happened in life. So our previous generation also considered it as an investment which would help in the time of crisis.
But in today’s era besides just consumption, we can seriously think Gold as an asset class where we can diversify our overall portfolio. Gold is a good hedge against inflation. Most of the time Gold behaves inversely with Equity. So when an Equity asset class is not performing or in a bad situation at that time Gold always Glitters. In this corona pandemic as the global equity market stumbled, Gold was a hot cake for the investors to put their money for the time being. That’s why as demand for gold is at all-time high gold prices are touching the sky. Gold as an asset class has emerged as a winner among all the investments by providing returns of around 48% in the last year. Even the gold has shown excellent performance in the last few months amid the pandemic when all other investments are showing negative returns.
Gold as being an asset class faces the ups and down too. But unfortunately, we always look Gold’s return in the longer term. It means we compare Gold prices of the time of our parents and now. Or say for the last 10 years and now. And because of this comparison, we come to the conclusion that Gold always gives positive returns and that too expositional. But gold too had a stagnant return for many years. Whenever the global economic crisis happened there was a sudden spice in Gold prices.
But keep in mind FII and Global investors always prefer Equity than any other asset class. Equity investment is very liquid and has the potential of earning huge. So whenever current global sentiment changes glory of equity will be back. We may find stagnancy in Gold prices because of that in the future. The rate of return will not be same which we experienced in the last 2 years. Gold is also a volatile asset. But no one can predict when this rise will be reversed or rate of increase in prices decreases.
So we being as a retail investor can follow this ratio in our portfolio of course as per individual’s risk-taking ability.
Equity: Debt:Gold : 55%: 40%: 5%
For Indians, the emotional value of gold is more than the economic value. No matter what the price of gold, we buy gold for our own use. Prefers to give as gifts to close people. But you should always look at how much gold you have in your total portfolio. Ideally, you should not have gold exposure of more than 5 to 10% of the total portfolio value as Gold is also volatile by nature. This % includes your household gold too in the form of jewellery and coins. So before buying new gold kindly make a value assessment of your household gold. If you still have a room of investment you can consider the investment in Paper Gold/Electronic Gold. You can consider investing in Gold ETF or Sovereign Gold Bonds.