Gold Is The Best Bet For Both Good And Bad Times

Gold is highly liquid and can be easily traded globally. This makes it a convenient investment option for both short-term and long-term financial goals. During periods of geopolitical uncertainty and monetary policy changes, gold tends to perform particularly well. Portfolio diversification is the need of the hour for a modern-day investor, which is the reason why many investment experts recommend spreading one’s investments across asset classes like stocks, bonds, gold and real estate to achieve optimum diversification.

Even within each asset class, it is recommended to avoid investing in one theme or sector. The idea is to reduce exposure to any one sector of the economy. While diversification reduces the overall risk of the portfolio, there is a flip side to it-over-diversification. Today, we wish to highlight about gold investments and help one to determine how much gold in portfolio you may consider holding. There are investors who are relatively confident in the economic growth of the country but want to have some amount of insurance against unforeseen events causing a downturn.

Such individuals can allocate between five and 10 per cent of the portfolio to investments in gold and gold-related securities. Most investors find themselves a little skeptical about the economic outlook of the country. If you belong to this category of investors and find investing in the current economy having moderate-to-high risk, then you might want to earmark a slightly higher part of your portfolio to gold and gold-related securities. If you believe inflation rates rising could lead to losses or even a collapse of the financial system, then allocating around 15-25 per cent of your portfolio to gold and gold-related securities could soften the blow.

If you think that the economy is headed downhill and the government debt rising inflation rates and the rupee losing value will eventually lead to financial chaos, then you might be tempted to allocate up to half of your portfolio to gold and gold-related securities. While this can help during market downturns, it is important to ensure that you reallocate your gold investments every year and take the profits off the table.

Don’t forget that a portfolio with a high allocation to gold is as volatile as an all-stocks portfolio.

Also remember that while deciding how much to invest in gold never lose sight of your overall investment plan and financial goals. At times gold investments look more lucrative than stocks and vice-versa. The markets react to macroeconomic events, among other factors. Record high prices have dented demand, particularly for gold jewellery, with purchases restricted to those that are need-based like weddings. In addition, financial year-end dynamics, such as statutory payments and tax-saving investments, are curtailing discretionary spending and further weighing on demand.

This slowdown is broad-based across urban and rural areas. The surge in gold prices has prompted sales of old gold jewellery. Retailers have reported a significant uptick in scrap or old gold sales, with some attributing up to a third of their sales to the exchange of old jewellery for newer, lighter pieces. Furthermore, loans against gold jewellery have increased. By January-end, retail gold loans by commercial banks were up 77 per cent y/y, indicating that consumers are increasingly leveraging gold for liquidity and financial gain.