Gold should constitute at least 15 per cent of your portfolio for better risk-adjusted return. Even though volatility is higher, gold has provided a 12 per cent CAGR in the last 25 years
Gold prices witnessed fresh all-time highs in May 2024 and then eased a bit facing headwinds as market participants continued to speculate on the timing of rate cuts by the US Federal Reserve. However, the possibility of two rate cuts in 2024 persists amid indications of a gradual slowdown in the job market, which has kept the downside limited since last week.
Says Naveen Mathur, director – commodities and currencies, Anand Rathi Shares and Stock Brokers: “We anticipate the volatility in prices with an upside bias to continue in the near term given signs of a weakening job market as prices are poised to witness fresh highs in the medium-to-long-term scenario.”
Gold has given almost 12 per cent compounded annualised growth rate (CAGR) return in the last 25 years. In 2024, gold surged 18 per cent between February 14 and April 12, rising around Rs 12,000 and hitting new all-time highs of around Rs 74,000 per 10 gm on the back of escalating tensions in the Middle East, the Chinese gold rush, record purchases by central banks across the world, concerns over sticky inflation, the soaring US government debt, and continued fiat debasement.
Says Prithviraj Kothari, managing director at RiddiSiddhi Bullions: “Gold prices are stuck in a tug-of-war for bullish and bearish drivers. Strong investment and retail demand are not allowing gold price to fall below $2300. The Federal Reserve rate cut delay and subsidising geopolitical tensions are creating a floor on the gold prices above $2,400.”
According to experts, gold investments still matter in the current scenario for several reasons. Gold remains a valuable component of a diversified investment portfolio due to its unique characteristics and historical performance. Gold plays a unique role as hedge against inflation, low interest rates, economic uncertainty, market volatility, and currency fluctuation.
At a time of price volatility, would it still be wise to include gold in your portfolio?
Says Renisha Chainani, head of research, Augmont Gold For All, an integrated gold player from refining to retailing, “Including gold in a diversified investment portfolio can offer several benefits, such as diversification, hedge against inflation, safe-haven assets, liquidity, store of value, etc, even considering its volatility.”
When compared to other options, such as equities, historically, gold price has remained rather stable and did not go down by a huge margin even during times of economic slowdown or crisis. During times of financial crisis, people always turn towards gold and prices soar in no time.
Says Mathur: “However, on the other hand, domestic equities may turn volatile in the latter half of the year with fears of global slowdown persisting amid rate cuts, which are likely expected in 2024. This may lead to equities not providing favourable returns as was seen in the first half of 2024, while globally inflation is expected to remain sticky with a rise in unemployment rates due to a multi-decade high-interest rate to lead to stagflationary scenario which bodes well for gold. Hence, in such times, gold could act as an effective portfolio diversifier. We always recommend allocating a minimum of 5-10 per cent of an overall portfolio in gold.”
When investing in gold, one should always consider the purpose of the investment, investment horizon, and risk tolerance. So, one may consider looking into different forms of gold investment, and assess costs, fees, and taxes. One should also stay informed by consulting financial advisors and professional researchers to understand the current market trends in the gold market.
According to Mathur, a staggered buying approach is always recommended in gold, with buying to be done in every dip of 4-5 per cent, considering a time span of 4-5 years.
“One could consider investing through means such as exchange-traded funds (ETFs) and digital gold, apart from physical investment. To avail of tax benefits, one could also consider a long-term investment in gold through sovereign gold bonds (SGBs), but takes into account a period of 5-8 years of investment,” says Mathur.