Rising Gold Prices Trigger Investment Rush Amid Global Uncertainty
Gold prices on the Multi Commodity Exchange (MCX) soared to a record ₹95,000 per 10 grams on April 16, marking a dramatic 25% jump in just six weeks. The surge, driven by geopolitical tensions, inflation fears, and heightened market volatility, has reignited investor interest in the precious metal. Yet, even as the rally draws in fresh inflows, financial advisors caution that many Indian investors may already be overexposed to gold—and risk sacrificing long-term portfolio performance if they don’t rebalance soon.
Highlights
Gold prices hit an all-time high of ₹95,000 per 10 grams on April 16, up 25% in six weeks.
Experts warn that many Indian investors are already over-invested in gold.
Overexposure may reduce long-term portfolio returns despite gold’s short-term shine.
Gold as a Portfolio Stabilizer—Not a Wealth Generator
Financial professionals widely agree that gold plays an important but limited role in portfolio construction. “Gold is great for diversification, not for long-term wealth creation,” said Anil Ghelani, Head of Passive Investments and Products at DSP Mutual Fund. He emphasized that while gold’s low correlation with equities makes it a useful hedge during market downturns, an allocation above 10% could dilute growth potential.
Silver, often seen as gold’s cousin in diversification, also offers defensive benefits but is more sensitive to industrial cycles and broader economic trends. The key takeaway: while gold buffers volatility, it’s not designed to outperform other asset classes over the long term.
Highlights
Ideal gold allocation: 5–10% of portfolio.
Gold offers stability but lacks long-term growth potential.
Silver has diversification benefits but is more economically cyclical.
Indian Households Significantly Overweight on Gold
Data from the Reserve Bank of India and wealth management firms reveal that Indian families may already be holding excessive amounts of gold. According to Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, Indian households typically hold about 20% of their wealth in gold, compared to just 12–15% in equities. In contrast, global investors maintain less than 5% in gold and roughly 25% in equities.
This skewed asset allocation makes Indian portfolios more defensive than necessary, limiting growth prospects. “Diversification isn’t just about adding gold—it’s about maintaining the right balance between risk and return,” Rajani stressed. She recommends reducing gold holdings to around 5% for a healthier portfolio mix.
Highlights
Indian households hold about 20% of their wealth in gold.
Global investors typically allocate under 5% to gold and 25% to equities.
Financial advisors urge a rebalancing to avoid overly defensive portfolios.
Gold’s Risks and Volatility Often Underappreciated
Contrary to popular perception, gold is not risk-free. Rajani pointed out that gold’s volatility is around 10%, which is not far from the 13–14% seen in equity mutual funds over a 3–5 year rolling period. Moreover, gold has a mixed track record in terms of returns. Between 2014 and 2019, for instance, it delivered only a 2% annual return, while equities returned approximately 11%.
“Gold’s role is not to outperform—it’s to smooth out volatility,” Ghelani reiterated. This suggests that relying on gold for long-term capital appreciation could lead to investor disappointment, especially in high-inflation or high-opportunity environments.
Highlights
Gold’s volatility is close to equity mutual funds at around 10%.
Past periods, like 2014–2019, show gold underperformance vs equities.
Gold should be seen as a volatility hedge, not a primary growth asset.
Rupee Depreciation No Longer a Strong Tailwind
Historically, rupee depreciation has contributed significantly to gold’s performance in India. Rajani estimates that 3–3.5% of gold’s annualized return over the past decade came from a weakening currency. However, with India’s macroeconomic fundamentals improving and the rupee stabilizing, this tailwind may not continue.
“If you’re buying gold for a wedding or near-term consumption, it makes sense,” Rajani noted. “But as a long-term investment, it’s not the most efficient asset.” This shift in currency dynamics may further limit gold’s appeal as an investment avenue.
Highlights
Rupee depreciation added 3–3.5% to gold returns annually over the past decade.
A stronger rupee may dampen future gold performance.
Gold purchases should be goal-linked, not purely investment-driven.
ETFs Preferred Over Physical Gold Amid SGB Scarcity
In the face of soaring physical gold premiums and limited availability of Sovereign Gold Bonds (SGBs), many experts suggest using Exchange Traded Funds (ETFs) as a more efficient vehicle. “ETFs provide liquidity, low cost, and transparency,” said Rahul Gupta, a Mumbai-based financial advisor. Importantly, ETFs benefit from equity-like taxation when held over three years.
While gold ETFs have delivered around 12% annualized returns over the past decade, Gupta warned that past performance is no guarantee of future returns. The key is using ETFs as a tool for precision exposure—not a reason to chase the gold rally.
Highlights
ETFs are preferred over physical gold and scarce SGBs.
Benefits include liquidity, tax efficiency, and low cost.
Historical returns of 12% annualized may not continue.
Gold’s Hedge Value Still Relevant—But Not a Substitute for Growth
Despite current price highs, gold remains a useful hedge in an uncertain world. Nikhil Gupta, Founder at Sage Capital, pointed out that central banks, including those in India and China, continue to accumulate gold systematically. “They’re treating gold like a SIP—not trying to time the market, but focusing on long-term stability.”
However, he advises against shifting capital from equities into gold at this stage. “If you’d moved six months ago, you’d have caught the rally. Now, equity corrections are largely priced in, so gold is a good-to-have, not a substitute.” The overarching message: maintain gold exposure, but don’t let it grow unchecked.
Highlights
Central banks continue to accumulate gold amid geopolitical risks.
Gold should supplement, not replace, equity investments.
SIP-style gold accumulation may work, but timing is key.
