Why Gold’s Recent Rally Has Changed the Case for Overweighting the Yellow Metal
After years of strong performance, gold has firmly reasserted itself as a core portfolio component for many investors. Yet, according to Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund, the very strength that made gold attractive over the past few years is also the reason investors should now turn more cautious.
Speaking on The Wealth Formula podcast with N Mahalakshmi, Parekh laid out a nuanced framework for thinking about gold — not as a return-chasing asset, but as a cyclical stabiliser whose attractiveness waxes and wanes with valuation, currency trends and investor behaviour. His central message was clear: gold still belongs in portfolios, but the era of aggressively overweighting it may be behind us, at least for now.
How DSP Thinks About Gold’s Intrinsic Value
Parekh was candid in acknowledging the limits of valuation when it comes to precious metals. “There is no clean way to value gold or silver because they don’t generate cash flows,” he said. Instead of precision, DSP relies on reference frameworks to assess relative attractiveness.
One such framework uses global money supply as a proxy. DSP tracks US M2 money supply along with roughly half of Eurozone M2, excluding the rest of the world to avoid double counting. Over long periods, this combined liquidity measure has shown a relationship with gold prices.
“Gold today is much closer to what that framework suggests is fair value,” Parekh explained. “That’s why we are saying this is not the time to massively overweight gold.”
At around $3,300 per ounce, gold appears fairly valued under this model. While silver looks marginally cheaper — with fair value closer to $63 versus current levels near $55 — Parekh noted that even here, the margin of safety has narrowed.
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Why DSP Has Reduced Gold Exposure
Reflecting this view, DSP has actively trimmed gold and silver exposure in its multi-asset allocation fund.
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Gold and silver allocation reduced from about 22%
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Current exposure lowered to roughly 13–14%
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Partial profit-taking after a sharp run-up
“We’ve taken some profits after a strong rally,” Parekh said. “Whether this proves right or wrong, time will tell. But the big margin of safety we had two to three years ago is no longer there.”
Importantly, he stressed that this shift represents neutrality, not bearishness. Gold remains part of the portfolio, just not at elevated weights.
Gold’s Real Role in Indian Portfolios
Parekh also addressed a deeply ingrained Indian mindset: owning gold largely due to tradition and social conditioning. Even he admitted that until about seven years ago, the only gold he owned was his wedding ring.
What changed was a deeper look at long-term data.
“In most emerging markets, gold has delivered about 6–7% returns in dollar terms,” he said. “Add currency depreciation, and you get low double-digit returns in local terms.”
Over long periods, Indian equities have delivered around 12% median returns, while gold has delivered roughly 11%. The real advantage of gold, however, lies in diversification.
When equities and gold are blended in a 50:50 portfolio and rebalanced annually:
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Returns are marginally higher than equities alone
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Portfolio volatility drops by 35–40%
“That was a lightbulb moment for me,” Parekh said. “Gold is volatile on its own, but extremely powerful as a diversifier.”
A Balancing Asset, Not a Hero Trade
Parekh repeatedly emphasised that gold works best as a counter-cyclical asset. Historically, the best time to overweight gold has been when:
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Other asset classes are expensive
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Gold has gone nowhere for extended periods
“Today, gold has beaten equities in almost all emerging markets,” he noted. “It has become the hero asset. Historically, following the hero hasn’t worked as well as being counter-cyclical.”
In a world shaped by post-2008 money printing, leverage and borrowed future returns, Parekh still believes gold deserves a structural place in portfolios. But that doesn’t mean chasing it after a strong rally.
Where Crypto Fits — Or Doesn’t
Asked whether he views crypto like gold, Parekh was honest about his uncertainty. While he studied Bitcoin as early as 2014, he remains unconvinced about the problem it solves.
“I don’t dismiss it,” he said. “But until crypto becomes a clearly defined and legally recognised asset class in India, I’ve parked the idea.”
He warned against buying any asset purely because prices are rising, a behavioural trap that applies equally to gold, equities and digital assets.
The Currency Question Investors Shouldn’t Ignore
Gold returns in India are amplified by rupee depreciation, which has historically added 3–4% annually. Parekh cautioned against assuming this will continue unchanged.
“There were periods when the rupee actually strengthened,” he said. “Over the next few years, outcomes could be less favourable.”
As India develops, currency depreciation may persist structurally, but likely at a slower pace. This is another reason, he argued, to avoid going overboard on gold allocations today.
A Measured, Not Emotional, Approach to Gold
Parekh’s conclusion was measured and pragmatic. Gold remains a valuable portfolio component, especially as insurance against uncertainty, leverage and systemic risks. But with valuations closer to fair value, its role should shift back to balance rather than dominance.
“If both stocks and gold underperform for a while, that’s okay,” he said. “Gold’s role is protection, not excitement.”
For investors, the message is timely: gold still belongs in portfolios — just not as the hero of the moment.
