Gold has emerged as one of the top performers among asset classes this year as prices have hit an-all time high of `83,700 per 10 gram. The uncertainty in the equities market and demand for safe-haven assets have pushed up prices of the metal.
Experts suggest individuals buy gold on dips as the metal has been a favourable choice during periods of increased volatility and geopolitical uncertainty. Investors can raise allocation to 15%, which will be an ideal option for stabilising the portfolio.
Kaynat Chainwala, AVP, Commodity Research, Kotak Securities, says there is potential for more upside in gold in the near term. “For investors looking to capitalise on this, buying gold on dips or accumulating it at attractive price levels could offer significant benefits if the price rally continues,” he says.
Market cyclicality
The surge in gold prices is anticipated to persist this year, with the trajectory expected to be influenced significantly by US President Donald Trump’s policies. The focus on domestic production and self-sufficiency could be inflationary and also enhance volatility in currency markets, driving investors toward gold.
Chirag Mehta, CIO, Quantum AMC, says investors should not be carried away by gold’s performance and remember that the metal acts as a good diversifier against inflation, volatility and other macro uncertainties. “Investors must avoid overexposure to the metal and any skewness because of the current performance. It should be rebalanced on periodical review to capitalise on market cyclicality,” he says.
Returns from gold have been cyclical, with long periods of stagnation followed by sharp rallies. Accessing risk-adjusted returns, Nifty 50 has outperformed gold with a Sharpe Ratio of 1.55 compared to gold which has 0.18. Feroze Azeez, deputy CEO, Anand Rathi Wealth, says this means equities have delivered better returns while adjusting for risk over the long term. “Based on these numbers, investors should not allocate too much to gold, as it remains a cyclical asset rather than a consistent performer,” he says.
Form of investing
With the increased attraction for gold as an investment option, the choices for investing have also expanded. While, physical gold is the most favoured option, it comes with its own risks and additional costs such as storage, making charges, and lower liquidity. It should be avoided for pure investment purposes.
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