Gold Investment: Experts suggest investors to accumulate precious metal, but follow asset allocation

Mumbai: Even as gold’s market value scaled the ₹1 lakh summit for the first time, experts continue to suggest investors accumulate the precious metal, within their asset allocation boundaries. Conditions remain ripe for the safe-haven asset to maintain its allure amid elevated economic instability and geopolitical uncertainty. Nilesh Shah, MD and CEO, Kotak AMC, insists that the momentum remains with gold for now due to heavy central bank purchases of gold to diversify their dollar-heavy forex reserves. “Our recommendation will be to watch central bank buying on a monthly basis and as long as they are buying, hold onto the gold allocations.”

Feroze Azeez, Deputy CEO, Anand Rathi Wealth, maintains that gold is likely to fetch double digit returns over the next three years. “The US dollar remains a scary asset to hold currently. So gold will continue to deliver stable return.”

However, experts warn against hiking exposure to gold beyond a reasonable threshold. Given the rapid surge in gold price in recent months, there are concerns that the yellow metal may be overbought. The current divergence between gold’s price and its 200-day moving average is unusually large. Gold’s value relative to equities is also much higher than its long term average. Historical data suggests these patterns signal onset of prolonged weakness in gold prices, following periods of superlative gains. Kalpen Parekh, MD and CEO, DSP Mutual Fund, remarks: “Don’t chase past return. Be aware gold also has long phases of zero to negative returns like stocks.” Srikanth Bhagavat, managing director & principal advisor, Hexagon Wealth says: “Gold has seen a parabolic rise over the last six months, and it seems to be getting steeper. I am generally wary and cautious when prices exhibit such trends. Corrections from such places can be severe.”

Even so, experts suggest that investors should maintain prudent allocation to the precious metal. Poonam Rungta, certified financial planner, says: “Just because gold price is high, doesn’t mean it should not be there in your portfolio. We always recommend having gold allocation to the extent of 10-15% of your corpus, irrespective of its price.”

Azeez suggests investors maintain a balanced portfolio, with an asset allocation of 80:20 in equity