In recent times, gold has shown its traditional strength as a safe haven asset. Over the past two years, a series of global events—from geopolitical tensions (like the Russia-Ukraine conflict and Israel-Iran situations) to political shifts (such as U.S. presidential changes)—has driven gold prices upward. Central banks have continued to buy gold, even at elevated prices, further stretching the current cycle.
However, it’s important to recognize that commodity cycles—including gold—tend to have a lag effect. When demand surges, supply takes time to catch up, resulting in sharp price increases. Eventually, as supply meets or exceeds demand, prices can correct steeply.
Equity on the other hand, is very much related to GDP growth and corporate earnings. In a growing economy, it shows a very resilient upward trajectory, though accompanied by volatility. In light of these dynamics, we recommend maintaining a modest allocation to gold in your portfolio. While gold remains a valuable hedge against uncertainty, we also caution against over-allocation at current high levels. If global tensions ease, gold prices might fall, and we want to manage that risk thoughtfully.
Additionally, a very effective way to express your allocation to gold is through gold mutual funds. These are financial assets that spare you the hassles associated with physical gold—no storage costs, no security risks, and no logistical inconveniences. Gold mutual funds are directly linked to the base gold price, making them a liquid option that you can buy or sell easily at the daily declared net asset value (NAV).Now even combined Gold and Silver funds are available, proportion of each component can vary depending on the view of the fund manager. Multi asset allocation funds invest in a mix of equity, debt, real estate investment trusts and gold.
In summary, gold is a useful but measured part of a diversified portfolio.
Regards,
Dr. Sanjiv Mehta
MD, Finance Doctor
