Gold: Limit exposure in portfolio to 10-15%

Gold prices have dipped to four-month low after slipping below the mark of Rs 46,000 per 10 gm as per the rates of Multi Commodity Exchange. Considering the fact that the yellow metal is traditionally regarded as a safe-haven asset and a hedge against inflation, many investors wonder whether they should hold, buy or sell gold now?

One of the main reasons for the decline in gold prices has been the strong US dollar against other major currencies. The USD and gold prices are inversely correlated. When USD appreciates, prices of the yellow metal decline and vice-versa. Another reason has been the robust US job data, which has increased the chances of early tapering by the Federal Reserve. Moreover, with the rise in the US bond yield, investors prefer to park their money in bonds than gold.

If you are buying gold for jewellery, then falling prices should offer an opportunity to buy at a low cost. Investors should not be worried over the long term as demand is expected to move up again with uncertainties still looming around Covid 19.

Moreover, with the latest tranche of sovereign gold bonds (SGBs) on offer, investors can consider buying bonds at the lowest prices. The SGB scheme 2021-22 – series V is open for subscription till August 13 at Rs 4,790 per gm. Investors can avail of a discount of Rs 50 gm if they are applying online and making digital payments. If we compare it with the last three tranches, the prices are at the lowest.

The key lies in diversification and rebalancing the portfolio at regular intervals so that your portfolio does not become overexposed to one asset class. The prudent approach is to limit exposure to gold to 10-15% of your portfolio, as a well-diversified portfolio can protect your corpus from any sudden shock.