Gold prices up 20% in 2019; raise allocation to 10-15% of portfolio, say experts

The Sensex may have risen just about 3 percent in 2019, but one commodity has outperformed the benchmark index by miles. Gold has risen about 20 percent in the same period.

Hopes of policy easing by various central banks added to the metal’s strength. Signs of a slowdown are visible in the global economy, which will push central bankers across the globe to lower interest rates.

Gold and silver prices are highly sensitive to interest rate cuts as they lift the opportunity cost of holding non-yielding metals like bullion. For investors, it might not be the right time to increase allocation towards gold but instead they should wait for a dip.

Experts feel the ideal allocation should be around 10-15 percent of one’s portfolio and should be via exchange-traded funds (ETFs) or gold funds.

Traditionally, buying physical gold is rarely seen as an investment as it hardly gets cashed out or changes its form. An investment in gold is usually in the form of ETFs or gold funds.

Financial experts advice a buy on dips strategy and feel investors should wait for the rally to cool before making further investments. With the festive and wedding season coming soon, analysts see demand for gold rising from October onwards.

“Since prices have risen about 25 percent since June there is a chance of an imminent correction. Hence, buy on dips would be the preferred strategy at current prices,” Hareesh V, Head – Commodity Research at Geojit Financial Services, told Moneycontrol.

Explaining the advantages of ETFs versus physical gold, he said though a transaction cost is applicable in ETFs, safeguarding of the asset is somewhat easy compared to buying physical gold.

Diversification of assets remains key especially at a time when fears of an economic slowdown loom large. GDP hit a six-year low for the quarter-ended June.

If the decline continues for a couple of more quarters, it would lead to risk-off sentiment in markets, which could put pressure on equities but at the same time fuel a rally in gold. The upcoming festival season should also auger well for the yellow metal.

Ajit Mishra, Vice President Research, Religare Broking, said that during an economic slowdown, the yellow metal tends to outperform other asset classes. “After nearly three-to-four years of underperformance, the recent surge in gold prices is largely due to rising concerns over an economic slowdown and falling bond yields, which has led investors to turn towards a safe haven.”

He feels gold, as an investment, should be used for stability rather than for returns and one’s allocation could be higher (10-15%) if one wants to build a conservative portfolio.

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