Should You Invest Into Gold Right Now?

Gold has traditionally been the “go to” asset for many Indian households. Seen by investors as a store of value and a “safe haven”, gold has remained erratic and unpredictable over the past few years; going up in quick bursts and then either retracing, or going into a shell for extended periods.

The yellow metal witnessed a stellar rally amidst the throes of COVID last year, briefly crossing Rs. 55,000 per 10 Grams before retracing to sub-44K levels earlier this year amidst a better-than-expected economic recovery.

Now, with international gold prices breaking past the psychologically important USD 1900/ Oz mark in May and then pulling back sharply in June, many investors are wondering whether to add Gold to their portfolios in the form of ETF’s, Sovereign Gold Bonds or Gold Savings Funds.

The short answer is – yes, this is a good time to add a smattering of Gold to your overall asset allocation.

First, we have the inflation narrative. Inflation spells good news for the yellow metal, and we’re already seeing early signs of global as well as local inflation creeping up. While the U.S has been quick to dismiss the inflationary trend as “transitory”, we may well see a longer trend in the making.

Second, we can see U.S economic growth indicators slowing down to an extent, if indicators such as non-farm payroll, retail sales and home sales are anything to go by. This could also lead to a more “risk off” mood in the near future, providing further impetus to gold.

Lastly, one doesn’t have to be an investing genius to know that equity markets around the word are trading at rich valuations. While abundant liquidity has propped up stocks thus far, the party will not last forever. Look at what Bitcoin (which also competes with gold), which didn’t take long to fall from its heady 65K plus highs to the 35K levels that it is struggling to break out of today! If we begin to see a correction in equities globally in the 2nd half of the year as rationality kicks in, we’ll undoubtedly see gold rallying from present levels.

All in all, it makes sense to allocate between 15% and 30% to gold at current levels. Instead of going all in at current prices, it may be wise to stagger your way into the yellow metal using weekly Systematic Transfer plans over the next 3-4 months.