Gold and silver are enjoying a dream run. Gold prices on the MCX hit a record high of ₹1,34,966 per 10 grams, while MCX silver surged over the coveted ₹2 lakh crore mark, hitting a record high of ₹2,01,388 per kg during Friday’s session.
Domestic spot gold prices have surged by nearly ₹53,000, or almost 70%, this year till December 11th. Spot silver, on the other hand, has soared by over ₹1,02,500, or nearly 120% in the same period.
Gold and silver have been driven by a confluence of factors this year. While macroeconomic uncertainties, emanating from geopolitical tensions and US tariffs, drove investors to safe-haven gold, silver jumped due to tight supply and increased industrial demand from sectors such as EV, solar, and semiconductors that are expanding rapidly.
Expectations of US Fed rate cuts, central bank buying, and stock market volatility also boosted gold and silver prices.
“Gold is extending its constant rise as uncertain markets and expectations of rate easing keep the interest in haven assets intact. Silver rises further due to encouraging industrial production trends and a weakening dollar,” said Aksha Kamboj, Vice President at India Bullion and Jewellers Association (IBJA) and Executive Chairperson of Aspect Global Ventures.
Time to increase exposure to gold?
The mouth-watering returns of gold and silver have raised a key question for investors: should they increase exposure to gold in their portfolios?
Wealth managers say investors should keep gold in their portfolios, as it serves as a hedge against inflation and other macroeconomic uncertainties. An overexposed portfolio in equities carries a risk of significant losses during market downtrends.
Kamboj underscored that gold has firm safe-haven demand due to rate cuts and also global uncertainties that underpin the appeal of the precious metals.
However, she was quick to add that fixating on a 25% gold allocation is not advisable.
Instead, a balanced mix designed to meet individual goals, risk tolerance, and liquidity needs, blending gold with equities and other assets for true diversification, is recommended, said Kamboj.
The question of portfolio rejig must be addressed in different contexts. Firstly, the construction of a portfolio should reflect an investor’s risk appetite and financial goals. There is no single formula for all.
However, in a broader sense, experts believe that investors should have a maximum exposure of 15% to gold. This is because, in the long run, as history shows, equities tend to outperform all other asset classes. The 10–15% rule for gold is based on long-term return expectations.
“Historically, if you exclude the last 4–5 years, gold’s long-term CAGR has been around 8–9%. The recent surge has been dramatic due to multiple factors. In the long run, however, returns tend to revert to their mean. Just as equities delivered strong gains post-COVID and then entered a consolidation phase, gold too will eventually normalise,” Ajit Mishra, SVP of Research at Religare Broking, explained.
Currently, gold and other bullion assets remain strong, while the Indian equity market has remained relatively stagnant compared to the US and other emerging markets.
“We are already late if someone wants to raise their gold exposure to 25%. Over the next few quarters, earnings strength and better macro stability should support equities again. Gold delivered about 70% returns this year. It’s unlikely that such a run will repeat unless something extraordinary happens,” said Mishra.
It is also about the timing, which nobody knows. For example, two to three years ago, increasing exposure to gold would have yielded better returns.
So, the real question is not about “how much”, but “when.”
“For conservative investors, 10–15% is a sensible range. If someone is aggressive and bullish on gold, even a 100% allocation can make sense. The real question is not whether you can hold 25% gold—it’s whether this is the right time to increase gold exposure. And in my view, it’s late,” said Mishra.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said after a 70% appreciation in one year, gold is likely to underperform over the next year, and a correction is even possible.
“It’s ideal to keep your gold allocation at a maximum of 10%,” said Vijayakumar.
The outlook for equities has improved significantly. With earnings expected to strengthen amid healthy domestic macroeconomic conditions, equities are likely to deliver healthy gains next year. So, keeping gold at 10–15% for diversification and focusing on quality large and mid-cap stocks is the better strategy, say experts.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
