The recent surge in gold prices
Well, to be honest, the surge is really not only recent. Gold prices have been gradually climbing upwards for quite a while at a decent pace. The pace has just accelerated recently. Just two years ago, gold was available at less than Rs 30,000 per 10 grams in India, and it had remained in that range for two years previous to that too. Now the same gold is available for over or close to Rs 57,000. Only in calendar year 2020, which has been otherwise quite dreadful to be frank, Gold prices have risen by about 40% till now!
This is like any investor’s wild dream coming true! Typically, for long term planning, people assume a return of around 12%-15% per annum, and here you have 40% in half-a year.
So, coming to the calls that we are receiving to discuss Gold.
Should I buy gold?
This is asked by people who usually do not invest in Gold aggressively, because of the usually slow appreciation that the yellow metal gives.
Now what is happening is that with every passing day, the fear of missing out, or as some of our younger friends like to call it, FOMO, is setting in. The feeling is not very different from what some of us had in early January about the equity markets.
What we are advising people asking about buying gold is the same thing that we told a senior officer who will be retiring in a year. In January, he got in touch through one of the friends to consult on his retirement plans. He was quite enamoured by the daily highs the market was touching and wanted to put a sizable chunk in equity investments. We cautioned him against that.
Same is applicable to people looking to buy gold right now at the current levels. By all means, buy a little. But do not go overboard in excitement. More about it, a little ahead.
Should I sell gold?
The other set of people calling us to discuss gold have an entirely opposite query. This is usually from friends who have invested a sizable chunk of their wealth in gold over time. They are worried that gold prices have peaked and might crash anytime soon. Conspiracy theories aside, we try to explain to them how no one can accurately predict the crash they fear so much. Yes, there can be some directional and educated guesses, but no one can predict a crash or a sharp rally with certainty.
In both the situations highlighted above, we emphasise on sticking to the basics. What we mean by basics is that gold should definitely be present in your investment basket, but it should be limited to your asset allocation and should play a role of diversification.
Accordingly, if your allocation suggests buying more gold, this time is as good as any. At the same time, if your allocation demands that your exposure should be reduced, again it should be done at the next opportunity.
What should you do now?
To answer the queries more directly. On the second one, we believe gold is likely to gain some more in the next few months, at least till Diwali, or the successful development of a Covid-19 vaccine. Hence, the impending crash and doom might not be around, just as yet! The uncertainties that caused this rally in prices haven’t disappeared. But remember that gold may or may not follow our advice.
On the first question, if your allocation calls for gold investments, then by all means go ahead. One caution here – the returns are unlikely to be as shiny as they have been in the past couple of years, or more so, in couple of months. In which form you should buy is a different story altogether – just remember that paper or electronic gold is any day better than physical gold for investment purposes.
So, friends, you should not worry too much about these price movements if your basics are in place. Moreover, what suits you might not suit others and reverse too is true.
So, don’t just buy or sell something because someone told you to. Instead, take a reasoned approach. We are here to guide you all and others if need be.