Gold is shining brightly. Now, don’t start chasing this precious metal
₹ 1 lakh per 10gm. That is approximately 50% higher than today’s level. While I don’t know whether this target will be met or not, I am certain that the way investing in gold is being approached now (and also in the days and weeks to come), is probably going to be sub-optimal.
That’s just saying ‘wrong’ in a gentler way. Why do I say that? Well, let’s step back for a moment and see what happened to stocks. Typically, investors should have some exposure to smallcaps and midcaps.
It’s the high risk-high return segment of your portfolio. If it works out, well, it adds to overall returns. If it does not, you are ok since you did not go overboard.
But then this is not what happens. Investors chase momentum and end up with irrationally high allocations. So, yes, as long as the tide keeps rising, they make a lot of money.
But sooner or later the core nature of such stocks catches up and investors take a big hit. The approach towards gold, too, is generally misplaced. Let me start by sharing some statistics on gold that you often see quoted in social media posts (with one addition—the price of gold in US dollars).
As you can see, the case for gold (in Indian rupees) is very strong when compared to the performance of the BSE Sensex. Why take all the risk when you can simply buy and hold gold and earn the same return? (If we include dividends, the Sensex returns would be marginally higher.) Having said that, most social posts are silent on how the price of gold moved in the international market, i.e. in US dollar terms.
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