5 common behavioural biases to avoid while investing in gold for smarter wealth decisions
While investment in gold is rising amid record prices, behavioural biases like confirmation, herd mentality, and recency bias can mislead investors. Investors should be aware of these biases for sustainable long-term wealth preservation.
Gold prices are on a roll; they have scaled new peaks in September 2025. On Thursday, September 24, the price of 10 grams of 24K gold stood at ₹1,16,770.
This rapid price escalation in the value of gold and the stupendous returns delivered by the yellow metal have resulted in investors flocking to the yellow metal to allocate more units and continue with the dream run.
Given that gold is a trustworthy hedge against inflation and market volatility, emotions and psychology can still often cloud rational thinking in such euphoric times. Behavioural biases can push investors into costly mistakes, especially when driven by fear of missing out or overconfidence. That is why, to ensure wise investments in such cases, it is prudent to recognise these mistakes and avoid falling into common traps and pitfalls which are a direct result of herd mentality.
5 common gold investment behavioural biases you must avoid
I. Confirmation bias
Several investors who suffer from confirmation bias, especially during such euphoric times, are naturally inclined to seek information that supports their beliefs and ideologies that the prices of gold will keep on rising. This selective perception and complete devotion to the ongoing rally blinds them to risks and alternative viewpoints. A rational investor should never lose their calm and must consider both the positive and negative data points before making decisions.
II. Overconfidence bias
Past rallies and profits from such rallies in gold prices can often lead investors to presume that they can predict future price movements. This apparently sound faith can be extremely dangerous going ahead, as overconfidence can result in excessive investments without proper due diligence and research. A sensible approach with realistic goals and well-planned portfolio diversification is the key here.
III. Bandwagon bias or herd mentality
When prices of any asset class rise, several investors blindly follow the crowd out of fear that they might miss out. This concept is also known as the fear of missing out, i.e., FOMO, where investors flock to an asset class based on greed and herd movement.
On the contrary, during economic recessions, panic selling increases economic losses, but in this case, as well, it is led by the herd. The dot-com stock rally of 2000-01 was one such FOMO-based rally. In such cases, it is best to depend on independent analysis aligned with long-term personal finance goals to avoid herd-driven mistakes that can turn out to be costly later.
IV. Recency bias
Depending too much on recent price trends can be misleading. For example, if gold has been consistently rising for months, investors assume it will continue indefinitely. To deal with such circumstances, one should focus on historical trends, decadal performances and long-term gold cycles rather than short-term fluctuations. Such an approach can help aspiring investors make better decisions. Still, if doubts persist, one should not hesitate to discuss them with certified financial advisors.
V. Loss aversion bias
There are investors who fear losses more than they value gains. This causes them to hold onto poor investments or avoid entering the market altogether. Setting stop-losses, constantly monitoring the performance of different asset classes, and evaluating overall portfolio performance help curb this emotional trap.
Hence, by staying aware of these common biases and emotional traps, investors can always stay one step ahead and harness gold’s true potential as a wealth-preserving asset rather than falling prey to purely speculative and emotion-driven decisions in a volatile market. As gold continues to scale new highs, this might just be the time for investors to take a pause and review their overall portfolios.
Disclaimer: This article is for informational purposes only and is not investment advice. Gold investments are subject to market risks. Past performance does not guarantee future results. Please consult a certified financial advisor before investing.