Use gold to stabilize the portfolio2 min read . Updated: 20 Sep 2019, 10:56 AM IST
- Gold prices have taken a breather in last few days with easing of global trade tensions as US and China meet for trade talks
- A further rate reduction by the US Federal Reserve and the oil supply concerns provided the support for oil prices
The cues for gold prices seem to be mixed. Gold prices have taken a breather in last few days with easing of global trade tensions as US and China meet for the next round of trade talks. On the other hand, a further rate reduction by the US Federal Reserve and the oil supply concerns provided the support for oil prices. How should you move on the allocation to gold that you have in your portfolio?
The allocation to gold in an investor’s portfolio should ideally be part of the asset allocation made from the point of diversification. It helps bring some stability to the portfolio’s returns in periods of uncertainty when other asset classes are performing poorly. Most financial planners limit the exposure to gold between 5%-10% of the portfolio. “Gold is recommended as part of the asset allocation to shield the portfolio at least to some extent from market events when other investment classes may be under stress", said Kalpesh Ashar of Full Circle Financial Planners and Advisors. “The gold allocation is not linked to a goal or for the higher returns that it can generate in some periods", he added. Given that the allocation to gold in the portfolio is low, Asher does not actively manage the exposure in the portfolio by booking profits when there is a steep rise in prices. Do not give in to the temptation to increase your allocation to gold in the portfolio either just because prices are expected to move up. The prices can see a sharp dip too and you may find your portfolio’s returns bearing the brunt of the fall.
If anything, the slide in in the price of gold should help reinforce the idea that investing in gold should not be for the very short-term horizon even if it is a tactical investment move made to benefit from an expected uptrend in gold. Given the volatility in gold prices invest only that much that you can spare to stay invested for a longer period if the price movements go against you. Else, you may have to sell at a loss.
If you are accumulating gold for an identified expense, say gifting gold in a marriage, then you should look out for opportunities to buy. Dilshad Bilimoria, Director of Dilzer Consultants Pvt. Ltd. advices her clients who are seeking to accumulate gold for a future need to consider buying more at dips. But this is possible only if you have surplus that you can use for additional purchases.