Don’t Get Swayed, Keep Gold in Right Mix to Balance Portfolio
With uncertainty over gold price movement, experts advise investors to focus on asset allocation strategy instead of market conditions to take a call on the precious metal, says Preeti Kulkarni
Is gold going to tumble further? Many gold investors are wondering about the future prospects of the yellow metal, after it lost ground after the Reserve Bank of India (RBI) eased import norms last week. Some investors are almost convinced that gold will lose more glitter in coming days, as the new government is expected to reduce Customs duty on gold and the rupee will gain further on robust inflows. Many analysts also expect the new government to ease import restrictions further. Since the restrictions were temporary, a gradual relaxation and consequent price drop are expected, they say.
“There is an expectation in the market that with the new government, there would be a gradual relaxation in restrictions and levies. There could be a fall in domestic prices to that extent, given other things remaining same. The recent RBI notification was seen as a step in this direction,” says Chirag Mehta, fund manager, commodities, Quantum Mutual Fund. In the international market, too, experts do not see any triggers for a rise in gold prices.
“Globally, prices will remain soft, though the fall is unlikely to be sharp. In rupee terms, gold will slide further as the new government eases import restrictions im- posed last year,” says Raghvendra Nath, managing director, Ladderup Wealth Management. The yellow metal dropped to .` 27,850 per ten gram on Friday. On Monday, it rose marginally to .` 27,870.
Sell, Hold or Buy?
Though gold gained 4.5% last year until February, it has been sliding since then, and is no more considered a must in the portfolio of an average investor. However, many investors would be continuing with their allocation to gold and some
such decisions should be based on your goals and investment horizon
can consider offloading surplus holdings
strategy, aligned to your financial goals, should be the determinant
An allocation of 5-10%
towards gold in a retail investor’s portfolio is recommended still have a sizeable chunk of gold in their portfolio. Gold was on everybody’s investment list until a few years ago when the precious metal had given returns of over 15% in 2008 and 2010. “Around four to five years ago, many retail investors invested heavily in gold, thanks to the frenzy for the precious metal then. They typically tend to chase the asset class that is doing well. Many also assumed that gold prices can never fall, despite evidence to the contrary. In the last two years, as returns turned lacklustre, they devel- oped apathy towards gold,” says certified financial planner Suresh Sadagopan, founder, Ladder7 Financial Advisories. He adds that investors should stop getting swayed by the market movements and stick to their asset allocation mix. Financial advisors want investors to focus on their asset allocation strategy than the market conditions to take a call on gold. “It's traders who have to take calls on the basis of short-term movements. The prices were expected to fall in any case,” says Kishore Narne, associate director, Motilal Oswal Financial Services. Narne continues to believe that a retail investor should have an allocation of 10-15% towards gold, as it can act as cushion against economic turbulence. He asks investors to wait till the prices go down to .` 24,000-24,500 and start investing. Sadagopan says investors should base their decision to sell gold on their asset allocation goals. However, this would mean settling for lower profits or even stomaching some losses. If you have invested in gold to diversify your portfolio and the allocation is within the limit, you don’t have to sell your holdings now, say experts.