Gold rates breached the Rs 50,000 per 10 gms mark for the first time in history. Price of the yellow metal has surged more than 28% during this year. We made a case for a Gold allocation in your portfolio last October premised on two factors –
1/ Gold has positive and inflation-beating expected returns in the long run while having a very low correlation with equity markets. So gold does well in times of distress in the equity markets – times such as a pandemic, war, trade war etc.
2/ Gold is priced in USD and thus also acts as a currency hedge against INR depreciation.
What we had written then was –
What gold loses in return expectation it more than makes up for in correlation and thus diversification benefits. Gold, you see, is a team player. And at times when Nifty 50 is not performing due to crash fears, wars, natural hazards or disasters, gold does well.
It helps you tide over the bad times much better. Or you could say, when the going gets tough, gold gets going.
In the past 29 years of data, the correlation of monthly gold returns and monthly Nifty50 returns is just 0.3%!
Both the above factors, in our opinion make Gold a strong candidate for inclusion in your wealth portfolio.
Source: goldprice.org | Till June 2020
We believe a 10 – 15% gold allocation is ideal for most investors. But the recent rally in gold (chart above) and the subsequent interest of investors in gold has us worried. It seems like we are being guilty of some return chasing here – what we call the behaviour gap.
So what does an investor do?
1/ You may already have a gold allocation through family jewellery. Start tracking it here
2/ Increase your gold allocation for the right reasons – to diversify your portfolio and to add an INR depreciation hedge. Don’t add gold for quick riches based on recent returns as they may or may not come.
3/ If you already had a substantial gold allocation, then this is the time to sell parts of it to rebalance into debt and equity. Yeah, always rebalance based on your asset allocation.
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Announcement
1/ Indiabulls Mutual Fund has appointed Ambar Maheshwari as a Whole-time Director on the Board of Indiabulls Asset Management Company Limited.
2/ In a move to increase transparency, SEBI has mandated fortnightly portfolio disclosure for debt funds. In its circular, the market regulator has mandated that debt mutual funds disclose their portfolio every 15 days, from the current 30 days. Additionally, SEBI has mandated disclosure of yields of all underlying securities. At present, mutual fund schemes typically disclose the yield of the entire portfolio and not of individual securities. These changes would come into effect from October 1, 2020.
Quote of the week:
Don’t gain the world and lose your soul;
Wisdom is better than silver and gold.
: Bob Marley.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
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