Maintain A 10-15 Per Cent Allocation To Gold At All Times

Gold has underperformed in 2021. Year-to-date (up to December 17) it has given a return of -2.8 per cent.

Investors need to understand that gold is essentially a safe haven asset. It tends to do well in a few scenarios: high inflation, slow economic growth, or downturn in the equity market. On the other hand, when the equity markets are performing well, economic growth is strong, and inflation is under control, gold tends to underperform. It also tends to have a negative correlation with the real rate of return.

The pace of vaccination picked up in the latter half of 2021. Economies opened up and returned to the path of revival. The equity markets also performed well this year. All these factors contributed to the negative return from gold in 2021. A number of factors will determine its performance in 2022. On the one hand, global inflation is at a multi-decadal high. In the US, consumer inflation came in at 6.8 per cent in November compared to the year-ago period. This is a positive development for gold, which has traditionally been seen as a hedge against inflation.