To avoid Fomo, make a gradual entry into gold but keep a long horizon

Existing investors should book partial profits, rebalance if portfolio allocation has exceeded 10%

- SANJAY KUMAR SINGH & KARTHIK JEROME

Gold touched a record high of ₹1.24 lakh per 10 grams on October 7, according to media reports. It is up 62.4 per cent over the past year. The yellow metal also crossed $4,000 per troy ounce for the first time in the international market.

Central bank purchases a key driver

Central banks are diversifying their reserves away from US dollar holdings. “About 25 to 30 years ago, central banks typically held 75-80 per cent of their reserves in US treasuries. That figure has fallen below 60 per cent and could drop further in the future,” says Vikram Dhawan, head commodities and fund manager, Nippon India Mutual Fund.

A global reset in asset allocation is taking place by institutional and retail investors (besides central banks), which has accelerated after Covid. Those who were previously underweight in gold or not invested at all, except during crises, are now increasing their allocations.

Geopolitical tensions since 2022, trade wars, and macroeconomic uncertainties about inflation, currencies, and interest rates have made gold attractive.

Global debt levels are at historic highs. “Since gold carries no credit risk, it has become a preferred asset,” says Dhawan.

Western central banks’ low interest rate policies and increased chances of rate cut by the US Federal Reserve are also supporting gold. The attractiveness of this nonyielding asset increases when real interest rates decline.

“The US government shutdown has also increased market anxiety, prompting investors to seek refuge in precious metals,” says Saumil Gandhi, senior analyst - commodities, HDFC Securities.