Buying gold? Go by how much your portfolio needs, not by bullion rate

Gold recently raced past Rs 1 lakh per 10 grams — then stumbled. Should you chase the rally, cash out, or sit tight? The glitter of gold often blinds investors, but the real key lies in allocation, not prediction.

On June 18 this year, 24-carat gold, including GST, surged to a record high of Rs 103,000 per 10 g (i.e., Rs 10,300 per gram) in Kolkata, driven by geopolitical tensions and strong investor demand.

As of June 30, 2025, gold prices had retreated by about Rs 5,600 from the peak to around Rs 93,000 per 10 g, with some analysts suggesting this is a possible peak and recommending to sell.

Investors in a fix

When the gold price was galloping, some investors felt that they had missed the bus. However investors who have already invested in gold are also in a dilemma whether to book profit or to hold or to add gold further to the portfolio.

But any decision to buy or to hold or to sell is basically based on the future price expectation and the level of exposure already held by an individual.

Also read: Why India needs to reevaluate its reliance on gold investments

But who can accurately predict the future price of gold when lots of uncertainty exists in the political and economic landscape world over?

Trying to predict the price of gold or stocks is like trying to guess which way a cat will jump—except the cat is drunk, on fire, and riding a skateboard.

Asking someone to predict gold prices is like asking a weather reporter to forecast a coin toss during a hurricane. Market predictions are like horoscopes—vague, occasionally right, and always entertaining.

Ebb and flow

Here an attempt is made to help the investors to make informed decisions.

First, the price of gold does not move in any linear fashion. There are ups and downs.

Here are the calendar years in the past 50 years (since 1975) when the average annual price of 24 karat gold in India fell compared to the previous year:

One can see the following trend prevailed:

1976 saw the steepest drop in this period (–20 per cent), likely reflecting global gold market corrections during that time.

The late 1990s (1997–1998) also saw significant falls (–8 per cent and –14 per cent), tied to ebbs in global gold sentiment and price adjustments.

Also read: Gold crosses Rs 1 lakh mark; Israel's strike on Iran triggers buying frenzy

Early 2010s downturns (2013–2015) coincided with gold prices cooling down after a strong rally.

Out of 50 years, on nine occasions, the price has fallen. It means that the fall has happened in 18 per cent of the years.

But remember that all these statistics may not help you to predict the price next year. So, what is the solution?

Here comes the role of asset allocation in one’s portfolio.

Asset allocation

Investors can be grouped based on risk tolerance level. The ideal allocation of gold in an investment portfolio depends on the investor's risk tolerance, investment goals, time horizon, and market conditions.

Below is a general guideline for gold allocation based on risk categories of investors:

Conservative Investors (with low risk tolerance)

Gold Allocation can be between 10 to 15 per cent.

Reasoning:

• Conservative investors prioritise capital preservation.
• Gold acts as a hedge against inflation, currency devaluation, and market volatility.
• A higher allocation helps reduce portfolio risk during downturns.

Moderate Investors (with balanced risk tolerance)

Gold Allocation can be between 5 and 10 per cent.

Watch: RBI’s new gold loan rules: Help or hassle? Economist Prabhakar explains

Reasoning:

• These investors seek a mix of growth and stability.
• Gold serves as a diversifier but shouldn't overshadow equity and fixed-income components.
• Maintains a balance between safety and growth potential.

Aggressive Investors (with high-risk tolerance)

Gold Allocation can be between 0 to 5 per cent

Reasoning:

• Aggressive investors aim for maximum returns, often through equities and alternatives.
• Gold has lower long-term returns compared to equities.
• Small allocation may be used purely for diversification or inflation hedge.

So, based on your risk tolerance level, make the allocation of gold investment and stick to the allocation, whatever may be the past return. Don’t let last year’s gold rush dictate this year’s decisions. Stick to your risk-based allocation—even if gold shines brighter than your equity portfolio.

In short, discipline in maintaining the asset allocation level based on risk tolerance and investment goals is the key to success in investment.

Other factors to consider

Here are the key factors to keep in mind, which may have an impact on the price of gold.

Inflation expectations: Higher inflation expectations may force people to allocate more gold. In the near term, lower inflation is expected in India and the RBI is making monetary policy decisions based on lower inflation expectations.

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Interest rates: Raising interest rates means fewer gold investment as investors may try to get the advantage of higher interest (opportunity cost). It is expected that the interest rates in the near future may not go up as RBI is not expecting any higher inflation.

Geopolitical risks

Whenever there are higher geopolitical risks, people may invest more in gold. No one can exactly predict the geopolitical risks in the coming days.

Portfolio size

Larger portfolios may use gold for wealth preservation. Central Banks of different countries are adding up gold allocation, which will have a bearing on the price of gold.

What’s the bottom line?

Gold is a valuable piece of the investment puzzle—but not the whole picture. Instead of trying to time the market, focus on disciplined allocation based on your personal risk profile. Let your strategy—not the price ticker—drive your decisions.

(The views expressed here are the author's, and do not constitute investment advice.)