Should you start investing in gold as global financial order shifts?

In India, gold is not just an investment but also a symbol of wealth and security. Its dual role as a financial asset and a cultural commodity makes it especially appealing

In recent years, central banks have significantly increased their gold reserves, driven by factors such as rising inflation, falling interest rates, and global economic uncertainties. In 2024, central banks added 1,045 metric tonnes to global gold reserves.

 

Top 5 countries and their gold reserves (in tonnes) in 2024

 

Country	Total Gold Reserves Tonnes
United States of America	8,133.46
Germany	3,351.53
China	2,279.56
Switzerland	1,039.94
India	876.18

  Source: Anand Rathi Wealth Limited  This notable increase highlights a strategic shift toward gold as a key reserve asset, in line with the global trend of de-dollarisation and efforts to build resilience amid ongoing geopolitical and economic uncertainty.

 

To strengthen their financial positions, central banks are increasingly purchasing gold to safeguard their reserves during turbulent times. This movement was notably initiated by China, aiming to reduce its reliance on the US dollar, which dominates global currency markets.

 

A major reason behind this strategy is that gold serves as a hedge against currency fluctuations and economic instability. In today’s climate of heightened geopolitical tension, gold is viewed as a dependable investment that remains independent of any single currency or government.

 

Should investors follow suit and increase their investments in gold?

 

“Gold is considered a safe-haven asset class, which witnesses robust demand and increased fund flows during times of economic uncertainty. After Trump’s tariff announcements, significant disruptions have been observed across the globe, leaving investors in a wait-and-watch mode,” said Colin Shah, MD, Kama Jewelry.

 

“It is important to look at the overall portfolio of an investor. We suggest investors to maintain a balanced portfolio, with an asset allocation of 80:20 in equity to debt/gold. But overall, gold should not exceed 5-10 per cent of one's portfolio,” said Chethan Shenoy, director & head - Product & Research, Anand Rathi Wealth Limited.

 

Returns of Gold vs Nifty 50 over the years

 

Timeline of return	1999-04	2004-09	2009-14	2014-19	2019-TTM
Gold	7.29 per cent	16.87 per cent	17.03 per cent	1.73 per cent	17.44 per cent
Nifty 50	16.51 per cent	9.67 per cent	15.75 per cent	11.60 per cent	18.78 per cent

 

Source: investing.com & niftyindices.com, compiled by Anand Rathi Wealth Limited

  Gold has also not been a consistent performer when compared to equity. Gold’s returns have fluctuated widely over a 5-year period, with a low of just 1.73 per cent, highlighting its volatility. Considering recent market fluctuations and the rise in demand, gold’s prices remain unpredictable, which makes it a less dependable asset class for investment compared to Nifty, which has shown stable and consistent returns over the last 25 years.

 

It is also observed that Indian households and investors have a much higher allocation to gold than investors worldwide.

 

“If we take a look at the risk-adjusted return of Gold vs Nifty 50, we can see from the above table that Nifty has delivered better returns while adjusting risk in a 5-year time frame with a higher efficiency ratio. Hence, higher allocation to equity would provide better return and benefits for an investor,” Shenoy said.

 

“In the near future, four factors will push gold prices up. Ongoing uncertainty due to trade war, and further escalation, risk of developed nations specially the US, slipping into a recession, geopolitical tensions between Russia and Ukraine, and the Middle East, and Central banks buying gold. This will push gold prices upwards, adding sheen to its long-term appeal. Hence, it is advisable to invest in gold during these times as it provides a hedge to the portfolio and safeguards it from potential losses. We also reiterate our view on gold prices to hit the Rs 1 lakh/10 gms mark domestically and USD 3200/Oz mark globally.” Shah said.