SHOULD I INVEST IN GOLD?

Now that gold prices have zoomed, a common query is “should I invest in gold? Can expect 15 plus over a year?”

Let’s look at history as it has the answer.

Over a long period of time, gold has given an average return of 10.6 per cent, but at times like the last one year, due to unknown reasons, gold rallied substantially and gave a 22 per cent return, pushing the 5-year CAGR to 17.8 per cent. This is the greatest return in the past 80 years.

But when you look at  the overall picture,  after a lull of a few years or low single digit over a few years, gold usually jumps during economic crises and rewards investors handsomely.

It is very difficult to time the market, but for any ordinary investor, it is better to spread the money across different asset classes and increase exposure to gold. That way, even a small rally will earn you decent double-digit returns.

What should you do now?

If you are a long-term investor, continue to invest the same amount every month and increase over the next few years, so that you will be in a position to catch the next rally. The best way is to follow asset location. Invest up to 10 per cent in gold if you are adventurous; 7.5 per cent if you are conservative or at least 5 per cent.

Do not chase this asset class after it has rallied substantially because the return over a longer term will ease out.

For traders, with the rupee at a low, if it depreciates against the US dollar, it will give a decent return over a one-year period.

Data lovers can go through the chart of returns on gold. Compare that against your year of birth and see how much you could have earned had your parents invested then.