Golden balance: Why gold is a strong hedge but shouldn’t dominate your portfolio
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Dipankar Jakharia
“The yellow metal is shining again!” said a friend of mine, who has hedged gold against his equity investments and is now counting his blessings for doing so. Hedging is a common investment strategy used to manage risk. The idea is to invest in assets that move in opposite directions but are correlated to some extent. This minimises losses when one sector declines. The gold vs. equity approach is one of the most popular methods of counteracting loss in the world of hedging.
However, my perspective is a bit different. Our love for gold is historic, and India has long been one of the world’s largest importers of the metal. In fact, we have consistently ranked second in global gold imports. With prices at an all-time high and a renewed interest in gold likely after the festive season, let us examine gold investment from a historical perspective.
In India, gold has delivered an average annual return of 8-10 per cent over the past fifty years, generally beating inflation in the long run. More importantly, gold has shown greater stability during periods of economic or financial instability. (To be contd)
“The yellow metal is shining again!” said a friend of mine, who has hedged gold against his equity investments and is now counting his blessings for doing so. Hedging is a common investment strategy used to manage risk. The idea is to invest in assets that move in opposite directions but are correlated to some extent. This minimises losses when one sector declines. The gold vs. equity approach is one of the most popular methods of counteracting loss in the world of hedging.
However, my perspective is a bit different. Our love for gold is historic, and India has long been one of the world’s largest importers of the metal. In fact, we have consistently ranked second in global gold imports. With prices at an all-time high and a renewed interest in gold likely after the festive season, let us examine gold investment from a historical perspective.
In India, gold has delivered an average annual return of 8-10 per cent over the past fifty years, generally beating inflation in the long run. More importantly, gold has shown greater stability during periods of economic or financial instability. (To be contd)