Our love for Gold is not today’s fad. For a very long time, we have been using Gold for many different reasons. However, with time the reason for the love of Gold is changing. Some may say it is now lower as the financial assets are available. So the question is…

I am starting with it while writing this; equity as an asset class is booming. In India, more investors are coming to equity through Mutual Funds. After a long period of not accepting, the Indian govt’s pension fund, EPFO, is investing its money in equity. Debt is also there to keep in your portfolio with different types like Govt bonds, debenture, T-Bill, convertible and nonconvertible debenture. So the question is, do we forget the real asset while running behind the Financial assets?

The generally accepted formula (100- Age) just ignored Gold. What it all tells you is simple. Deduct your age from 100. Whatever the answer is, it is your expected allocation to equity. The remaining is (though not directly mentioned) debt. That is, Deposits, Money market, and debt market securities. At least I haven’t found anyone telling me this portion in the formula is Gold. Yes. Some advisers advised that keeping 2-5% of your portfolio in Gold is good. But you can hold many other assets like Gems and Jewelry, Land, Art, some alcohol, or Real Estate, which is also present in many investors’ portfolios. Thanks to REIT. So why Gold and is there any particular reason you need to keep Gold, and if yes, in which format? Like Physical Gold, stocks of gold mining or trading companies, ETF, Paper Gold, or Gold bonds issued by Some govt or any other form.

Relationship of Gold with other asset classes and Currency.

  • Gold price and Dollar hold a Strong negative relationship. So if the dollar index is strong and going up, Gold is supposed to go down.
  • Naturally, Gold and Inflation hold a positive relationship. It is called a traditional hedge for inflation. But first, check this
  • Historical evidence is exciting regarding interest rates and Gold prices. Investopedia once again comes to help

with a long-term review of the respective paths and trends of interest rates and gold prices, revealing that no such relationship exists. The correlation between interest rates and the cost of Gold over the past half-century, from 1970 to 2015, has only been about 28%, which is considered insignificant.

A study of the massive bull market in Gold during the 1970s reveals that Gold’s run-up to its all-time high price of the 20th century happened correctly when interest rates rose rapidly.

Read more: The Effect of Fed Fund Rate Hikes on Gold |

  • When it comes to stocks like Indices Dow Jones, Sensex, S&P 500, CAC Dax, and FTSE, it shows a primarily negative relationship.
  • Gold Price is also helpful in determining whether Crude is Cheaper or Expensive.
  • Gold is also used to check what central banks do with their reserves. A simple ratio ( Gold / total replacement) can tell many things if studied in time series.

Industrial Use of Gold

  • The most significant Demand for Gold is for Jewelry. India and China are massive consumers. But recently, while talking with many ladies who are millennials and mentioned that they don’t like Gold. So though I was reading that in 2010, the 51 demand for Gold was from Jewelry, I believe this will change, at least in India. I don’t know about China.
  • The IT hardware industry uses Gold. You can make money by buying iPhone scrap or Telecommunications tower-related machinery, as Gold is used in manufacturing some parts. How much depends on many factors. One calculation will tell you that one cell phone holds 50 milligrams of Gold. So with a straightforward analysis, you can understand that only the cellphone industry, ignoring towers, used $500 million worth of Gold in one year.

https://www.instagram.com/p/BQ-eXIlgGg1

  • There are very few chemicals that react with pure Gold. As a result, it makes Gold a favorite for many businesses.
  • The first book about Dentistry came around 1530, suggesting the use of Gold for filling cavities in teeth with gold leaf. But it has been used since older than that. The reason is Gold is bio-compatible. So you can keep it near your body, and there is no harm. Ancient Chinese and Indian medicinal practices also use it as medicine for many different reasons. Still today, it is used in the treatment of arthritis. It took 22 weeks but made significant relief.

https://www.instagram.com/p/BQ8G5SwA2R9/

Gold as Part of your Portfolio.

Here we come to the actual subject. Though nearly everything is mentioned in the Investopedia tweet, still is it good to keep it in your portfolio in 2017? A simple question. Why will someone add one asset called Gold to the portfolio? The answer is to keep the value locked, which is correctly mentioned in the Investopedia article.

When asked will he having Gold in his portfolio or will he buying Gold or has it right now, Utkarsh Jain, Chief Learning Officer FinTree Education, answered

I wouldn’t want to put my money on gold at this moment. I don’t see a significant upside from the current levels and definitely not a long term investment option , even as a part of AI component of the portfolio

Yes. Agreed. Check a few tweets and comments on the subject.

https://twitter.com/androidashu/status/844840879487574017

Lakshmi Iyer, CIO -Debt, Kotak AMC, and A BALASUBRAMANIAN answer the question.

Yes. Not only FED but many other Banks are deciding it. So maybe we are not going into the low rate region anytime soon.

But what about strategic asset allocation? Will you keep it in your portfolio?

If not Gold, then what?

Till this point, it is clear that Gold is not an investment. It is a hedge against inflation, keeping your wealth stored or consumable in the form of Jewelry. Gold is simple to understand. Buy Gold or any other financial assets tracking the price of Gold like Gold ETF. Futures and Options are not that simple and are now used for speculation. Not Everyone can take a position on exchange. OTC contracts hold their own risk.

Equity may go into the bear market and will not give any return. Debt holds its characteristic properties. It is also not immune to inflation. Here I remembered one statement of Utkarsh Jain. While answering the question, he mentioned that I would think about Gold only if the world was coming to an end.

Defiantly that is not going to happen anytime soon.

So what is the answer?

The vast public says they will not INVEST in Gold. Is gold investment? No. Gold is not an investment. Gold is a hedge.

In many cases, there is hardly any need to keep Gold. You may consider buying the ring for your wife or husband or some other jewelry in sporadic instances in which inflation was sky-high. But still, people found different ways to keep transactions going. Some people who love gold may say it is a commodity and you need to keep it in your portfolio. While checking their argument, I found one Example with which I want to close it.

MRF or Madras Rubber Factory, manufacturer of Tyres. Just assume that you bought a Share of MRF ten years back and Invested the same amount in the Rubber plantation.

I am damn sure that today’s investment value of MRF is far more than Rubber plantation.