Price Crashing: Should You Buy, Sell Or Hold Gold?

First things first, if you are a second by second trader, or a professional who tracks the markets on a day-to-day basis, or even a speculation junkie, please don’t read ahead, this story is not for you.

This is for a retail or lay investor, who does not buy gold for speculative reasons. And, if you are such a person, you probably are getting confused with all the news related to gold prices. While some newspapers headlines tell you to lower your gold holding there are others asking you to buy but cautioning against blindly jumping into buying. So, what should you really do?

Look into your portfolio: Of course international gold prices have fallen as much as 12 percent in the last two weeks or so. In fact, just in the last three days the precious metal has seen around 10 percent price fall. But, even as you keep your eyes on the gold prices, you should first begin with reviewing your total portfolio. “When you construct your portfolio, diversification is the key.Every asset class has a negative correlation with the other,” said Parag Paranjpe, a certified financial planner.


Loosely put, this means when equities were sliding, gold portion of your portfolio was absorbing the shock. Ideally, gold should be in the range of 5-10 percent of your total portfolio. Paranjpe added, “With a 10 percent drop in the value of gold, there’s a good possibility that the overall asset allocation of your portfolio has changed. Which means, the gold portion of your portfolio is underweight, while the equities and debt portion is overweight.”

This means, it’s time for you to re-balance your portfolio. “If your gold asset allocation is under the range of 5-10 percent of the portfolio (which looks like is the case now, due to gold value down), you should buy gold now. Ideally via the SIP route,” says Paranje.

But then you might ask what about all these news about gold may not be a safe-haven in times to come? “Gold is a good hedge against inflation and it’s here to say. Yes, globally we have seen countries offloading gold, but keep in mind, the countries also have the capacity to print more money,” says Paranjepe. This means in the long run, gold will continue to be the safe-haven.  Speculators will speculate and if you are a lay investor, speculation is certainly not your game plan.

What to do: In short, re-balance your portfolio. If you are underweight on gold, buy gold via SIP. If you are overweight, trim the portion, but don’t stop the SIP, just decrease the amount of SIP.

Remember, getting carried away with noise could affect your long-term financial plan. So before you listen to any advice, including ours, get in touch with your financial planner.