Gold has maintained its status as a trusted asset class for Indian investors, especially during market uncertainty. In early 2025, with geopolitical tensions, inflationary pressures, and shifting global interest rates, gold’s relevance has again come into focus. Whether you’re looking to hedge risk or diversify your investments, determining how much gold to own depends on your financial goals, risk profile, and market outlook. This blog explains how gold fits into a diversified portfolio and how to decide on an optimal allocation.
Why does gold remain relevant in today’s market conditions?
Gold’s relevance in 2025 is underscored by its ability to retain value during global uncertainty. It has shown strong performance during:
- Periods of high inflation
- Currency depreciation (like INR weakening against USD)
- Geopolitical instability and financial crises
Indian investors have long relied on gold not just for wealth preservation but also for liquidity in emergencies, inter-generational transfer of wealth, and as a cultural asset. Its dual financial and emotional investment role makes it uniquely significant in Indian portfolios.
How has gold historically performed as an investment?
While gold may not consistently outperform equities in bull markets, its long-term value preservation is well documented:
- In the last twenty years, gold has delivered an average annualised return of around 10% in INR, consistently outperforming inflation.
- During the 2008 global financial crisis, gold surged nearly 25% when equity markets collapsed.
- In 2020, gold gained over 27% amid pandemic-related uncertainty. These patterns show gold’s strength during systemic risk periods and its role as a strategic diversifier.
How does gold provide inflation protection?
Gold’s value often rises when inflation erodes the purchasing power of fiat currencies. As a tangible asset, gold maintains intrinsic value and becomes more attractive when central banks pursue loose monetary policy.
- Unlike cash or fixed-income instruments, gold is not eroded by inflation.
- It reflects the loss in currency value and acts as a real asset hedge.
- This makes gold especially useful in emerging markets like India, where inflation can be structurally higher.
In this context, gold is not just a crisis hedge but also long-term protection against declining actual returns from other asset classes.
How much gold should you allocate to your portfolio?
While there’s no universal allocation, most financial planners recommend 5% to 10%, based on:
- Risk appetite: Conservative investors may go up to 15% in volatile periods.
- Age & investment horizon: Younger investors may opt for lower gold allocation in favour of growth assets.
- Existing diversification: Investors with high equity exposure may benefit more from gold’s negative correlation.
Gold should not dominate your portfolio, but be an insurance asset to balance equity and bond market risks.
How does gold compare to other defensive assets like bonds?
| Asset Class | Income | Risk | Inflation Protection | Role in Portfolio |
| Gold | None | Medium | Strong | Hedge, store of value |
| Government Bonds | Yes | Low | Moderate | Income, capital safety |
| Equity | Yes | High | Varies | Growth, wealth creation |
While gold and bonds reduce overall risk, gold is better during inflation shocks and currency weakness, whereas bonds are suited for predictable income and capital protection.
What are the best ways to invest in gold in India?
Gold investments can be classified into:
- Sovereign Gold Bonds (SGBs):
- Issued by RBI, backed by the Government of India
- Offers 2.5% annual interest and capital appreciation
- No capital gains tax if held till maturity (8 years)
- Issued by RBI, backed by the Government of India
- Gold ETFs & Mutual Funds:
- Traded on stock exchanges
- Low cost, highly liquid, ideal for tactical allocation
- Reflect real-time gold prices.
- Traded on stock exchanges
- Digital Gold:
- Offered via fintech apps
- Allows buying small quantities (as low as ₹1)
- Stored in insured vaults by the provider
- Offered via fintech apps
- Physical Gold (Coins, Bars, Jewellery):
- Tangible and culturally significant
- Carrying, making charges, purity risks, and storage costs
- Best for personal or gifting use, not a high-return investment
- Tangible and culturally significant
When should you adjust your gold allocation?
Adjust gold exposure based on:
Increase when:
- Inflation is rising
- Global risk sentiment is negative.
- The rupee is depreciating.
- Equity valuations are stretched.
Reduce when:
- Market stability returns.
- Interest rates are high (making bonds more attractive).
- Gold prices become overheated or overbought.
Gold allocation should complement market cycles, not chase price movements.
Strengthening Your Portfolio with the Right Gold Allocation
Gold continues to play a strategic role in Indian portfolios in 2025, primarily for risk diversification and inflation protection. While it lacks income-generation capacity, its value lies in reducing portfolio volatility and providing downside protection. A clever mix of Sovereign Gold Bonds, ETFs, or digital gold can help you gain exposure efficiently, without the drawbacks of physical storage. With the proper allocation—typically 5% to 10%—gold can enhance portfolio resilience without sacrificing long-term growth.
Streetgains offers well-researched insights to help you evaluate where gold fits into your broader investment strategy.
Disclaimer:
The content in this blog is intended for informational purposes only and does not constitute investment advice, stock recommendations, or trade calls by Streetgains. The securities and examples mentioned are purely for illustration and are not recommendatory.
Investments in the securities market are subject to market risks. Please read all related documents carefully before investing.
Gold Investment Strategy FAQs:
Gold is widely seen as a safe-haven because it tends to retain or even increase in value during periods of economic turmoil, market volatility, or geopolitical conflict. Unlike stocks or currencies, gold is not tied to the performance of any single economy or financial system. Its universal acceptance, limited supply, and historical performance make it a preferred choice during uncertain times.
Gold typically has lower volatility than equities and does not produce income like bonds. However, it performs well during inflationary phases and periods of market distress. Stocks offer higher long-term returns, while bonds provide regular income, making gold a valuable complement rather than a substitute for these assets.
A general recommendation is to allocate 5% to 10% of a diversified portfolio to gold. This allocation can help significantly reduce overall risk when other assets underperform. This proportion may be slightly increased for conservative investors or during high-inflation periods, but overexposure can limit overall portfolio growth.
Depending on your investment goals, gold can serve both purposes. As a long-term holding, it preserves purchasing power and reduces portfolio volatility. In the short term, gold acts as a hedge against inflation, currency depreciation, and equity market corrections, offering protection when other assets are under pressure.
Investors can choose from Sovereign Gold Bonds (SGBs), Gold ETFs, digital gold, gold mutual funds, and physical gold (coins, bars, or jewellery). Each mode has different cost structures, liquidity levels, and taxation rules. While SGBs are ideal for long-term investors, ETFs and digital gold offer flexibility and ease of trading.
Physical gold offers emotional satisfaction and tangible ownership but comes with concerns like purity, storage, and insurance. It is also less liquid and often includes making or wastage charges. In contrast, Gold ETFs are traded like stocks, are highly liquid, have transparent pricing, and are suitable for portfolio allocation without physical handling.
Gold mining stocks provide leveraged exposure to the gold price, meaning they may rise or fall more sharply than gold. However, they are subject to company-specific risks, operational challenges, and broader equity market movements. While they can complement a portfolio, they don’t offer the same diversification or capital preservation benefits as direct gold exposure.
Streetgains provides research-based insights on asset trends, including gold, using macro indicators, sentiment analysis, and historical data. Based on evolving market conditions, this helps investors decide when and how much gold to include in their portfolios.
FAQs:
Subscribe to our Credits-Based Research System:
Pay only for successful research calls!
