Gold in a portfolio — what it does, and what it does not
Gold produces no income and has no earnings. That makes it a poor growth asset and an unusually good one at a specific job.
Gold occupies an odd position: culturally central, financially misunderstood, and usually held in the least efficient form available.
What gold is not
It is not a productive asset. A business generates earnings, a bond pays coupons, property produces rent. Gold produces nothing — its entire return comes from someone paying more for it later.
Over very long periods, gold has broadly preserved purchasing power rather than grown it. That is the honest baseline, and it means gold competing against equity for the growth slot of a portfolio will lose over long horizons.
What gold does well
It is uncorrelated. Gold frequently rises when equities fall, because both are responding to the same fear from opposite sides. An asset that zigs when the portfolio zags reduces overall volatility even if its own return is modest.
It hedges currency weakness. Gold is priced globally in dollars. For a rupee investor, a depreciating rupee raises the rupee gold price independently of what gold itself did — which is a meaningful part of the historical return, and rarely separated out.
It is a crisis asset. In episodes of severe financial stress, gold has typically held or gained while most things fell together.
The form matters more than the allocation
| Form | Notes |
|---|---|
| Jewellery | Making charges of 8 to 25%, lost immediately; purity risk at resale |
| Coins and bars | Storage, insurance, verification at sale; a buy-sell spread |
| Gold ETFs | Exchange traded, low cost, no storage; needs a demat account |
| Gold mutual funds | Fund-of-fund route into ETFs; SIP-able, slightly higher cost |
| Digital gold | Convenient; check the custodian and the spread carefully |
Jewellery is the most common holding and the worst investment vehicle. Making charges are an immediate and unrecoverable loss of a fifth of the purchase in some cases — which means jewellery has to be understood as consumption with a resale value, not as an investment.
Check what it has preserved
A practical position
Five to ten percent of the portfolio, in an ETF or fund rather than metal, rebalanced annually along with everything else. That rebalancing is where most of gold's portfolio benefit actually comes from — selling it after a crisis-driven run to buy equities that just fell is the mechanism, and it only works if the position is small enough to rebalance without drama.
And keep household jewellery out of the investment calculation entirely. It is an asset in your net worth statement, but it is not part of your allocation plan, and treating it as such usually results in being far more exposed to gold than intended.
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.