Though gold is no longer a hedge against inflation, it still is a cushion to fall back upon during uncertainty and turmoil. When the Ukraine crisis happened, gold prices spiked. They have declined a bit from the March highs but investors have still made about 11% in the past one year. “For now, international gold prices will continue to be pulled in different directions as investors struggle to determine which has bigger implications for the metal: sky-high inflation, potential recession, and other geopolitical and economic repercussions of the Russia-Ukraine war or higher yields and stronger dollar thanks to monetary tightening by the Fed,” says Ghazal Jain, Associate Fund Manager – Alternative Investments, Quantum AMC. “Put about 5-10% of your investment portfolio in gold. It can give you returns of 100-150 basis points above the inflation level,” says Harshad Chetanwala, Co-Founder of financial planning and wealth advisory fi rm MyWealthGrowth.com.
Though this might appear attractive, keep in mind that investing in gold also has opportunity costs. “When inflation is high and interest rates are hiked, the opportunity cost of holding gold also goes up,” says V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
This is why sovereign gold bonds score over other gold investments. The investor gets an additional 2.5% interest every year over and above the price appreciation of the metal. They also score over gold ETFs as there are no fund management charges. What’s more, there is no capital gains tax if held till maturity.