Time to Sell Stocks and Buy Gold?

A few years ago, people would have been sceptical of the gold price exceeding and sustaining comfortably above Rs 100,000 per 10 gm.

In fact, most would have predicted a correction if the yellow metal hit 6 digits.

Not only was there no correction for a long time after gold crossed the 1 lakh mark, even the small decline that stated in mid-October 2025 didn't last long. The price of gold is at all-time highs again.

Just look at the chart of the gold price over the last three years...

An Incredible Rise

The gold bulls are certainly in control of the price right now. Rs 1.5 lakh per 10 gm is in sight. Can it hit 2 lakh this year? If the ongoing momentum sustains, it is possible.

The gold bulls can be forgiven for thinking that the price will keep rising. After all, the recent gains have been truly spectacular...especially compared to stocks.

Back in 2024, gold delivered 20% compared to the Nifty's 8.7% gain.

And 2025 saw the upward momentum continue. From about Rs 78,000 to Rs 133,000, the price, went up about 70% till mid-October before a short-lived correction.

In fact, since late July 2024, the gold price has moved up from around Rs 68,000 to Rs 1.45 lakh. That was a rise of 132% in a little over 14 months.

If we go back a little further, the price has been moving up sharply since February 2024 from 64,000 levels. That was a stunning gain of 108% in 20 months.

But can gold really sustain such gains? And can it beat stock market returns?

First let's examine the outlook for gold this year and beyond.

Gold Price Outlook

Can gold continue to rise in the short term?

The simple answer is yes it can. The upward momentum in the price is very strong.

But could the price momentum sustain throughout 2026 and beyond?

All kinds of predictions and forecasts about the gold price have already been made by many so called 'experts'. We avoid making predictions in our editorials.

But we will say this...

The future price of gold will depend on the sustainability of the underlying factors that are driving up the price now.

What are these factors?

There are 3 main ones we can identify.

#1 Fallout of US Trade Policies

Gold has always been a safe haven asset. People flock to gold either when times are tough or when there is uncertainty in financial markets.

Uncertainty has increased due to US President Donald Trump's tariff policies. This creates a degree of concern in financial markets because market hate uncertainty.

There is also inflation to consider. Trump's policies have had the effect of increasing the rate of inflation US, at least in the short term. For now, inflation has not spiked too much in the US. But this will remain a concern as long as tariffs remain in place.

Gold has always been an effective hedge against inflation throughout history.

There are also some concern that the US economy could end up a recession in 2026. This is in the context of both geopolitical and trade risks. Gold typically does well when there is talk of a recession.

#2 Geopolitics

The US action in Venezuela was a huge wake up call for those who thought that if peace agreements are put in place in hotspots like Gaza and Ukraine, gold will lose some of its attractiveness.

Despite a peace agreement in Gaza, the recent events in Yemen and Iran have only resulted in higher tensions in the region.

The Middle East has proven to be a hot potato for financial markets. The last thing financial markets want is another war in this region. If there is a resumption in hostilities in the reason, gold will rise.

Gold has always been seen as a means to preserve wealth in times of political turmoil. During such times throughout history, people have chosen to hold on their wealth in physical gold instead of any other asset. This won't change in the foreseeable future.

It's safe to say that after the events of the last two years, the bullion market is keeping a hawk eye on events in the Middle East.

#3 Speculation and FOMO

And then there is good old speculation.

Sometimes, the price of an asset goes up just because it's going up.

Buy that we mean people buy because they think the price will go up due to the buying of others. They just want to tag along for the ride.

In financial language, this is called surfing the price momentum. The 'extra' buying of these short term traders adds to the upward price momentum.

There is also FOMO (fear of missing out) at play here.

Fear can make asset prices move both ways. It causes people to sell when prices start going down but it can also cause people to buy.

This is due to traders feeling they are missing out on some easy, short term profits. The thinking goes, 'If others are making easy money, why shouldn't I?'

If you are tempted to buy gold now, you should be aware that speculation is unreliable. You can't depend on speculators taking up the price, so that you can ride along and make easy profits.

That's not how financial markets work. If that were possible, then every trader would be rich. But that is not the case.

Should You Sell Stocks to Buy Gold?

We believe, investors should not get carried away by big price moves. The reason is the same for stocks prices as well as gold prices.

When everyone in the market is talking about a rising price of gold - Rs 2 lakh target prices, etc - it's easy to forget that the opposite can also happen.

The bulls may have the upper hand but investors should carefully watch out for any potential changes to the underlying factors driving up gold. If these changes are significant, then the gold price will fall.

At Equitymaster, we believe in having 5-10% of one's portfolio in gold at all times. But investors should not see gold as a potential substitute for any other asset.

This is certainly the case with stocks. Equities are a vital asset in your portfolio.

Don't be tempted to sell stocks to buy gold. Investors should not see the two asset classes as potential substitutes for one another.

If you're a long term investor and have bought fundamentally strong stocks at reasonable valuations, then you don't need to do anything. You're already in a good position to create long term wealth.

Just be sure to periodically check your portfolio for any stocks which have become highly overvalued and for cases in which the underlying fundamentals of the company have deteriorated.

To conclude, we will say that makes sense to hold some gold in one's long-term portfolio, but it does not make sense to speculate on its price.

Do your due diligence before making any financial investment.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...