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Should we Invest in Gold now

Is this the right time to invest in gold?

This is a common question in every Indian household. The usual answer is yes. In fact, many people don't bother with this question. They just buy gold without a thought.

Such is the trust Indians have in gold.

But as financial markets evolve and Indians become more sophisticated investors and traders, we are increasingly asking this question.

Well the answer lies in your reason for investing in gold. Why do you want to buy gold?

Are you investing for the long term? Are you trying to diversify your portfolio? Do you want to speculate on the gold price? Are buy buying gold because of a wedding in the family?

The answer to these questions will decide the timing of your purchase.

If you're a long term investor, a good strategy is to buy gold on dips. Whenever gold falls 10% or more consider making a purchase. Overtime, this should be quite profitable.

If you want to diversify your portfolio, you could consider buying gold almost any time. The goal here is to introduce another asset (gold) into your portfolio or to increase gold's share of your portfolio. You should do this if the amount of gold in your portfolio is low (below 5%) or is non-existent.

At Equitymaster, we suggest our subscribers to hold at least 5-10% of their total investments in gold.

Some people might prefer a higher share of gold (15-20%) in their portfolio because they give great importance to capital preservation.

If you're speculating then you should attempt to time the market correctly which is not an easy task. On the long side, you should attempt to enter gold when it has just begun a rally. On the short side, you should attempt to enter when it has just begun a decline.

If you're buying gold for a wedding in the family, your timing will depend on how close the wedding is and if you will buy gold only on certain religiously important days. The price would be a secondary consideration.

In this case planning ahead for the wedding and accumulating gold slowly over many years will greatly reduce the financial burden.

To know more about gold, check out our article on how to invest in gold here: How to Invest in Gold?

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