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Gold is the one asset most Indian families already own, just in the wrong form, for the wrong reasons, and in proportions that were never really decided. A household buys jewellery for a wedding, inherits some from parents, accumulates more over decades, and one day realizes a substantial part of the family’s wealth is in physical gold sitting in a bank locker. That’s not a deliberate allocation. It’s accumulated exposure that happens to function as a hedge.
I wrote about why gold deserves a place in any sensible portfolio in my post on gold. Here I want to be more specific: how much, when, and in what form.
Why 10% as a baseline
The 10% figure isn’t derived from any formula. It’s a pragmatic number that reflects what gold actually does well and where it falls short.
Gold does not generate income. It pays no dividend, no interest, no rent. Over very long periods, it tends to preserve purchasing power roughly in line with inflation, and in India specifically, it benefits from rupee depreciation against the dollar, since gold is priced globally in dollars. But it is not a compounder. It does not grow the way a business grows. Owning too much of it means having too much capital sitting in an asset that can deliver years or decades of near-zero real returns.
What gold does well is diversify. It tends to behave differently from equity, sometimes negatively correlated, meaning it rises when equity falls. In a crisis scenario, a war, a severe recession, a banking crisis, a sharp currency devaluation, gold typically holds value or appreciates when most other assets are falling. That crisis-hedge property is what makes it worth holding even in a long-run growth-oriented portfolio.
At 10%, gold provides meaningful diversification without becoming so large a position that it drags on long-run returns. If gold is flat for five years, a 10% allocation barely affects your overall portfolio. If equity drops sharply and gold rises 20%, that 10% becomes a stabilizer. That’s the right role for it.
When to hold more
There are specific macro environments where holding more gold makes sense. When inflation is running significantly above historical norms and central banks are behind the curve, gold tends to outperform. When geopolitical stress is high, active conflicts, sanctions, de-dollarization discussions, gold tends to benefit from safe-haven flows. When real interest rates (nominal rates minus inflation) are negative, gold as a non-yielding asset looks relatively more attractive compared to bonds.
I’m not saying you should try to predict macro cycles and time your gold allocation accordingly. Most people are bad at this, and it adds complexity without necessarily adding returns. But if you have a strong, well-reasoned view that we’re entering a period of elevated macro risk, and you want to tactically increase gold from 10% to 15–20%, that is a defensible decision. Just don’t increase it because gold is already running and everyone is talking about it. That’s usually the wrong time.
The envy trap and why it matters for gold
Gold has a particular way of generating envy-driven investment decisions. When gold prices are rising sharply, which they do periodically and dramatically, everyone talks about it. Relatives mention their gold holdings casually over dinner. Business channels run gold price tickers. You see articles about how gold has returned X% this year and feel like you missed something.
That’s the moment when the least sophisticated investors pile into gold. And historically, the big runs in gold are often followed by years of flat or negative real returns. The pattern is not unique to gold, it happens in every asset class, but gold tends to generate particularly visceral envy because of its cultural significance in India and because it’s so visible.
I’ve written about this dynamic in my post on envy and investing. The short version: chasing an asset after it has already risen is not investing, it’s buying someone else’s returns at a higher price. Hold your 10% in gold consistently, rebalance if it drifts significantly above target due to a price run, and resist the urge to increase allocation after the run has already happened.
How to hold it
Physical gold as jewellery is the worst financial form of gold ownership. Making charges of 10–25% mean you immediately lose that percentage of value the moment you buy. Selling jewellery at fair market value is difficult, jewellers discount heavily on buyback. And it sits in a locker earning nothing, subject to theft risk, with the ongoing cost of locker rental.
Gold bars or coins are better than jewellery from a financial standpoint, no making charges or very low ones. But you still face storage and insurance costs, and the bid-ask spread on buying and selling physical gold through jewellers or banks is not transparent.
The Sovereign Gold Bond scheme was the gold standard (so to speak) for financial gold ownership in India, 2.5% annual interest in addition to price appreciation, no capital gains tax on maturity, government-backed. Unfortunately, the government has suspended new SGB issuances. Existing SGBs continue to work well for those who hold them, but you can’t buy new ones at the moment.
Gold ETFs are now the practical default. They track the price of physical gold, are listed on NSE and BSE, and can be bought and sold through your demat account like stocks. The expense ratio is around 0.5–1% per year, higher than Nifty ETFs, but the operational simplicity and elimination of physical storage costs makes it worthwhile for most investors. Nippon India Gold BeES (GOLDBEES) and HDFC Gold ETF are the most liquid options.
Gold mutual funds (Gold Fund of Funds) invest in Gold ETFs but allow you to invest without a demat account, via SIP directly through a mutual fund platform. The cost is slightly higher (expense ratio of the FoF plus the underlying ETF), but it’s the right option if you don’t have or don’t want a demat account.
Putting it in context
Gold is one piece of a larger allocation. In the framework I use, equity, debt, and gold, it’s the smallest allocation for most people at most stages of life. It’s there because it does something the other two don’t: it provides insurance against tail risks that equity and debt both suffer in simultaneously. That insurance has a cost (no income, moderate long-run returns), and the 10% allocation reflects the appropriate amount of portfolio insurance rather than a bet on gold outperforming.
Think of it that way, as portfolio insurance, and the 10% number will feel more intuitive. You don’t allocate 50% of your home’s value to home insurance. You allocate what it costs to feel protected. 10% in gold is roughly that level for most portfolios.
Practical takeaway: If you own significant gold jewellery, calculate its approximate melt value and add it to your portfolio’s gold allocation. If it’s already above 15–20% of your financial net worth, don’t buy more financial gold, you have enough. The jewellery already gives you the hedge.
This post is for educational purposes only. It is not financial advice. Mohit Mehra is not a SEBI registered investment advisor. Please consult a qualified financial advisor before making investment decisions.