Gold hits record high. Should you still buy?

Gold is sparkling again.

Prices have surged to all-time highs. On April 17, 2025, gold hit a new lifetime high, stirring renewed investor interest.

As headlines scream "safe haven," it's only natural to wonder—should you add gold to your portfolio? But before you rush to buy, it's worth remembering: gold isn't just an asset; it's an idea. And how you view that idea can make all the difference.

Why is gold on fire

Several factors have lined up to push gold higher:​

• Trade tariffs and economic policies: The imposition of substantial tariffs by the US has led to concerns over economic growth and inflation. Federal Reserve Chair Jerome Powell warned that these tariffs could significantly impact the economy, prompting investors to seek refuge in gold.
  
• Central bank purchases: Central banks worldwide have significantly increased their gold reserves. In 2024, global central bank gold purchases exceeded 1,000 tonnes for the third consecutive year (as per market data). Notably, China's policy shift allowing insurers to allocate up to 1 per cent of assets to gold could add approximately 255 tonnes to annual demand.
  
• Weaker US dollar: The dollar index has declined, making gold more attractive to investors holding other currencies.
  
• Anticipation of interest rate cuts: Expectations of rate cuts by the US Federal Reserve have reduced the opportunity cost of holding non-yielding assets, such as gold, further boosting its appeal.

Dhirendra Kumar on gold

Our CEO, Dhirendra Kumar, has long worn the badge of a gold sceptic. He often echoed Buffett's view—gold is shiny but unproductive.

However, he admits the landscape is shifting. "The freezing of Russian central bank assets made countries realise that dollar reserves carry political risk," he writes in one of his latest columns. "In response, central banks have ramped up gold buying. This isn't mere speculation—it points to deeper shifts in the global monetary system."

So, should you buy now?

Tempting as it may be to chase gold after its recent run-up, it's important to pause and think about its role in your portfolio.

Gold isn't a growth asset. It doesn't generate income like dividends or interest. It simply sits there, looking shiny and occasionally appreciating. That's why Dhirendra Kumar consistently refers to gold as a hedge, not an investment. It's best used to protect your portfolio during uncertain times, not to power its returns.

So, consider gold only if you're underexposed. For most investors, an allocation of 5-10 per cent of the total portfolio is more than enough. That's just enough to add a layer of safety, without dragging down overall returns.

What's the best way to invest in gold?

If you're convinced about adding gold, make smart choices. Avoid physical gold for investment; it's better suited for cultural or decorative use. Investment-wise, it's inefficient and prone to extra charges.

• Sovereign gold bonds (SGBs) are the most efficient option, offering 2.5 per cent annual interest over and above appreciation and tax-free maturity gains.
  
• Gold ETFs or mutual funds are next in line, but they come with some costs.

Final word

Yes, gold is glittering again. But don't let the shine blind you. Stick to your asset allocation, keep it simple and remember what gold really is: a portfolio insurance policy.

Suggested reads:
Gold ETF vs gold mutual fund: There's only one right choice!
SGBs are costly now. How else can you invest in gold?
How to buy and sell sovereign gold bonds on stock exchanges

This article was originally published on April 18, 2025.