Conventional investing wisdom suggests that gold should be held as a hedge against inflation and economic uncertainty, and as a tool for portfolio diversification. However, most experts advise that gold exposure should ideally not exceed 20% of an investor’s portfolio.
The yellow metal’s stellar gains over the past year, however, have challenged this long-standing investment practice.
Data show that gold’s compound annual growth rate (CAGR) in India has been slightly better than that of equities over the last 20 years.
According to Bloomberg data, gold has delivered an impressive 17% CAGR over the last 20 years, compared to 13% CAGR by the Sensex and the Nifty 50 over the same period. The 20-year CAGR of silver is 18%.
Why should gold not dominate one’s portfolio?
The sharp rally in gold over the past year has raised this question again: Should gold have the lion’s share in one’s portfolio?
This question can be addressed by understanding how gold prices move.
Gold typically acts as a hedge against inflation, currency volatility and geopolitical risks, helping cushion portfolios during turbulent phases.
A better CAGR over the last 20 years should not be perceived as gold is a better long-term wealth-building asset than equities.
The CAGR does not tell us about the periods of volatility or lull, and whether gold will extend its current bullish phase.
Gold rates tend to rise in times of high geopolitical and geoeconomic risks, elevated inflation, wars, lower interest rates, currency weakness, and stock market crashes.
Gold’s last 20 years’ performance was driven by the Global Financial Crisis of 2008, the Covid pandemic, the Russia-Ukraine war, monetary easing, persistent inflation, and US tariffs.
So, we can’t say gold can repeat its last 20 years’ performance. It can even exceed it, or can underperform.
Gold is considered a store of value, not a creator of value. Increasing exposure to gold means you are betting against economic growth.
Experts say investors who have a longer investment horizon of about 25-30 years should keep 10-15% in gold and the rest in equities.
“While the recent rally underscores its defensive appeal, allocating more than 20% may skew the risk–return balance, especially over the long term. A calibrated exposure of 10–20% remains prudent, allowing investors to benefit from diversification without compromising growth potential from equities and other productive assets,” said Ajit Mishra, SVP- Research, Religare Broking Ltd.
Charu Pahuja, CFP CM, Group Director and COO, Wise Finserv, said that over long investment horizons, equities have historically delivered superior real returns because they represent ownership in productive businesses and economic growth. Recent market behaviour makes this clear.
Pahuja underscored that even with global risks still present, equity markets can recover sharply when confidence improves.
“After the US–India trade settlement, both the Nifty and Sensex moved up more than 2.5% in a single session. Volatility can be unsettling, but it doesn’t automatically mean lasting damage. That’s why many investors stop at around 20% exposure to gold. Beyond that, portfolios start leaning more towards protection than growth,” said Pahuja.
Pahuja added that for some situations, it makes sense to have gold more than 20% but for most long-term investors, it doesn’t.
“In the end, gold allocation should follow personal goals and time horizon, not the emotion of a recent rally or the noise of headlines,” said Pahuja.
However, some experts, such as Rishabh Nahar, Partner and Fund Manager at Qode Advisors, remain bullish on the long-term prospects of gold and say he is comfortable maintaining gold exposure above 20%.
“It is not a short-term tactical bet, but a recognition that the opportunity cost of holding gold has structurally fallen,” said Nahar.
He pointed out that gold today is absorbing pressure from currency credibility, fiscal dominance, and shifting global capital flows — forces that are unlikely to reverse quickly.
“From that lens, the gold trade does not look crowded or exhausted. It looks increasingly accepted, and those transitions typically last longer than markets expect,” Nahar said.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
