During Diwali gold buying, how to find the right balance

This Diwali, the question isn’t whether to buy gold, but how to buy it wisely, to celebrate and also strengthen your financial future.

Why gold buying peaks during Diwali

In India, buying gold on Dhanteras and Diwali is considered auspicious as it symbolises prosperity and good fortune. Families often buy jewellery, coins, or bars as tokens of wealth. However, these purchases are usually emotionally-driven rather than strategic.

For instance, spending Rs 50,000 on gold jewellery that you seldom wear ties up money that could earn better returns elsewhere. This doesn’t mean you shouldn’t buy gold; it means you should blend sentiment with sense, ensuring each festive purchase fits into your larger financial plan.

Gold as an investment asset

Gold’s appeal goes beyond sentimental value. It serves as a powerful shield during times of economic uncertainty. When equity markets take a hit, gold often shines brightly. For example, during the 2020 pandemic, gold prices climbed even as stock markets experienced a sharp decline.

However, gold does not generate income like dividends or interest. Its primary value lies in stability and protection, not aggressive growth, making it ideal as a diversifier. The goal isn’t to replace your equity or fixed-income investments but to act as a counter-balance, cushioning your portfolio against sharp volatility.

How much gold is ideal for your portfolio?
Diversification is the key to a successful and effective portfolio. Gold should therefore be treated as a strategic diversifier, not your main investment. Ideally, gold should constitute 5–10 per cent of your total portfolio, but to determine the exact percentage, factor in your age, risk appetite, and financial goals.

A 30-year-old with significant long-term equity exposure might comfortably hold just 5 per cent in gold. Conversely, a retiree focused on capital preservation might opt for a higher allocation of 10-15 per cent. The right blend ensures you have stability without sacrificing your potential for
growth.

Best ways to buy gold this Diwali
If you are investing in gold, look beyond physical gold. Gold ETFs, digital gold, and Sovereign Gold Bonds (SGBs) are some other excellent options to consider.

Issued by the RBI, SGBs offer 2.5 per cent annual interest plus capital appreciation, making them ideal for long-term investors. Though new SGBs issues may not be open for subscription, you can buy existing bonds from the secondary market via stock exchanges.

Gold ETFs are highly liquid and can be traded on exchanges just like stocks, offering greater flexibility. While physical gold carries a strong emotional appeal, digital and paper forms offer superior security, lower costs, and greater efficiency as an investment asset.

Price considerations
Gold prices can be volatile, reacting sharply to global demand, inflation trends, and interest rate movements. Instead of making one large purchase, consider adopting rupee-cost averaging, a simple strategy that involves buying smaller amounts of gold over a period of time. This approach helps to smooth out price volatility and reduces the risk of buying at a peak.

This Diwali, let your gold purchase be a blend of both emotion and intelligence. While buying gold brings joy and powerful symbolism, investing in it strategically strengthens your entire financial structure.

The writer is CEO, BankBazaar.com