Gold is a much talked about asset class due to the various benefits that it offers. People prefer gold as it is a store of value. Indians are in fact one of the largest consumers of gold in the world. Last year, many investors who had invested in the yellow metal were worried due to the falling gold prices. However, they might have a reason to smile as the picture seems to be changing now.

So far, rising dollar made gold look unattractive. However, with changing economic and political scenario in some parts of the world, investors seem to be getting back to safe haven asset.
 

• European Central Bank (ECB) stimulus plan
  It is expected that ECB in its meeting on January 22 might announce quantitative easing and its plan to buy back the Government bonds in its endeavour to reduce the debts obligations and protect the Eurozone from deflation. This might lead to an increase in the prices of gold as investors may prefer to take refuge under the yellow metal due to uncertainties prevailing in the market.
   
• Elections in Greece
  Greece is set to undergo elections on January 25. However, there is a lot of political uncertainty in the country due to the strong competition which the Syriza party is posing to the Conservatives. Markets fear that in case Syriza wins, there might be issues between them and International Monetary Fund (IMF) lenders, which might affect the economy and markets negatively. Possibility of Syriza winning in Greece has been perceived as a threat to integration of Eurozone. The party wants same treatment in debt relief that Germans got in 1953. In case its anti-austerity stance doesn’t go well with stronger members of Eurozone, might witness crisis-like situation again. Thus, to protect themselves from market volatility, investors have started buying gold. As a result gold prices have gone up about 4.0% (absolute) over last 1 week.
   
• Decision of the Swiss National Bank (SNB) pertaining to the Swiss Frank
  In 2011, the SNB had capped the Swiss Frank against the Euro at a rate of 1.2. However, unexpectedly 4 days ago (on January 15), the SNB removed this cap. Now that the ECB is planning to introduce a stimulus program, the SNB would need to print much more money, and the SNB does not wish to create extremely high foreign exchange reserves. Moreover, the Franc recently became undervalued against a few currencies. Thus, the SNB decided to remove the cap imposed 3 years ago. This move may have an impact on other currencies including Euro which might lead investors to look upon gold as a preferred asset.
   

What should you do?
You might be wondering, in case gold prices rise what should you do? PersonalFN is of the view that investors must always avoid speculating the prices of gold. Speculation in any form can be bad for your portfolio. While determining whether or not to buy gold, you must first determine your asset allocation pattern depending upon your financial goals. Gold is an important asset class as it provides a hedge against inflation and adds stability to your portfolio. However, this does not mean that it should occupy a dominant portion of your portfolio. Investing only in one asset class may not help you to achieve your financial goals. Thus, you must first chalk out a suitable asset allocation pattern (which includes a suitable allocation towards equities, debt and gold) and accordingly allocate your portfolio towards gold (via gold ETFs). PersonalFN is of the view that, you may invest about 10%-15% of your portfolio in gold depending on your financial goals.

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