Are You A Retiree Holding Too Much Gold? Read This!
Apr 09, 2019

Author: PersonalFN Content & Research Team

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One of the oldest and probably world's safest asset class is falling like one of the riskiest and has been generating below-par returns.

Going by the World Gold Council data, gold priced in Indian Rupees would have generated approximately 8.3% return in FY 2018-19, if you exclude its fall in March 2019.

However, in India the reality is that the precious yellow metal generated paltry returns of 3.9% at the end of the financial year on 31 March 2019. In other words, in March 2019, gold priced in Indian Rupees fell 4.4%.

Would that make you worry about your investments in gold?

That depends on your age, risk appetite, and weightage of gold in your portfolio.

As we age and our priorities in life changes, so does our appetite for risk.

For example, when you are working and have a regular income stream, you might react differently to falling markets (or asset prices, to be more specific). You might sense a buying opportunity when markets fall, since you are in the accumulation phase.

Retirees react differently…

When you retire, your accumulation phase ends and you start depending on your savings. In this phase, your priority is capital preservation, apart from generating regular income through your investments, to replace your salary/business income. During this distribution phase, you tend to react differently to falling markets.

If you are a retired person holding gold in your portfolio, its movement in March 2019 might have been concerning. After all it's arguably the safest asset class that mitigates inflation.

Graph: Is gold looking unattractive?

Data as on April 01, 2019
(Source: World Gold Council)

Factors affecting the gold prices lately…

In the international markets, dollar denominated gold depreciated approximately 2% over the last one year. The difference between returns generated by Dollar denominated gold and gold priced in Indian Rupees suggests that, the precious metal helped Indian hedge currency losses.

In other words, gold priced in Indian Rupees chiefly tracks international gold prices when adjusted with Rupee appreciation/depreciation.

Between April-October 2018, Indian currency depreciated approximately 13% against USD. However, between November 2018 and March 2019, Indian Rupee recovered nearly 7%.

During this period, the Federal Reserve (Fed) had maintained a hawkish stance and hinted at raising rates through 2019. As a result, despite strained bi-lateral trade relations between the U.S. and China, gold didn't stage a rally in the international markets between April-October 2018.

Nonetheless, the Fed's policy stance suddenly became dovish in the past 5-6 months. As a result, gold in the international market recovered some lost ground, so did the Indian Rupee. This happened despite the U.S. and China working constructively together to reinstate trade relations.

Above instances show that, interest rate and the Dollar movement has been the bigger force for gold price movement lately than geo-political events.

Role of gold in the portfolio of retirees

Historically, gold has played a role of a portfolio diversifier in the portfolios of Indian households and has offered them a hedge against inflation and Rupee depreciation.

What might aid gold price movement in the foreseeable future?

  • Dovish interest rate stance of Fed

  • Weaker USD

  • Sluggish economic outlook

  • Uncertainties pertaining to Brexit

  • Uncertainties about the existence of Eurozone

What might work against gold?

  • Any sudden U-turn in the policy action of major global central banks

  • Stronger than expected economic performance

  • Stronger USD

How much gold should a retiree hold?

Retirees can invest 10%-15% of their portfolio in gold. However, the exact allocation shall depend on their overall asset allocation, risk appetite, and remaining financial goals, if any.

Suppose you are a retired person, you are likely to depend primarily on your investment portfolio to generate sufficient cash flows. If you have sufficient investments in fixed income instruments generating regular income, you might own more gold as compared to a retired person who isn't generating adequate regular income. Please remember, gold doesn't generate any cash flow.


The long-term secular uptrend gold exhibits is something that invites attention and highlights the importance of owning gold in the portfolio with a longer investment horizon.

[Read: Here's Why You Should Allocate Some Portion To Gold ETFs In 2019]

The poor performance of gold over five years shouldn't worry you about the long-term prospects of gold.

Political systems across the world are increasingly becoming unstable, irrational, and immoral.

Retirees shouldn't dump gold in haste. If you are a retiree, take this opportunity to review your asset allocation and change it accordingly.

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