Gold has corrected big time over the last 2 trading days and giving shivers to gold bulls. Is it the end of the bull run in Gold is the common question in the minds of investors?
What should investors do now? It depends on the nature of the gold holdings one has. If it is held for consumption purposes, then there is nothing to panic. Continue to enjoy wearing that necklace or bangles and it is possible that you can now wear it at least now without the fear of being robbed, due to sliding gold prices!!
Jokes apart, but, if you have been buying gold as an investment asset and that do overdoing it, then you seem to have a problem. The stress is again on overdoing it. If you have balanced portfolio allocation, then this price fall should not make you lose sleep.
If you are somebody who has no exposure to gold at all, then you may use this price correction to start buying like me. Remember to use the Systematic Investment Plan route in buying gold now, if at all, you are buying.
This price correction like corrections in other markets, reinforces, the key fact that asset allocation is the most important thing in portfolio construction.
If you have limited your gold exposure to, say, a maximum of 10-15% of your portfolio size, then this 10% correction doesn’t make any big impact. Your portfolio value would have gone down by say a maximum of 1.5%. This 1.5% erosion in portfolio value is not a show stopper in anybody’s portfolio.
But at the same time, if somebody has say 60% of their investment in gold, then this 10% correction in prices should have dented the portfolio to an extent of 6% or so. Some may lose sleep on this.
So, now the obvious question is what he or she should do now? At this moment, there is no clear answer honestly. The price of gold may recover from here or can fall further accentuated by covering of long positions by gold speculators across the globe. If you feel you have overweight on Gold currently in your investment portfolio, then you may want to use the rallies to sell in smaller lots. Just like you are planning to sell, most of the other gold investors would also be planning as well!! So, to me, this price correction may continue for some more time.
Let truth be told. Nobody can predict it with certainty tomorrow’s price!
You should take this as a reminder to start balancing your portfolio across asset classes.
A well defined asset allocation is the key to building a solid portfolio in the long run.