Since the beginning of 2019, one asset class has emerged the clear winner. It’s gold. Ten grams of 24k gold cost around Rs 32,500 in January 2019. Since then, there’s been a nearly 70 per cent appreciation, with gold future prices appreciating to over Rs 57,400. Gold had flatlined for nearly a decade.

But global economic uncertainty started driving it up again before the explosive growth with the arrival of a global pandemic. The pandemic continues to disrupt daily life and economic adversities continue to compound in many economies. It is expected that gold will continue to do well in the near future. So what should the small investor do?

The future of gold

Gold thrives in economic uncertainty. During those periods, while everything else crashes and burns, gold shines. Investors use it as a hedge against uncertainty, volatility and inflation. To them, gold is insurance. If global stock indices are crashing, you may be able to stabilise your portfolio through gains in gold. With fiat currencies becoming less valuable in developed countries, people’s faith in the metal may continue to increase.

According to Goldman Sachs, a weakening dollar and falling interest rates could push gold prices up from the current $1,930 per ounce levels to around $2,300 in the next 12 months.

Others see it going higher. “Gold has entered a bullish phase that can last several years,” said The Arora Report.

“There is better than 50 per cent probability of gold approaching $3,000 in this cycle.”

Jefferies believes it could rise to $4,000. Clearly, there’s a belief that prevalent instabilities will keep driving up prices.

What do small investors do?

Investors who had been buying gold through the recent past have gained immensely from the ongoing rally. But for new investors looking to get in, the growth prospects are unclear. Therein lie the risks and rewards. You can invest according to your risk appetite to cash in on short-term trends.

However, from a long-term perspective, it would be wiser to buy small quantities of gold regularly and systematically. For example, you could buy a gram every month for several years. This would slowly help you create a gold corpus while lowering price-related risks. By the time another global economic crisis comes along, the gold you have slowly accumulated will give you stability.

How much should you buy?

The key with buying gold is having just enough to stabilise your portfolio during times of volatility but not so much as to drag your wealth growth during periods of prosperity. In ten-year periods starting August 1980 and ending August 2010, gold grew at approximate annual rates of -5.20 per cent, -2.63 per cent, and 15.85 per cent considering absolute prices.

In the 10 years since then, it grew at 4.61 per cent. Between August 2012 and August 2018, it flatlined at -0.2 per cent. Over the next two years, it would grow at 32 per cent.

The point here is that gold flatlines for long periods of time but can grow in short, explosive bursts. If you have too much, you may not achieve growth for prolonged periods. If you have too little, it will not make a meaningful impact on your portfolio during periods of volatility.

Many experts believe gold should constitute 5-10 per cent of a portfolio. This is a useful yardstick. However, you can pick a number based on your own unique situation after assessing your risk appetite, investment goals, and liquidity needs.

How to buy?

The obvious and traditional choice is to buy gold in its physical form, be it jewellery, coins, bars or something else. You could buy them from your preferred shop or even online via reputable sellers. This option is also useful from the point of using the gold.

However, you need to factor in making charges, applicable taxes, concerns over purity, and costs of safe storage into your investment objectives.

If you’re looking at gold purely as an investment, you must also consider buying gold exchange-traded funds, gold mutual funds or Sovereign Gold Bonds.

ETFs and MFs can be easily bought online from the fund house of your choice, while the SGBs can be bought several times a year from authorised banks, stock exchanges, or online trading platforms.

As a long-term investment, the SGB scores over other options because of sovereign guarantee, tax-free returns on maturity, and an additional interest income on the price which is the icing on the cake. You could also buy or sell digital gold through authorised payment apps.

In conclusion, while the investment opportunity in the coveted yellow metal may seem hard to overlook, one must approach the decision-making process in a pragmatic manner — both in terms of investment amount and investment mode.

The writer is CEO, BankBazaar.com