Gold hits all-time high: Retail investors should adopt balanced approach, allocate 10-20% to the yellow metal

Time to adopt a balanced approach, not aggressive buying strategy

Gold has seen significant appreciation over the past six to seven months.

This surge has been driven primarily by expectations of interest rate cuts, persistent inflation concerns, doubts over the long-term sustainability of US fiscal policies, ongoing geopolitical instability, and strong central bank purchases aimed at diversifying away from the US dollar.

Gold’s glittering gallop

Notably, gold has recently overtaken the euro to become the second-largest global reserve asset, now accounting for about 27 percent of central bank reserves compared to the euro’s 23 percent. Central banks currently hold around $4.5 trillion in gold, surpassing their holdings in US treasuries, which stand at around $3.5 trillion. This shift signals growing confidence in gold as a reliable store of value amid market volatility and global uncertainty.

With prices at record highs, investors should proceed cautiously. Any delay in rate cuts or a change in geopolitical dynamics could trigger a correction or a temporary pause in gold’s rally. Nevertheless, gradual accumulation remains a prudent hedge against economic and geopolitical risks. Instead of aggressive buying, a balanced allocation of 10–20 percent of the portfolio to gold, in line with individual risk tolerance, is advisable.

Over the past year, gold has surged to close to $3,770 per ounce (September 24, 2025). The rally has been supported by expectations of US Federal Reserve rate cuts, persistent inflationary pressures, and concerns over US fiscal sustainability. Geopolitical tensions across multiple regions have further strengthened demand for gold as a safe-haven asset. Emerging market central banks, in particular, have been major buyers, reinforcing the uptrend.

Also read: Gold at an all-time-high: Should you buy, hold or book profit?

Gold rush to continue

Following the Federal Reserve's recent 25 basis point cut and its indication of two more reductions in 2025, gold has become even more attractive. In the near term, if inflation moderates and US economic data improves, tighter monetary policy or a stronger dollar could weigh on prices. Conversely, if inflation rises due to rate cuts and tariffs, gold could remain supported at elevated levels. In the long run, key drivers will include central bank demand, geopolitical conflicts, US dollar trends, and global inflation influenced by trade policies.

Also read: Gold, silver ETFs continue to shine as investor demand propels strong inflows

Among investment options, Gold ETFs (Exchange-traded funds) stand out. They offer a convenient, low-cost alternative to physical gold, with high liquidity, transparent pricing, and SEBI regulation—making them a safe, efficient vehicle for investors.

In conclusion, while gold’s sharp rise calls for caution, it continues to play a vital role in diversification. The combination of fiscal concerns, monetary easing expectations, and central bank buying provides a strong long-term case for gold within a well-balanced portfolio.

The writer is Fund Manager, Kotak Mutual Fund. 

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with a financial advisor before taking any decisions.