With gold hovering between Rs 14,000 and Rs 15,000 per 10 gram, investors find themselves in a quandary. Should they continue to invest in gold, despite its high price? And where are gold prices headed — will they go higher, stay at the same level, or decline?

To answer these questions, you need to clarify your objectives first. Will gold be a long-term constituent of your portfolio (meaning 10-20 years)? Or are you buying it to profit from short-term fluctuations in its price?

Long-term buyers

If you are buying gold for the long term, remember that it should not exceed 4-8 per cent of your portfolio. As a long-term constituent of your portfolio, it will hedge your portfolio and provide good returns in times when the economy is in the doldrums and other asset classes such as equities are faring poorly. It will also provide protection to your portfolio in case of hyperinflation.

But over the long term don’t expect great returns: it is likely to be around 2 per cent above the inflation rate. That is why financial planners suggest it should form only a small part of your portfolio. When buying for investment, buy a gold ETF (exchange traded fund) and not jewellery. That way you will lose less in manufacturing charges when you go to sell, and you will also be rid of the fear of theft. When buying for the long-term (meaning decades), anytime is a good time. To optimise your buying cost, buy a little every month or on price dips.

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