InvestorQ : So, do I understand that gold is more of a protection instrument than being a return generating instrument?
Khushi Patel made post

So, do I understand that gold is more of a protection instrument than being a return generating instrument?

Answer
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Anjana Aiyar answered.
1 year ago


Gold and equity normally have a very low correlation or at times they even have negative correlation. That is why including gold in your portfolio to the extent of 10-15%, gives you a hedge against the vagaries of the macroeconomic risks and stock market volatility. That is what diversification of your portfolio into gold gives you. It protects your downside risk in turbulent times and in challenging economic times.

The most important point that people need to understand about gold ETFs is that they are more of a protective hedge than being a return generator. They are not investments like equity or debt that can create value over a period of time. They are hedges. That means they are meant to protect value in times of political and economic stress when other asset values are facing pressure. Gold works best when times are tough. Gold ETFs are an asset class you must consider to give protection to your portfolio. Once you grasp these basics, you are good to allocate a part of your portfolio to gold ETFs.