How much gold do you hold?

In a recent talk, I, as usual, discussed how risky gold is and said that only those who understand the basics of portfolio management should consider buying gold funds or ETFs. See: What you need to know about gold before investing in it. Also see: A checklist before buying gold or silver for”diversification”.

Usually, this angers some members of the audience, who argue with me that gold is a “wonderful investment”. My only response usually is, “How much gold do you hold?”

Typical responses range from ‘I don’t know’ to between 5% to 15%. So I ask, why get so worked up about such small allocations? If the equity market collapses and the currency becomes worthless, in absolute terms, that gold exposure will not last long.

This time around, I was asked, “How much gold do you hold?”. The audience member was suspicious that I held a lot of gold while not recommending it to readers.

I told them I do not know the exact percentage, as the exposure is part of a multi-asset fund (which I did not consciously choose) and that this fund is tagged to my son’s future expenses portfolio. And that in any case it should be quite small.

After I came home, curiosity got the better of me, and I had to find out exactly what my portfolio’s gold exposure was.

ICICI Prudential Multi-Asset Fund is about 39% of my son’s future portfolio. The fund currently holds ICICI Prudential Gold ETF 3.29% and ICICI PRUDENTIAL SILVER ETF 2.06%

This means my gold exposure is slightly less than 2% of my son’s future portfolio and 0.31% of my net worth (retirement corpus + my son’s future corpus). It should be obvious that the exposure to silver should be even more minute.

This is the historical gold and silver exposure of ICICI Prudential Multi-Asset Fund. They have significantly reduced exposure over time while tactically varying it from time to time.

Please note that ICICI Prudential Multi-Asset Fund currently holds 5.25% of Exchange Traded Commodity Derivatives. I was unable to find the holding history for this portfolio item.

Older readers may recall that the ICICI Prudential Multi-Asset Fund was previously known as the ICICI Prudential Dynamic Plan. After the SEBI Categorisation rules in 2018, the fund rebranded as a multi-asset fund while retaining its equity-oriented nature. Therefore, I continued to invest in it. And my decision had nothing to do with its gold exposure.

After listening or reading about my views on gold (summarised in the first paragraph of this article), some people accuse me of sour grapes after “missing the gold (or silver) rally”. Some ask me if I felt FOMO when I saw the two metals appreciate.

To be honest (if you can believe that I am capable of honesty), I am numb to these developments. The accumulation phase of my goal-based investing is done, and I am now in the consolidation phase. So I don’t need to do anything different*. I only need to hold on to what I already have and manage risk.

I can assure you that this has nothing to do with “maturity”. It is just that, compared to my health and my mother’s, worrying about whether I hold enough gold or need it seems trivial to me.

* You don’t “need to” hold gold in your portfolio if you are in the accumulation phase.

I want to reiterate that I am not against gold in the portfolio. I only wish to point out that

(1) it is quite risky (it does not always increase),

(2) do not look at past returns too much because the Rupee is now much stronger against the Dollar,

(3) Gold is not always a “hedge” (wonder how many who use this word actually know what that means). Sometimes it is and sometimes not (this is true of all traded items),

(4) If you want gold/silver, you must be willing to put in the effort and maintain that portfolio,

(5) Having a “small exposure to gold/silver” may give you a big satisfaction of scratching that FOMO itch, but will only give you a proportionally small benefit.