Gold’s rally sparks FOMO. Should investors chase or pause?

The sharp rally in gold prices has reignited one of the most common dilemmas for Indian investors: whether the opportunity has already passed or whether it is still the right time to buy.

In a country where gold has deep cultural and emotional value, this sense of urgency often turns into a fear of missing out (FOMO). But history offers a cautionary reminder — gold is not an asset to be chased in moments of excitement.

Alongside periods of impressive gains, there have also been long stretches when gold has lagged equities and other asset classes. Its true role lies less in driving wealth creation, and in providing stability and diversification when uncertainty clouds the markets.

Note: All figures are prices as of the last date of the calendar year. The 2025 numbers are as of September 29, 2025.

Source: Gold prices — bankbazaar.com, Nifty — NSE website.

During the 2011-2018 cycle, gold delivered returns of just 2.5% underperforming equities by a big margin. Gold’s returns have come in sharp bursts during crises, while equities have delivered more consistent compounding. Over the long run, both have produced comparable returns, but through very different cycles.

Drivers of demand

The challenge with gold lies in its unpredictable nature. Prices are shaped by a complex mix of global factors — geopolitical crises, central bank actions, monetary policy, and even shifts in taxation. Periods of global uncertainty, such as wars or financial crises, drive investors toward it as a haven. Central banks around the world continue to add gold to their reserves, reducing their reliance on the US dollar.

When US interest rates go down, keeping money in safe options like savings accounts or bonds gives lower returns. This makes gold look more attractive because investors are not losing out on much income by holding it. When these factors coincide with recessionary concerns, the conditions become especially favourable for gold.

The same asset can quickly lose momentum when conditions change. Excessively high prices tend to reduce the demand for jewellery, particularly in price-sensitive markets like India, with consumers shifting to alternatives such as silver or platinum. Elevated prices also encourage miners to ramp up supply, making previously uneconomical projects viable. A stronger USD or higher bond yields can also draw capital away from gold, while the resolution of geopolitical tensions often results in sharp corrections.

The Indian context

Over the last 25 years, the combination of currency depreciation and global price movements has translated into annualised gains of 12-13% for Indian investors. But while the past may look rewarding, it does not automatically guarantee similar outcomes in the future.

During the 2008 global financial crisis, it cushioned portfolios when equity markets around the world collapsed. A similar trend played out during the COVID-19 pandemic, when gold surged as investors scrambled for safety. But these same periods were followed by long stretches of stagnancy when gold delivered muted returns. This cyclical nature is a reminder that it works best as insurance, not as the centrepiece of a portfolio.

Gold as part of overall asset allocation

What matters most is how investors choose to position gold within their portfolios. Since timing the market is both complex and error-prone, the focus should instead be on allocation. Gold is not a speculative asset class, and attempts to treat it on par with equities—for example, giving it equal weight in a portfolio—can skew long-term results. Its real strength lies in diversification, offering stability during periods of stress such as the Global Financial Crisis or the COVID-19 shock, rather than serving as the main driver of wealth creation.

A sensible approach is to keep gold as a modest but steady component of the portfolio. Typically, this ranges between 5 and 15% of the overall net worth of the individual, depending on one’s overall financial plan and risk tolerance*. It is equally important to temper expectations. What should be avoided is the temptation to over-allocate simply because recent performance looks attractive.

In the end, gold works best when viewed as a hedge rather than a hero. It is the insurance policy in a portfolio, not the primary engine of growth. By resisting the pull of FOMO and maintaining a disciplined allocation, investors can ensure they benefit from gold’s enduring role as a protector of wealth without falling into the easy trap of speculation.

(*Not a recommendation, always consult your registered financial adviser for your financial plan and asset allocation).

Parimal Ade (X: @AdeParimal) is Founder, and Gaurav Jain (X: @gaurav28jain) is Co-Founder, Investyadnya.in.

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.