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Gold prices crash again: Is this a good time to buy or sell?

First things first, if you are a second by second trader, or a professional who tracks the markets on a day-to-day basis, or even a speculation junkie, please don't read ahead, this story is not for you.

This is for a retail or lay investor, who does not buy gold for speculative reasons. And, if you are such a person, you probably are getting confused with all the news related to gold prices. While some newspapers headlines tell you to lower your gold holding there are others asking you to buy but cautioning against blindly jumping into buying. So, what should you really do?


This means, it's time for you to re-balance your portfolio. Reuters

Look into your portfolio: Globally, gold prices hit a 3- year low today and could see the worst week in 30 years, according to a Reuters report.

International gold prices had fallen as much as 12 percent in April. Gold prices have seen action upwards as well as downwards way to often these days. But, even as you keep your eyes on the gold prices, you should first begin with reviewing your total portfolio. "When you construct your portfolio, diversification is the key.Every asset class has a negative correlation with the other," said Parag Paranjpe, a certified financial planner.

Loosely put, this means when equities were sliding, gold portion of your portfolio was absorbing the shock. Ideally, gold should be in the range of 5-10 percent of your total portfolio. When prices drop the value of gold decreases, there's a good possibility that the overall asset allocation of your portfolio has changed. Which means, the gold portion of your portfolio is underweight, while the equities and debt portion is overweight.

This means, it's time for you to re-balance your portfolio. "If your gold asset allocation is under the range of 5-10 percent of the portfolio, you should buy gold now. Ideally via the SIP route," says Paranjpe.

But then you might ask what about all these news about gold may not be a safe-haven in times to come? Gold is a good hedge against inflation and it's here to say. Yes, globally we have seen countries offloading gold, but keep in mind, the countries also have the capacity to print more money. This means in the long run, gold will continue to be the safe-haven. Speculators will speculate and if you are a lay investor, speculation is certainly not your game plan.

What to do: In short, re-balance your portfolio. If you are underweight on gold, buy gold via SIP. If you are overweight, trim the portion, but don't stop the SIP, just decrease the amount of SIP.

Remember, getting carried away with noise could affect your long-term financial plan. So before you listen to any advice, including ours, get in touch with your financial planner.

Updated Date: Dec 21, 2014 02:10 AM

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