Should Gold ETFs be a part of your portfolio at lifetime highs?

15 Jul 2025 , 11:26 AM

SHOULD YOU HOLD GOLD ETFS AT PEAK PRICE?

That is a question that a many investors are asking. Indian gold prices have struggled around the resistance of ₹1,00,000 per 10 grams. The price of domestic gold has made several attempts to cross that level and even breached it at times. However, gold has failed to sustain above these levels. At the current price of gold, it is the highest level even from an inflation adjusted perspective. However, there are 3 reasons to hold gold ETFs.

Firstly, as BOFA put it rightly, if the dollar was to weaken due to tariffs and if the US budget deficit was to spike on account of OBBBA, then gold would be the safe haven. Secondly, the gold-silver ratio, a standard barometer, had touched a peak of 105 levels in early 2025. However, with silver prices spiking, the gold-silver ratio is down to 87 levels. Thirdly, and most important, gold is not a return seeker, but a portfolio value protector.

HOW GOLD ETFS HAVE PERFORMED IN INDIA?

The table below captures the performance of gold ETFs in India over different time periods like 1 year, 3-years, and 5-years. These are based on the regular plan of gold ETFs.

Scheme Name	Returns (%) 1-Year	Returns (%) 3-Years	Returns (%) 5-Years	Daily AUM (₹ in Crore)
LIC MF Gold ETF	30.67	22.69	13.78	426.01
Invesco India Gold ETF	31.43	22.53	13.62	286.13
Axis Gold ETF Fund	31.43	22.45	13.62	1,864.52
ICICI Prudential Gold ETF	31.97	22.46	13.55	7,934.55
ABSL Gold ETF	31.90	22.37	13.53	1,147.89
Kotak Gold ETF Fund	31.81	22.39	13.51	7,699.91
HDFC Gold ETF	31.11	22.36	13.48	10,409.05
SBI Gold ETF	31.71	22.25	13.44	8,535.97
UTI Gold ETF	31.47	22.69	13.44	2,012.18
Quantum Gold Fund	31.70	22.29	13.37	342.64
Nippon India ETF Gold BEES	31.58	22.24	13.29	21,928.33
Data Source: AMFI

What is the compelling reason to invest in gold ETFs. In India gold ETFs manage total AUM of ₹63,093 Crore. In the above table, we have only considered the 11 funds with a minimum 5-year track record available. Returns have been good over 5 years CAGR, attractive over 3 year, but very lucrative over a 1-year period, which is when gold rallied sharply.

However, the real attractiveness of gold is in the low volatility and the higher predictability of what these gold ETFs can deliver. For instance, over a 1 year period, Gold ETFs had average returns of 31.53% and standard deviation of 0.375. Over a 3-year period, Gold ETFs had average returns of 22.43% and standard deviation of 0.156. Over a 5-year period, Gold ETFs had average returns of 13.51% and standard deviation of 0.134.

How does this make gold a good portfolio hedge? Firstly, unlike in equities, it is much easier to select the specific ETF to invest since the standard deviation is very low and hence it is a lot more predictable. Secondly, where gold differs from equities is that equities tend to become more  volatile over longer time frames, but gold tends to become less volatile over longer time frames. That is why; including gold reduces portfolio risk in the long run.

YES, GOLD ETFS MUST BE PART OF YOUR PORTFOLIO

Ideally, it is best to allocate between 10% and 15% of your long term portfolio to gold. It is not just a wealth generating asset, but portfolio protection. Traditionally, gold had a negative correlation to equities and bonds over longer time periods and protects the portfolio during times of economic uncertainty, geopolitical unrest, and currency volatility.

Since gold prices have had a strong run, one can look to gradually move the gold exposure from 15% to around 10%. However, that is the bare minimum exposure to gold to be maintained at all times. After all, gold is not about the glitter, but about the stability.