Gold mutual funds offer 19% in one year. Can you still invest and make money?

Gold mutual funds offered 19% in the last one year. The toppers in the category – Invesco India Gold Fund and IDBI Gold ETF – offered 20% returns in one year. Most gold funds offered around 19% in the last one year. Clearly, investors in gold funds have reasons to smile. Will they continue to smile in the coming months or years? What about investors who missed the opportunity to join the party? Can they still join and pocket great returns?

Gold shines when things go wrong. The runaway inflation, steep rate hikes, fears of recession and so on have helped gold to regain its position as a hedge against economic woes. This is not the first time that gold proved its worth in a portfolio. In 2008, when the world was hit by global economic meltdown, gold prices jumped to Rs 12.500 from Rs 10,800 in 2007. The yellow metal had a great run for the next five years. Gold prices reached Rs 31,000 in 2012. Simply put, gold offered around 13.39% in five years.

Even in the last one year gold prices were moving up even as equities and debt assets were offering muted returns. In 2023, gold prices jumped to Rs 62,000 from Rs 52,000 in 2022.

Does that mean gold will continue to shine? Things are still looking bleak but there are signs of recovery. That makes the predictions tough. Central banks are more optimistic about inflation and most are getting ready to pause or cut rates. That means if everything goes according the plan, the economy could be back on track soon. When that happens, gold might fall or stay subdued.

You should always remember that gold was stuck in range for five years after a dream run between 2007 and 2012. Gold prices fell to around Rs 29,000 in 2013. It fell further to Rs 26,000 in 2015. The yellow metal took five years to reclaim the previous high of Rs 31,000 in 2018. This has prompted many investors and their advisors to banish the yellow metal from their portfolio.

Will history repeat the next year? Gold prices have been steadily rising since 2019. Gold was priced at 35,000 in 2019. It is currently quoted at 62,000. Will the dream run come to an end this year?

Instead of banking on predictions, you should get back to basics. Gold is great hedge against economic downturn. However, don’t expect it to offer you excellent returns. It might offer great returns once in a while or for a period, but it will offer only single-digit returns. For example, gold funds offered around 7% returns in the last 10 years. They offered 10% in 15 years. That is why mutual fund advisors ask investors to limit their exposure to 5-10% of the total portfolio.