Strong Move in Gold and Nifty

In the last two years, gold has shown a very strong jump. Gold prices went up by almost 124%, while the Nifty index grew by around 29%. (see the image below)

Because of this big difference, many people may feel that gold is now too high and a correction may come soon. Some may even think they should book profit and exit. These kinds of thoughts are very common when one asset moves much faster than another.

Why the Bigger Picture Matters

When we look at the long-term picture, we see that the gold-to-equity ratio has seen many strong phases in history. In the 1930s, 1970s, and again from 2000 to 2011, gold moved much faster than equities for long periods.

Compared to those levels, today’s ratio is still not high. Even against the Nifty, the gold-to-equity ratio is still on the lower side. This means the current rise may not be the final stage of the move.

The Mania Phase May Still Be Ahead

There is usually a stage in the gold cycle when everyone talks about commodities and gold becomes the main topic in the market. That “mania phase” does not seem to have come yet. If equity markets stay around the same level, gold and other precious metals still have room to rise another 20%, 30%, or even 40%. With the expectation of easier policies and possible interest rate cuts ahead, risk assets may continue to see strength.

What This Means for Investors

If the rally continues, it does not mean you need to exit or enter at random points. A better approach is to stay focused on your asset allocation. For example, if you decide to allocate 20% or 25% to gold for the long term, stick to that plan. If your gold allocation becomes too large because prices moved up, you can bring it back to your original level through simple rebalancing.

Why Long-Term Allocation Helps

Trying to time every rise and fall is stressful and often not helpful. A steady allocation that fits your long-term plan can work much better. Rebalancing once in a while keeps your portfolio under control without needing to guess the market. This simple method can reduce worry and help you stay invested in the right way.