The year 2025 has witnessed a spectacular performance from an unexpected quarter: gold. The yellow metal has emerged as the undisputed star performer, delivering a breathtaking return of more than 40% and decisively outpacing the Nifty 50's modest 9.5% gain. This massive outperformance has forcefully thrust gold, traditionally viewed as a safe-haven asset, back into the spotlight for investors across India.
What's Fueling The Gold Rush?
A powerful confluence of global factors is driving this unprecedented rally. For months, escalating geopolitical tensions in Eastern Europe and the Middle East have kept market uncertainty high, pushing investors towards safer assets. Compounding this effect, the US Dollar has weakened by almost 8% against major global currencies over the past year. A weaker dollar typically lifts commodity prices, creating a strong tailwind for precious metals like gold.
Furthermore, a significant and sustained wave of buying by central banks worldwide has provided another major impetus for the surging gold prices. This combination of safe-haven demand and currency-driven strength has created a perfect storm, boosting gold's appeal immensely and leaving investors to rethink their core asset allocation.
Gold vs Equities: The Expert Verdict
The remarkable rally has sparked a critical debate: should investors chase the momentum in gold or remain committed to equities for long-term wealth creation? While gold's strength is undeniable, analysts unanimously stress that it is a hedge, not a substitute for stocks.
Rajesh Palviya, Senior Vice President of Research at Axis Securities, affirmed that the current price strength is well-founded. He pointed to central bank purchases, ongoing trade tensions, and expectations of lower interest rates as key supports, positioning gold as a preferred hedge against uncertainty and inflation. However, he was quick to add a crucial caveat: "Although gold has provided better risk-adjusted returns and stability compared to equities in the short term, equities have historically offered higher long-term growth, particularly in markets like India."
Echoing this principle, Narendra Kumar, Senior Vice President of Investment Banking at SPA Capital, emphasized the need for tactical, not aggressive, exposure to gold. "Gold offers effective protection amid global uncertainty and potential rate cuts, improving portfolio stability. However, India’s earnings outlook and domestic growth drivers continue to support equities as a stronger long-term return asset. A balanced mix—equities for growth and gold for risk mitigation—provides the best risk-adjusted outcome," he explained.
Adding a note of caution from a portfolio construction perspective, Nilesh D. Naik, Head of Investment Products at Share.Market, warned against chasing recent performance. He noted that while gold inflows have surged, over-allocating based purely on recent momentum can distort long-term allocation discipline. He emphasized that equities must remain the core of any long-term portfolio, with gold serving a complementary role as a diversification tool and inflation hedge.
The Investor's Playbook: How to Allocate Now
So, what is the practical takeaway for the average investor? The consensus among experts is clear: diversification is non-negotiable. Palviya of Axis Securities suggests that to achieve optimal risk-adjusted returns, investors should maintain a measured allocation to gold for stability while favouring equities for potential long-term wealth creation.
Narendra Kumar of SPA Capital provided a more structured framework for those seeking clarity. He believes the precious metals cycle is far from over, describing it as a structural multi-year cycle likely to continue through 2029–2030. He outlined two distinct phases:
- 2023–2025: The Overbought Allocation Phase - During this breakout period, investors rightly held an elevated 30–50% exposure to gold to capture the major move.
- 2025–2030: The Controlled Allocation Phase - As the cycle consolidates, a more balanced allocation of 5% to 20% becomes appropriate. For passive, long-term investors, he considers 20–25% a comfortable holding.
However, Kumar issued a stern warning: allocations beyond 30% are strictly for investors who can stomach significantly higher volatility, as the potential for higher returns comes with proportionately greater risk.
The guidance from the market's top voices is consistent and clear: do not abandon equities in favour of gold. Use gold deliberately within your portfolio as a strategic hedge, and always base your allocation decisions on a long-term financial framework, not short-term price surges.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
