Gold investment: Should you start investing in gold like the central banks as global financial order shifts? The principles of diversification and prudent risk management remain as valid as ever. Gold produces no income, comes with storage costs (or management fees for paper gold), and can experience significant price volatility
Dhirendra Kumar
CEO, Value Research
I’ve long been a gold sceptic. Following the wisdom of investors like Warren Buffett, I’ve viewed gold as an archaic relic—a shiny metal that produces nothing, pays no dividends, and merely sits in vaults accumulating storage cost. “It has no utility. Anyone watching from Mars would be scratching their heads,” Buffett famously quipped.
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This perspective made sense in a world where the US dollar reigned supreme as the global reserve currency. However, the financial landscape is shifting beneath our feet, and even the most ardent sceptics may need to reassess.
The gold story has transformed multiple times throughout history. For centuries, gold was money— real, physical currency that people carried, and nations used to settle debts. The 1944 Bretton Woods agreement formalised the dollar’s link to gold, with other currencies pegged to the dollar. Each dollar was theoretically exchangeable for a specific amount of gold, giving the system credibility.
This arrangement collapsed in 1971, when President Nixon severed the dollar’s tie to gold, ushering in the era of pure fiat currencies— money backed only by government decree and faith in institutions. This system functioned reasonably well for decades, with the dollar cementing its position as the world’s reserve currency.
A fundamental shift
However, recent geopolitical developments have triggered what may be a fundamental shift. The freezing of the Russian central bank assets, following the Ukraine conflict, sent shockwaves through the global financial system. Nations suddenly faced a stark reality. Dollar reserves, previously considered the ultimate safe asset, carried unexpected political risk.a:hover{text-decoration:none;} .liveEventMain_widget{margin-top:15px;padding-top:24px;border-top:2px solid #000;position:relative;font-family:Montserrat;} .liveEvent_slider{position:relative;overflow:hidden;} .liveEvent_slider ul{white-space:nowrap;list-style:none;margin-top:12px;} .liveEvent_slider ul.sliderContainer{margin-bottom:30px;} .liveEvent_slider ul li{white-space:normal;width:282px;vertical-align:top;display:inline-block;margin-right:12px;border-radius:12px;box-shadow: 0px 4px 12px 0px #2407461F;background-color:#fff;overflow: hidden;} .images_wrap{position:relative;} .images_wrap .cover_img{object-fit:cover;object-position:center;border-top-left-radius:4px;border-top-right-radius:4px;} .images_wrap .author_img{position:absolute;left:10px;top:13px;border-radius:10px;} .images_wrap::before{background-image: linear-gradient(180deg, rgba(11, 11, 46, 0) 20.31%, rgba(11, 11, 46, .6) 61.46%, #0b0b2e);content: "";height: 100%;left: 0;position: absolute;right: 0;width: 100%;} .liveEventMain_widget .details{padding:12px;} .liveEventMain_widget .category{font-size:12px;line-height:14px;font-weight:700;color:#6a11b0;margin-bottom:8px;} .liveEventMain_widget .course_name{font-size:16px;line-height:20px;font-family:Faustina;-webkit-line-clamp:2;overflow:hidden;height:40px;display:-webkit-box;-webkit-box-orient:vertical;font-weight:600;color:#000;} .liveEventMain_widget .details .author_name{font-size:13px;line-height:16px;color:#333;font-weight:400;margin-top:4px;-webkit-line-clamp:2;overflow:hidden;height:32px;display:-webkit-box;-webkit-box-orient:vertical;} .liveEventMain_widget .view{border: 1.5px solid #D51131; display: block; padding: 8px 0; text-align: center; border-radius: 4px; font-size: 14px; line-height: 16px; color: #D51131; margin-top: 12px; width: 100%; font-family: Montserrat; font-weight: 600; cursor: pointer;} .liveEventMain_widget .view span{display: inline-block; width: 6px; height: 6px; border-top: 1.5px solid #ed193b; border-left: 1.5px solid #ed193b; transform: rotate(90deg); position: relative; left: 5px; top: -2px;} .liveEventMain_widget .view span::after{content: ''; display: inline-block; width: 11px; border-top: 1.5px solid #ed193b; transform: rotate(45deg); position: absolute; top: 3px; left: -2px;} .liveEventMain_widget .arrow_btn{width: 26px; height: 25px; position: absolute; z-index: 11; background-size: 312px; cursor: pointer;} .liveEventMain_widget .nextprev-btn{display:inline-block;width: 100%; position: absolute; top: 59%;} .liveEventMain_widget .prev-btn{background-position: -212px -2px;left: -12px;} .liveEventMain_widget .next-btn{background-position: -241px -2px; right: -3px;left:unset;} .liveEventMain_widget .arrow_btn.disable{opacity:0.5;} .liveEventMain_widget .ts-dots{display:inline-block;position:absolute;top:34px;right:10px;} .liveEventMain_widget .ts-dots ul{display:inline-block;} .liveEventMain_widget .ts-dots li{width:7px;height:7px;border-radius:50%;background-color:#cdcdcd;margin:0 2px;display:inline-block;} .liveEventMain_widget .ts-dots li span{display:none;} .liveEventMain_widget .ts-dots li.active{background-color:#ed193b;} .liveEventMain_widget .topContain { display: flex; align-items: center; gap: 6px; } .liveEventMain_widget .topContain .imgBox { max-width: 40px; } .liveEventMain_widget .topContain .logoTitle { font-family: "Montserrat", "Verdana"; font-weight: 700; font-size: 20px; line-height: 100%; } .liveEventMain_widget .topContain .logoSubTitle{ position: relative; font-size: 18px; font-weight: 500; line-height: 1.2; color: #747474; margin-left: 24px; } .liveEventMain_widget .topContain .logoSubTitle:before{ content:''; position: absolute; left: -13px; top: 0; width: 1px; height: 100%; background-color: #838383; } .liveEventMain_widget .liveEvent_slider .liveEventCardContainer{ } .liveEventMain_widget .liveEvent_slider .liveEventCardContainer .liveEventCard{ display: flex; } .liveEventMain_widget .liveEvent_slider .liveEventCardContainer .liveEventCoverImg{ }
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The response has been telling. Central banks worldwide have accelerated gold purchases to historic levels. China, Russia, India, and numerous other countries have systematically reduced their dollar exposure, while increasing gold holdings. This isn’t just diversification; it signals a deeper erosion of trust in the post-1971 monetary order. Gold prices have responded accordingly, reaching record highs in dollars and virtually every currency. While critics may dismiss this as speculation, sustained central bank buying suggests that something more structural is taking place.
Does this mean you should rush to convert your savings into gold bars? Certainly not. The principles of diversification and prudent risk management remain as valid as ever. Gold produces no income, comes with storage costs (or management fees for paper gold), and can experience significant price volatility.
Yet, dismissing gold entirely may no longer be the correct position that it once appeared to be. A modest allocation, perhaps 5-10% of your investment portfolio, might be a reasonable hedge against currency debasement and geopolitical instability. Think of it as insurance, rather than a growth investment. If you decide to include gold in your portfolio, consider whether physical gold (coins, bars), gold ETFs, sovereign gold bonds, or gold mutual funds best suit your needs. Each option has distinct advantages and disadvantages regarding liquidity, costs and security.
The key, as with all investments, is moderation. Avoid the apocalyptic narratives often attached to gold by its most fervent advocates. History teaches us that financial systems evolve, rather than collapse, completely, and diversification across asset classes remains your best protection against uncertainty.
Core principles are constant
I remain sceptical about gold’s role as a primary investment vehicle. My fundamental investment principles haven’t changed. One should focus on productive assets, maintain adequate diversification, and avoid emotional decision-making. Yet, in a world where traditional financial assumptions face unprecedented challenges, it’s worth considering whether a modest gold allocation might serve a purpose within those established principles.The choice ultimately rests with you, the investor. If, after a thoughtful consideration of the changing landscape, you believe a small adjustment to your asset allocation makes sense, that’s your prerogative. Just ensure that the decision aligns with your broader financial strategy, rather than representing an abandonment of sound investment discipline. The world changes, but the core principles of prudent investing remain remarkably constant.
The Author is CEO, Value Research
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This story originally appeared on: India Times - Author:Faqs of Insurances
