Summary of this article
Gold is in a once-in-a-generation bull market, driven by debt, inflation and uncertainty.
Rising investor demand could make gold more volatile, with liquidity posing a key risk.
Dhawan suggests 5-15 per cent gold allocation, rebalancing periodically and buying through ETFs.
Gold has for long been considered a safe-haven asset, and recently, it has emerged as one of the best performing asset classes. At Outlook Money’s The Money Question event in Mumbai on September 23, 2026, Vikram Dhawan, fund Manager, Nippon India Mutual Fund, spoke about gold’s rally, its role as a hedge and diversification tool, and the factors that could affect gold prices. Here are the edited excerpts from the interview.
Gold is still glittering despite some corrections. It is still very high. There are questions in the minds of people: will this rally continue? So what is your sense on that?
I think before I give any presentation on gold, I have mentioned one thing: two of the very accomplished people in the market, Warren Buffett and Ben Bernanke, have said that they don’t know anything about gold and they haven’t made any investment in gold. So, it means two things: if you are confused about gold, you are in august company, and secondly, be watchful of what I speak also.
We are in the middle of a once in a generation bull market. And I think it’s very important to understand the dynamics and mechanics of this bull market. Gold is not just the best performing asset class of the past 2-3 years. Gold is also the best performing asset class of this century. Gold is considered to be a diversification and a hedge as well as insurance. So, if the best performing asset class of your portfolio is your insurance, then it means something: that either something is broken or about to break.
In the year 2000, the total sovereign debt globally (sovereign debt is the debt which is in the books of the central banks), was about $20 trillion, and total global debt was $80 trillion. Fast forward to 2026, the total sovereign debt is $110 trillion, and total global debt is $370 trillion. Which means in the past 25-26 years, we have been adding anywhere between $3-4 trillion worth of sovereign debt and about $10-12 trillion of global overall debt.
Now it does 2-3 things. First of all, with so much debt, if global GDP (gross domestic product) is $100-110 trillion, the debt to GDP ratio is three-and-a-half times. It does 2-3 things. First, what we are seeing in the bond markets today: nobody expected this bond market angst to happen right now. People were expecting it after our retirement, 20-30 years down the line. But today, people are asking for higher returns on bonds because they see visibility of deficits, they don’t see visibility of fiscal discipline.
Second, when there is so much debt, it may reach an inflection point when the credit risks may rise. And that is the reason why central banks are buying gold, because gold is the only frontline asset class which doesn’t have a credit risk. So, central banks are buying because of that. Large investors are buying gold because people who are building generational wealth, they cannot forecast when this reckoning in the bond market will happen, when the reckoning in the climate will happen. But if you are building generational wealth, you need something in your portfolio that whenever that happens, there is at least one part of your portfolio which is protected.
And last but not the least, when you have such a big debt, then the biggest enemy for you is deflation. Deflation happens in an overall debt of $400 trillion. If there is a 5 per cent contraction of the global GDP, it can result in anywhere from $5-10 trillion of output gap.
This would be devastating for the people and the global economy. So, what the central banks have to do is, they have to ensure to ward off deflation, which means they have to tolerate higher inflation, and they cannot raise their interest rates too much, which is what we are seeing right now. Most of the central banks are planning to cut, including RBI (Reserve Bank of India). So, I think all these reasons make it very conducive for investing in gold.
There are two sharply contrasting narratives playing on gold. Some brokerage firms have predicted that gold is likely to touch Rs 3 lakh, while on the other side it’s said that gold will fall below Rs 1 lakh. So, investors are a bit confused. What is your assessment on this?
The reason is very simple: today, if you have college or school-going children in your house, you have elderly who have got medical bills, you have shifted to a new city or a new country where you have taken a house on rent, your household inflation is not 4-5 per cent, but in double digits. That is why, if your portfolio does double digits, you don’t feel rich.
So, that is why people will make fun of people trading crypto, or silver, or leveraged bets, but the fact of the matter is that subconsciously what we have realised is that unless, of course, you have so much of money or very little expenses, you are close to headline inflation, but at the end of the day, if your investments are not beating inflation by a good margin, you will never ever feel that kind of the surge that is happening.
There are also 2-3 things that can go wrong. Today, the biggest risk, and especially to Indian equity markets, is the freezing of the yen carry trade. To give you an example, yen for a very long time was available at 0 per cent negative interest rates, and again, these numbers are very anecdotal, but as for the size, it can be anywhere between $4-6 trillion. So, if $4-6 trillion investments are unbound in a very short period of time, this will lead to liquidity in the market. And this is another reason why we are seeing so much outflows in the emerging market equities because of the yen carry trade being under threat. If that happens, then that liquidity crunch will also blow over to gold. And we have seen in the case of Covid, in the case of 2008 (global financial crisis) . There comes a point in every market when there is no liquidity, when you cannot sell your bonds and equity, you start selling gold. So, I think liquidity is one thing which can really affect the gold prices.
Also, one more thing which is very important for everybody to appreciate is that 2025 was the first year where the investment demand of gold was more than the demand for physical jewellery. Now, this is a good thing that investors are getting more curious and more gung-ho about gold. But whenever any asset class, whenever any commodity gets dominated by investors, it will have very large volatile moves. You will have protracted bear and bull markets. So, be prepared for that.
Gold has had a big bull run over the last 2-3 years. So, considering the current valuation, do you still believe that this is still a hedge against inflation?
I think more than inflation, what I would really look for in gold is what I discussed earlier: debt. That’s part of it. Climate is also a very important thing. I think these are very long term. We don’t know what the impact of climate will be. We have seen what has happened in Nepal. The Himalayas have started heating up, and are heating faster than the other mountain ranges. And whenever the mountain ranges heat up, the large glaciers tend to loosen up, and all it takes is an earthquake to bring that large chunk of ice down. It can happen in Switzerland, it can happen in Nepal, it can happen anywhere in the world. So, we don’t know. These are things which are out of the box. We don’t know how this debt problem the world has, high indebtedness, will play out.
So, then what do you do with that? One of the things is obviously to sit on cash, but then you will probably become even poorer in real terms. You have to diversify your portfolio, you have to invest in certain asset classes, securities, which you feel can give you that return, or have diversity in your portfolio. I think gold, and to some extent silver, tick all the boxes. That’s one place for gold.
Second, the world seems to be getting a bit desynchronised as far as global trade is concerned. I am not saying we are moving away to de-globalisation, but we are getting more desynchronised. Every country is now looking after themselves, which means that we may be shifting to 20, 30, 40 years back where the world was not completely in sync. You could have regions doing extremely well, you could have regions doing extremely badly, which means volatility in the financial markets will spike up. And gold, as you know, is a very good hedge against currency. So, I think there are a lot of things which, besides return, I would say the insurance or the hedging part of gold is something that you need to convince yourself of. Whatever returns you are getting is a bonus.
Experts always suggest that there should be some allocation to commodities. So, what according to you should be the allocation in gold, typically? 5-15 per cent?
I think it depends on the portfolio. If your portfolio is skewed more towards fixed income, then you are looking at commodities more for return and not for hedging because you already have fixed income in it. In a portfolio which is skewed more towards equities, you are looking towards commodities as a hedge or diversification. So, statistically what we have seen is allocations below 5 per cent and above 15 per cent is suboptimal. That’s because if you have a 2 per cent allocation to gold and something happens in the bond and currency market, it is not giving you the tailwind that you need in your portfolio. Why not more than 15 per cent? That’s because gold and silver and many commodities have this tendency to go into some sort of flattish sort of markets for many quarters. Since gold and silver and other commodities don’t pay you dividends or any coupons, it can be a drag on your portfolio. This is a broad range, but again, it is very specific to each particular portfolio.
So, basically you mean to say that this 5-15 per cent is across commodities or just in gold or silver? And suppose if somebody has already invested, say, 15 per cent in gold, what would be your advice for that investor?
So, I think 15 per cent is pretty much high of the range. And what one could also do is value rupee averaging. If you have got 10 per cent allocation to gold and it goes to 12 per cent because of appreciation, bring it back to 10 per cent. Similarly, market falls, corrects, and it moves to 8 per cent, increase it, take it back to 10 per cent. By doing this, you will be always selling high and buying dips. In a longer period of time, it will allow you to sort of at least outperform gold prices.
Now, in terms of other commodities, gold is a commodity which you look at first. Then you can look at silver. But obviously, as we talk, there are other commodities which are also around. Like copper, which is now at a place where silver was five years ago. But don’t expect similar explosive returns in copper because copper is a bulk commodity, not a high priced commodity like silver. But there are other commodities also which are around. Do your math, do your research, and then invest.
As you rightly mentioned, investors are investing more in gold, but things have changed over the period of time. Now investors are looking at exchange-traded funds (ETFs) as an investment rather than just the earlier form of jewellery or some other form. So, what would be your suggestion to investors who are looking to invest through ETFs?
I think globally what we have seen is there’s a negative correlation between the demand for jewellery and ETFs. That’s because no matter how much I tell you that gold is not a momentum play, we get excited when the price goes up. And that is not just us, it’s all across the world.
Whenever gold prices are in upward momentum, the investment flow rises, and since gold becomes expensive, the demand for jewellery falls down. And the reverse happens when gold falls down, you see the investors selling and jewellery demand goes up because it becomes cheaper to buy. So, do that, do the opposite: buy gold through ETFs at dips, or on a systematic basis, not the other way around. And they are the best way, the most appropriate way to invest into gold. And they are, as per the stock exchanges that we have in India, pretty safe, liquid and convenient.
