Yes. For three reasons.
Get diversification advantage. Anytime is a good time to buy gold if the aim is an efficient portfolio.
A portfolio is efficient if it contains assets (like stocks, bonds, real estate and gold) that do not move up or down together. The aim of adding products to a portfolio is to bring the overall risk down by diversifying across assets.
The addition of gold, for example, to a portfolio will help move it to a higher level of portfolio return for the same risk or to the same return for a lower risk. Gold in a portfolio adds to liquidity, especially in distressed financial systems, acts as a hedge against inflation and is a solid store of long-term value.
These are enough compulsions for every portfolio to own gold, irrespective of timing.
Exploit 'recency' bias. Two, timing. But why are we saying this now? Behavioural finance has identified what it calls a 'recency' bias, or the propensity of people to invest in a thing that has been in the news.
Since the rush of gold-related news in the last month could not have escaped your attention, here is a good time to catch this bias and introduce the metal into your portfolio.
Gold analyst and CEO of GFMS Metals Consulting, Paul Walker, estimates that conditions will continue to favour investment in 2008 and that the net new dollar inflow into gold will increase substantially over the 2007 level.
Text: Veena Venugopal, with additional reports from Kayezad E Adajania & Rajesh Kumar.
Photographs: Indranil Mukherjee/AFP/Getty Images
Image: A customer selects gold bangles at a Tanishq jewellery showroom in Mumbai
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