There is, unfortunately, no rule of thumb for answering this question. You should look at how much of your portfolio you want to keep as a hedge against potential inflation. Increase your gold exposure if the economy and stockmarkets are highly volatile and you see a lot of uncertainties.
Under normal conditions, if you have a well-diversified portfolio, you can look at holding 2-5 per cent of it in gold. Today, if you have concerns about your equity investments or the currency of the country holding strong, you can hike this even up to 10 per cent.
Ideally, you should look at gold as an investment that you can hold and use. If you or your dependents anticipate a future need for gold, like a marriage, you could invest in gold and convert this into jewellery at the appropriate time.
The ideal way to build your portfolio of gold is to invest in it regularly. This way, you average out your price of purchase and can get higher returns when you decide to encash your gold holdings.
Do not look at gold as the part of your portfolio that will provide the 'kicker' of returns. If you have bought gold in the last six months, you would have got fantastic returns, but that is only a bonus. You should buy gold for the safety it provides, and not because it is likely to make you rich beyond your dreams.
Photographs: Ted Aljibe/AFP/Getty Images
Image: A store assistant arranges gold necklaces for sale.
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