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'Gold has no fundamentals': Nilesh Shah warns investors against overexposure despite rally - BusinessToday

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  Published in Stocks and Investing on Sunday, October 19th 2025 at 5:39 GMT by Business Today
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Gold’s Current Rally: A Mirage or a Strategic Opportunity?
An in‑depth look at the recent surge in gold prices, expert warnings on overexposure, and the underlying fundamentals—or lack thereof.

1. The Bullish Surge in Gold Prices

In the past few months, gold has enjoyed a remarkable rally, breaking multiple resistance levels and drawing the attention of both retail and institutional investors. The article from Business Today reports that the metal has climbed to its highest levels in years, buoyed by a combination of geopolitical tensions, inflationary fears, and a weakening rupee. A 12‑month chart shows a near 15% appreciation, with the spot price hovering around ₹1,800 per 10‑gram after dipping to ₹1,400 earlier in the year.

The rally has been accompanied by a surge in demand from jewelry makers, the real‑estate sector, and the growing segment of retail investors seeking safe‑haven assets. In India, where gold is deeply entrenched in culture and financial planning, this surge has amplified concerns about market bubbles and potential mispricing.

2. Fundamentals That Seem to Vanish

Central to Nilesh Shah’s caution is the assertion that gold’s recent gains are not rooted in solid fundamentals. Shah, a seasoned commodity analyst, highlights several key points:

• Inflation‑Risk Premium vs. Real Returns: Although inflation has indeed been above the Reserve Bank of India’s (RBI) target band, Shah argues that the premium earned on gold does not match the historical yield, especially when compared to Treasury bonds and corporate equities that now offer higher real returns.

• Erosion of Real‑Yield Advantage: In an environment of rising real yields, the attractiveness of a non‑income‑generating asset like gold diminishes. The article points out that real yields have crossed 2% in the last six months, thereby eroding the premium that historically justified gold’s safe‑haven status.

• Supply‑Side Constraints: While gold mining production has plateaued, the article notes that central bank gold sales have been relatively steady. However, these sales are insufficient to counterbalance the influx of new retail investments, creating a supply‑demand imbalance that may not be sustainable.

• Currency Dynamics: The rupee’s depreciation has played a pivotal role in supporting gold prices. Yet Shah warns that this relationship is highly volatile and may reverse if the rupee stabilises or strengthens due to policy shifts or market sentiment.

The article quotes Shah’s view that “gold has no fundamentals that can support this rally over the long term.” He cites recent RBI statements on monetary policy and the expectation of a gradual tightening cycle as indicators that the metal may be overvalued.

3. Overexposure: The Core Warning

Shah’s primary concern is the rapid build‑up of exposure among retail investors. The Business Today piece cites a survey by a leading financial services firm that found that over 60% of new gold investors entered the market during the last quarter, often in lump‑sum purchases or large bullion orders. Such behaviour, according to Shah, inflates prices beyond what supply dynamics can support and heightens the risk of a correction.

• Retail Investor Psychology: Shah points out that many investors view gold as a “one‑stop safe haven” during times of uncertainty, a perception that fuels the demand cycle. However, he emphasises that such an approach neglects the need for diversification and the risk of losing liquidity during market stress.

• Institutional Footprints: The article also highlights that large pension funds and sovereign wealth funds have increased their gold exposure, partly due to mandates to hold physical assets. While this institutional weight provides a stabilising influence, it also contributes to a perception of gold as a “safe‑haven” that may not be backed by fundamentals.

• Potential for Price Correction: Shah warns that a sudden reversal—triggered by a shift in monetary policy, a strengthening rupee, or an improvement in global equities—could lead to a sharp decline in gold prices. Such a correction could cause significant losses for investors who entered during the peak.

4. Market Dynamics: What Drives the Current Rally?

The article delves into the complex interplay of macro‑economic factors that have propelled gold higher:

• Geopolitical Tensions: Ongoing uncertainties in global politics—particularly the U.S.–China trade friction and Middle Eastern conflicts—have increased demand for safe‑haven assets.

• Inflation and Monetary Policy: With inflation remaining stubbornly above RBI’s 4%–6% target band, investors seek instruments that can preserve purchasing power. Although the RBI has signalled a potential tightening cycle, the expectation of continued inflation has kept gold in favour.

• Currency Volatility: The rupee has weakened against the dollar, which has traditionally supported domestic gold prices. Shah notes that this effect is often temporary, however, and can be overridden by broader market sentiment.

• Interest Rates and Real Yields: The article provides a link to a Business Today piece on the RBI’s policy stance (“RBI’s Monetary Policy Decision – What Investors Need to Know”). This article explains that higher real yields on government securities can undermine gold’s appeal, but the current yield differential remains in favour of gold.

5. A Balanced Perspective: Diversification and Risk Management

While Shah’s cautionary tone is evident, the Business Today article does not paint gold’s future as bleak. It stresses the importance of a balanced portfolio and prudent risk management:

• Allocation Limits: Experts suggest limiting gold exposure to no more than 10% of total assets in a diversified portfolio, especially for those seeking growth rather than pure preservation.

• Timing and Entry Points: The article advises investors to use systematic investment plans (SIPs) or dollar‑cost averaging to mitigate the risk of buying at a high. This strategy smooths out entry points and reduces the likelihood of overexposure.

• Alternative Safe‑Havens: For investors seeking yield, the article references a linked piece on “Best Low‑Risk Investment Options in 2025” that highlights high‑quality bonds, dividend‑yielding stocks, and even fixed‑income mutual funds as alternatives.

• Monitoring Fundamentals: Regularly reviewing key metrics—such as real‑yield differentials, central bank gold holdings, and global inflation trends—can help investors adjust exposure before the market moves sharply.

6. Conclusion: A Call for Discernment

The gold rally has undoubtedly drawn significant attention, but according to Nilesh Shah, its foundation is fragile. The Business Today article urges investors to approach the market with caution, recognising that a short‑term price surge can be decoupled from long‑term fundamentals.

The article concludes that while gold can serve as a defensive instrument during periods of uncertainty, its role should not eclipse the importance of diversification and a focus on real returns. By following disciplined investment strategies and remaining vigilant about macro‑economic indicators, investors can protect themselves from the potential pitfalls of an overvalued gold market.

Key Takeaways

1. Gold’s recent rally is driven largely by geopolitics, inflation, and currency depreciation, not solid fundamentals.
2. Overexposure among retail investors is a major risk; a correction could trigger significant losses.
3. Diversification, disciplined entry strategies, and regular monitoring of macro‑economic fundamentals are essential to navigate the current gold market.

This comprehensive overview encapsulates the article’s core message and offers a nuanced perspective on the evolving gold landscape.