How bad can a gold crash actually be? Worried about my Rs 25L gold portfolio if interest rates stay high.

Gold can and frequently does correct by more than 20% during periods of economic stabilization and rising interest rates. While the upward trajectory of gold during crises is well-documented, investors often ignore its history of severe, prolonged drawdowns.

Take the massive correction between 2012 and 2017. Following the 2008 financial crisis, massive money printing caused gold to gain tremendous steam. But by 2012 as global economic policies found their footing, gold peaked at around $1,800 and steadily declined to $1,100 by 2017.

Investors lost both significant capital and years of time. Interest rates also play a massive role. In the 1970s, rampant inflation led to aggressive rate hikes by the US Federal Reserve.

When interest rates rise, the yields on government bonds and fixed deposits increase. If investors can earn a risk-free 7% on government bonds compared to a non-yielding return on gold, capital naturally flows out of the precious metal. This exact dynamic caused gold to correct from $662 in 1980 down to $352 by 1993, which is a near 50% drop.

Another major trigger is government selling. Right now central banks in India and China are aggressively buying gold. But if governments decide to liquidate portions of their treasury reserves to manage fiscal policies, a massive spike in supply will cause prices to correct sharply.

Your Rs 25L gold portfolio is not immune to these macroeconomic shifts. It is crucial to understand that gold moves in cyclical patterns of massive rallies followed by steep corrections.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.