Gold is something that features in practically every household's list of valuables. It has long been held in high esteem as a physical asset which can be liquidated quickly at a substantial price. The adage is that if times are hard or to raise money for an urgent need, you can sell your gold anywhere in the world. However, in modern times, things have taken on newer forms. People have come to recognize that gold can only realize its true potential if it is actually sold. Lying idle in bank vaults and household safes, it may provide a snob value but very little.

So, what is the ideal percentage for the enlightened investor who wants to rationally allocate funds to gold. The range is quite large, experts recommend anywhere from 10% of your total investment portfolio going up to about 30%. But anything higher than that is simply not considered worthwhile.

In the Indian context, gold was traditionally used mostly as an asset for women in the form of ornaments. Since most of them were financially dependent upon spouses, gold was viewed as a safety net to fall back upon in times of crisis. However, this compelling need to hoard gold jewelry for the girl child has now taken a backseat in the middle class urban family today. With most of the focus being on their children's education and careers, families tend to keep gold as just one of the many assets in a diversified investment portfolio. Typically, for such a family, a baseline 10% allocation makes sense because of its merit as a relatively risk-free liquid asset.

Recent performance of gold as an asset has been exceptionally good, especially in the last five to six years. However, markets can fluctuate anytime and you shouldn't purchase gold in excessive amount. The aim should be to average out the cost of purchasing gold over the long term. If gold prices dip, the average investor should consider buying it, such that the total asset allocation doesn't exceed 15%. At the very maximum, one could go up to 20%, which also is in fact recommended only for the most risk averse investor who seeks reassurance in the promise of low-risk and potentially high capital appreciation benefits that gold is the most valued for.

On the other end of the spectrum, high net worth investors like to maintain a significantly higher percentage of this allocation. Wealthy and aristocratic families across the world still prefer to store assets in the form of gold bullion to protect their fortunes and safeguard inheritances. Prevailing political, financial and economic market scenarios are also instrumental in determining the prominence of gold purchases. Many people also like to include gold stocks and ETF's in their investment portfolio. While it may be healthy to include a mix of physical and paper gold, doing away entirely with physical gold is not recommended by the experts. After all, physical gold has the unique advantage of being the "safe haven" that gold has represented for centuries.