Hedge, don’t gamble with gold and silver

January-end saw a precious metal maelstrom. The unprecedented overnight shift of nearly $9 trillion in US equities—and the sharp sell-off in traditional safe havens such as gold—set the stage for extreme repricing. At one point, gold was down 9% intraday, erasing over $3.5 trillion in market value, while silver declined over 12%, wiping out more than $1 trillion in perceived wealth. This has been a dramatic repricing of risk assets and traditional hedges alike.

“This is not about fundamentals breaking. This is about position unwinding and policy uncertainty colliding. Over the last few months, markets were priced for perfection—rate cuts were baked in and liquidity was assumed. The moment policy clarity got delayed and global risks resurfaced, leverage came out violently, which is why equities, gold and silver corrected together. This is classic forced de-risking,” says Amit Jain, co-founder, Ashika Global Family Office Services.

However, the recent correction, or perceived “crash”, in precious metal prices does not signal a breakdown of their structural relevance. “Instead, it reflects short-term forces such as hawkish Fed repricing, a stronger US dollar, profit-taking after prior rallies, unwinding of leveraged positions, and increases in margin requirements,” says Sunil Katke, National Head-Commodities Retail Business, Kotak Securities.

Portfolio Hedge

Gold and silver should be positioned as part of a broader “commodity theme” that acts as a structural diversifier and hedge against global instability. In a landscape where traditional stock-bond correlations can break down, gold serves as “strategic insurance” or a neutral asset that protects purchasing power against erosion of fiat currency and geopolitical “regime risk.”

“While gold is viewed as a long-term anchor, silver is positioned as a high-beta satellite holding because its performance is more cyclical and volatile. Overall, these metals should be bought as a hedge rather than return maximisers,” says Rahul Singh, Chief Investment Officer, Equities, Tata Mutual Fund.

“Their primary role is to act as portfolio stabilisers—providing protection against inflation over long cycles, hedging currency and policy risks, and cushioning portfolios during periods when correlations across equities and other risk assets rise,” says Katke.

Risk Differentiation

Gold and silver have different drivers and risk profiles. Gold’s role in a portfolio is primarily strategic: it is driven by monetary factors such as real interest rates, inflation expectations, currency trends, and geopolitical risk. “Historically, it has lowered volatility and given strong diversification benefits during market stress, making it a core holding for stability, downside protection, and long-term capital preservation,” says Sirshendu Basu, Head, Product Management & Strategy, Bandhan AMC.

Silver, while also a precious metal, has been in short supply, with demand rising due to expanding applications in green energy, electrification, solar power, and other new-age technologies. These factors support its long-term price outlook. “However, silver is significantly more volatile than gold and is often subject to sharp speculative moves, requiring a deeper market understanding and a more tactical approach to allocation,” says Basu. Evidence supports more weight to gold for resilience and a measured allocation to silver to capture the growth-linked upside.

“Gold is insurance. Its value comes from trust, liquidity, and role as a hedge against currency debasement, geopolitical risk, and financial stress. Gold performs when real rates fall, currencies weaken, or uncertainty rises. Investors should hold gold for stability, not excitement. It is the anchor that protects purchasing power during drawdowns in equities and bonds,” says Jain.

Silver is a hybrid asset. Roughly half of demand comes from industrial uses, including solar panels, electric vehicles, electronics, and grid infrastructure. This makes it more sensitive to economic cycles. It tends to outperform gold during growth upswings and underperform sharply during slowdowns. Silver, therefore, adds volatility, but also optional upside linked to the energy transition and manufacturing cycles.

Core and Satellite

Although both are precious metals, gold and silver are driven by distinct fundamentals. “Gold remains primarily a monetary asset, influenced by real interest rates, central bank demand, and global risk sentiment, making it suitable as the core defensive allocation within a portfolio,” says Prasanna Pathak, Deputy CEO, The Wealth Company Mutual Fund.

Silver, by contrast, has a dual character. While it retains some safe-haven attributes, a significant part of its demand is driven by industrial applications—particularly in electronics, electric vehicles, and renewable energy infrastructure. This makes it more volatile and sensitive to economic growth and technology investment trends. “Within a portfolio, silver is better treated as a tactical or satellite exposure, offering cyclical upside during periods of reflation rather than primary insurance. Within the precious metals bucket, silver should comprise 20-30% (favouring gold for stability), held with a 2+ year horizon to capture the structural bull market. Gold can anchor the remaining 70-80%,” says Katke.

One of the better ways of deciding the allocation is the gold–silver ratio. It indicates how many ounces of silver are required to purchase one ounce of gold. The ratio is calculated by dividing the price of gold by the price of silver. On February 3, it was 56.

“The gold-silver ratio plunged from 103.5, to as low as 45, a period where silver outperformed gold, but bounced back again to 60. So, if the ratio is holding around historic lows, it’s time to buy more gold/ less silver, and if it's near historic highs, it’s time to increase silver holdings/ reduce gold,” says Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial.

Life-Stage Allocation

“For first-time earners, whose dominant goal is long-term growth and they are still accumulating capital, precious metals should play a limited stabilising role. An allocation of 5–7% of the overall portfolio is typically sufficient, with a strong bias towards gold over silver, as gold dampens volatility without materially diluting equity-driven returns,” says Singh.

Mid-career professionals, whose incomes and portfolios are more stable, should focus on balancing growth with stability and diversification. “At this stage, an 8–12% allocation to precious metals can improve portfolio resilience. Gold should continue to form the core holding, while silver may be introduced selectively to capture cyclical and industrial-demand-led upside,” says Singh.

For high-net-worth households, capital preservation and protection against systemic, policy, and currency risks become important. Precious metals can therefore be a larger strategic allocation, typically 12–18%, and in some cases modestly higher during periods of elevated macro uncertainty. Even here, gold remains the anchor, while silver is best positioned as a smaller, tactical exposure.

SIP, ETFs Tame Swings

SIPs are the best way to accumulate gold and silver as price and time should not matter for long-term holders. “Products like ETFs are one of the alternatives for first-time earners/mid-career professionals” says Mer. For HNIs, too, ETFs are best for accumulation; they can earn a little higher by leveraging the derivatives market.

Investors who are planning to purchase jewellery in the near term may consider physical gold. However, physical holdings generally carry liquidity risk, potential discounts at the time of resale, and concerns related to storage, insurance, and theft. “If the preference is physical gold, investors may consider MCX Gold Guinea or Gold Petal futures contracts, which offer 999 purity gold with a digital delivery option, ensuring better standardisation, transparency, and ease of settlement,” says Saumil Gandhi, Senior Analyst - Commodities at HDFC Securities.

Incremental Investment

At current price levels, aggressive lump-sum investments in precious metals may not be optimal for most households. “A more prudent approach is periodic portfolio review and rebalancing, particularly for investors whose gold allocation has increased meaningfully due to recent price appreciation,” says Pathak.

For those looking to increase exposure, systematic investment routes mitigate timing risk and smooth entry costs. Completely avoiding fresh allocation due to opportunity costs in equities or other growth assets may undermine portfolio stability as the primary role of precious metals is risk diversification rather than return maximisation.

Agrees Akash Hariani, Joint MD, Motilal Oswal Private Wealth. “For households already holding gold and silver, the most sensible approach is rebalancing towards long-term target allocations. For new or incremental exposure, staggered accumulation at a current level is preferred over aggressive buying,” he says.

“Investors should also rebalance more frequently in silver than in gold. Sharp rallies in silver are often followed by deep corrections. Gold, on the other hand, rewards patience,” says Jain.

Gold and silver remain relevant—not as trades, but as tools. Gold provides stability when markets fracture; silver adds selective upside tied to growth cycles.