By Rishabh Nahar
THE FOUNDATION OF sound investing is asset allocation: not merely chasing the highest returns. Gold and silver play a vital role here, offering diversification that cushions against inflation, currency depreciation, geopolitical uncertainty, and
systemic shocks.
Strategic diversifier
Gold’s historical appeal lies in its ability to store value, independent of any company’s earnings or government’s promises. Even though it does not generate cash flow, gold offers something equally valuable: it reduces portfolio drawdowns and preserves capital.
Over the past year, gold has delivered a remarkable 40% return, particularly notable as the Nifty index remained flat. Yet, zooming out for a 5-to-10-year view, gold’s returns are moderate, steadily outpacing inflation but trailing equities. The key insight: gold’s primary value lies not in spectacular returns, but in its function as a risk mitigator and strategic diversifier. Gold isn’t about beating the market, it’s about building resilience and maintaining balance.
Silver adds a unique twist
Silver is often seen as gold’s more unpredictable counterpart. Its greater volatility brings risk but also opportunity as its value reflects both investment demand and industrial applications, ranging from solar panels to semiconductors. As the energy transition and technological innovation accelerate, silver’s dual identity as a monetary and industrial metal enhances its appeal.
Currently, the gold-to-silver ratio is unusually high, implying silver may be undervalued relative to gold. For those looking to add tactical ideas within a strategic framework, silver offers asymmetric potential: it can deliver outsized gains in favourable environments, complementing gold’s steadying influence.
How much exposure?
A 5–10% allocation is prudent for most investors. This does not undermine aspirations for equity-led growth but adds a layer of protection and stability. Think of it as affordable portfolio insurance that never expires.
Some argue that precious metals “don’t do anything.” But that’s their greatest strength. In a world where assets are chasing yield or growth, having something in your portfolio that simply holds its ground during crises is incredibly valuable.
From sovereign gold bonds and exchange traded funds to physical bullion, options abound that suit various needs. The recent launch of silver ETFs has made diversified exposure even more accessible, allowing investors to sidestep the operational challenges of physical ownership.
The true lesson from decades in the market is the value of owning uncorrelated assets. Whether through gold’s stabilising force or silver’s dynamic potential, these are not about timing the market or betting on disaster. They are about preparation: balancing risk, reducing volatility, and helping stay invested through all cycles.
The writer is partner, Qode Advisors