Key Takeaways:
- Macro Hedge: Strategic insurance against USD debasement, geopolitical shifts, and a new structural inflation cycle.
- Gold-Silver Ratio: Drastic compression from 103:1 to 50:1 makes silver an expensive, high-beta trade with unfavourable risk-reward.
- Allocation: Cap exposure at 10-15% of the portfolio, with at least two-thirds allocated to gold to manage liquidity risks.
Geo-political tensions, US Dollar weakness, strong flows and net longs derivative trades led to strong moves in gold and especially silver in the recent past. In the long run gold is a good diversifier and in the near medium term is seen a hedge against financial markets volatility.
Precious metals are playing as an insurance against debasement of dollar and geo political instability. Countries turning inwards would lead to protecting resources which could lead to persistent inflation (commodity cycle) vs the trend in prior years. These factors are driving performance in these segments.
Central banks are buying gold, with broadening demand. Risk off trades is alive. These are tailwinds for gold which could push upwards, with consensus pegging around 5500-6000 USD. Strong rebound in economy could trigger change in upward trajectory. Risk to reward is neutral at current levels.
Structural deficit, higher supply -demand imbalance due to industrial squeeze is leading to sharp up move in silver. Gold- Silver ratio dropped from ~103:1 level in early 2025 to 50:1 at current levels. Silver market is a smaller market compared to gold and a byproduct of other industrial metals. While mean reversion trade is done (refer chart), the ratio could still over shoot in the near term given the sentiments. Silver is an expensive trade compared to Gold as unwinding trade would be difficult when paper to physical narrows down. Risk to reward is unfavourable at current levels.
Exposure to these metals should be seen on a relative basis at current levels and on portfolio allocation basis vs standalone. Exposure to these metals should be capped to 10-15% based on risk appetite with more than two-third exposure to yellow metal. Silver is a high beta play. Sharp shift out of USD into safe havens due to political instability, institutional upheaval are key risks to our view.
DISCLAIMER
Representation: This article and information contents is for self-reference and general informational purposes only . This article/blog is published by FIRSTCOREADVISERS LLP (SEBI Registration: Awaited), a SEBI-registered Registered Investment Advisor regulated under the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013. Investments in securities are subject to market risks. Please read all relevant documents carefully before investing. The purpose of this article/note/blog is purely for information purposes. Nothing contained herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. All information provided in this document are subject to change without notice and is obtained from sources believed to be reliable. We do not represent that any information, including any third-party information, is accurate or complete and it should not be relied upon without proper investigation on the part of investor/s.
Performance and Risk: The performance data presented herein are not verified by Past Risk and Return Verification Agency (PaRRVA) or any other agency recognized by SEBI for this purpose. The performance data presented herein may not be comparable to performance data of any other IA. Computation of the performance may vary across the industry. Users are requested to apply their due diligence before making investment decisions on the basis of the given past performance data. Past performance is no guarantee of future results. Investment in securities is subject to market risk. Registration with SEBI or enlistment with IAASB is not a guarantee or assurance of future returns. As with any securities investment, the value of a portfolio can go up or down depending on the factors and forces affecting the capital markets. Past performance is no guide to the future. Returns mentioned anywhere in this document are not promised or guaranteed in any manner. The rate of exchange between currencies may cause the value of the investment to increase or diminish. Consequently, investors may not get back the full value of their original investment.
Advisory: Readers should not construe any information in this document as investment advice specific to their circumstances. Investment decisions should be made based on each individual's financial goals, risk profile, and personal circumstances after careful consideration of all relevant factors. The contents in this document should not be treated as advice relating to investment, legal or taxation matters. Each investor is advised to consult his/her own professional tax advisor for tax consequences. Any distribution or reproduction use of this communication in its entirety or any part thereof is unauthorized and strictly prohibited. The investments may not be suited to all categories of investors. While we endeavor to update on a reasonable basis the information discussed in this document, there may be regulatory, compliance or other reasons that prevent us from doing so.
Liability: FIRSTCOREADVISERS LLP does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. All information is for the private use of the person to whom it is provided without any liability whatsoever on the part of FIRSTCOREADVISERS LLP, any associated company, or employee thereof.
Engagement and Conflict of Interest: FIRSTCOREADVISERS LLP is engaged in advisory services and for the said services may earn fees in form of advisory fees. The Principal officer, Compliance officer or Persons Associate with Investment Advice (PAIA) could be holding existing positions in the securities covered in the article / information contents.
Standard Disclaimer: Registration granted by SEBI, enlistment with BSE and certification from NISM in no way guarantee performance of the Investment Advisor or provide any assurance of returns to investors