scorecardresearchAdding a sparkle: Why you should add gold & silver to your portfolio?

Adding a sparkle: Why you should add gold & silver to your portfolio?

Updated: 14 Feb 2023, 03:39 PM IST

Are investments in equity and debt funds enough? What happens if you add gold and silver to your investment portfolio?

Choose to blend both gold and silver in your investment portfolio.

Choose to blend both gold and silver in your investment portfolio.

When it comes to investing in the market, mutual fund houses know how to keep us hooked. Sometimes, they will launch the same kinds of mutual funds under different names and varied asset allocations; in others, they will include some commodities to lend the much-needed hedging effect. 

Welcome to mutual funds that allow you to invest in both gold and silver. This is not the first that gold or silver investments have been announced for people to invest and earn good returns. Many investors put their money in gold and silver exchange-traded funds (ETFs) to avail themselves of the benefits of rising gold and silver prices. 

As the stock market undulates between frequent highs and lows, the less volatile nature of these metal prices lends much-sought stability while helping necessary returns. Then, asset management companies (AMCs) made investing easy for investors who do not have Demat accounts or are shy from buying and selling ETFs. 

For example, the Edelweiss Gold and Silver ETF Fund of Fund that ensures the allocation of investors’ money in both gold and silver. Some mutual fund houses launch products that allow exclusive investments in either gold or silver, for example, the Axis Gold Growth Fund or the recently launched HDFC Silver ETF Fund of Fund. With so many such funds being sold, one wonders if it is worth investing in both gold and silver while planning our investments.

Gold and silver prices differ

Both gold and silver are synonymous with gloss and glaze. However, their prices depend on the demand-supply forces and how industries around the world respond to their availability and industrial use.

Past results have shown how the prices of silver have fallen and risen drastically in the past many years. Gold prices have comparatively grown at a much more stable pace, thus, explaining the propensity among investors to use this yellow metal to hedge against inflation.

Viral Bhatt, Founder, Money Mantra said, “A lot depends on economic conditions. Gold is often seen as a safe-haven asset, and its price can rise during times of economic uncertainty or instability. For example, during a recession, investors may flock to gold as a hedge against inflation and currency depreciation. A change in currency exchange rates is another factor affecting gold prices. Gold is traded in US dollars, so changes in the value of the US dollar can affect the price of gold. If the US dollar is strong, gold may become more expensive for holders of other currencies, lowering demand and causing prices to drop.”

Silver may find its place in jewellery though you will find it mostly preferred for industrial use. Considering the current geopolitical tensions, the stock market has caused many stock market traders and investors to feel distressed.

Dev Ashish, Founder, Stable Investor said, “Historically silver has been a lot more volatile than gold and is a cyclical product. And unlike gold, silver isn’t just a precious metal and has use cases across different industries as an industrial base metal. And it is for this reason that even though it is one of the precious metals, it can’t be used as a hedge against economic uncertainties. Silver may do well in spurts and is in general an inconsistent performer. It is more of a timing-based tactical bet candidate for sophisticated investors and traders (and not a long-term strategic investment) who know what they are doing. While precious metals should be part of an investor’s long-term portfolio, the overall allocation should be limited to 5-15% allocation. And even within that, the major allocation should be to gold and not silver. In fact, it is perfectly fine for most small investors to skip investing in silver totally.”

Relationship between gold and silver prices

Numbers suggest a high correlation between gold and silver prices. In light of current gold and silver prices coupled with the continuous undulation of the stock markets, many investors are betting on a drastic change in the prices of both these commodities.

Saurav Srivastava, a Certified Financial Analyst says, “From a store of value perspective, gold is a good asset to hold because the supply of gold is limited and, therefore, the value of gold has been very stable. Silver on the other hand is not a good store of value because its price has come down due to increased supply whenever its value has increased sharply over a short period of time. Having said this, businesses have created more value and generated more returns than gold and silver in the last few centuries. Volatility in the stock market is common and therefore the investments in equities should continue.”

Should you invest in precious metals?

You have both equity and debt in your investment portfolio. This means that you are riding the wave of the stock market already. However, the following statistics also highlight the importance of having some gold, if not silver in your portfolio. Not that silver does not fetch good returns. Its commonality causes the metal’s prices to fall drastically.

Name of the gold or silver fund

Five-year returns 

(in %)

Equity and debt funds

Five-year returns 

(in %)

Axis Gold Growth Fund 13.16Canara Robeco Bluechip Equity Fund14.87
Kotak Gold Fund Growth12.93Quant Mid Cap Fund20.27
Invesco India Gold Growth Fund 12.76Axis Small Cap Fund19.86
Aditya Birla Sun Life Gold Fund Growth12.75PGIM India Flexi Cap Fund15.74
HDFC Gold Fund Growth 12.52Templeton India Equity Income Fund14.33
Quantum Gold Savings Fund Regular Growth12.47ICICI Prudential Value Discovery Fund14.66
Source: MoneyControl

Many investors are unable to bear this level of volatility and, hence, the obvious choice of ensuring a minor allocation to both gold and silver. The allocation to gold, however, should be more than the amount you spend on investing in silver. Also, when it comes to gold, adopt a long-term approach whereas, in silver, a tactical approach will enable you to benefit from the sudden price rise. 

We draw a comparison between digital gold, gold ETF and gold bonds. 
First Published: 14 Feb 2023, 09:11 AM IST