Why a fund-of-funds could be an all-season approach for investing in gold and silver
Gold has gained sharply this year due to central bank buying, global uncertainty and prospects of rate cuts. Silver has also seen a sharp rise this year due to its precious metal appeal and industrial demand.
A basic rule of investing is having gold and silver in one's portfolio due to these precious metals' ability to protect and grow wealth. In contemporary times, when uncertainty is high due to sticky inflation, currency volatility, and geopolitical instability, gold and silver are hogging the limelight.
Why to invest in precious metals?
Investment in equities and debt is extremely helpful in creating wealth over a longer period. However, these two asset classes are prone to risks such as inflation, rising interest rates, and geopolitical shocks.
During times of economic and political uncertainties, gold acts as a safe-haven asset that protects and grows wealth.
Apart from gold, silver has also seen a sharp rise this year due to its precious metal appeal and industrial demand.
Experts say gold and silver form a powerful duo as gold provides stability, and silver brings opportunity.
It is well-known that gold's appeal rises during wars, recessions, and market crashes. Historically, it has given healthy returns during uncertainties.
During normal times, gold acts as a key diversifier with low correlation to stocks and bonds.
Moreover, the yellow metal remains a key ingredient of central bank reserves, and according to reports, foreign central banks now hold more gold than US treasuries for the first time since 1996.
Rate cuts, tariff-related uncertainties and geopolitical tensions are driving investors to the precious metals.
"The principal reason for the outperformance of gold during the last 3 years has been the sustained buying by central banks following the Biden administration freezing Russian investment in US sovereign bonds," said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Silver's high industrial demand in sectors like solar panels, EVs, semiconductors, and electronics makes it an attractive investment asset.
Experts underscore that due to its growth linkages, it offers higher upside potential than gold.
Experts point out that silver’s outlook is shaped by scarce supply amid rising demand from industries like solar and electric vehicles.
The gold-silver ratio, currently at 91.3 versus a long-term 69.8, highlights its relative undervaluation. Though timing silver cycles can be tricky, its upside during economic recoveries makes it a compelling opportunity.
Diversification a key factor
Experts argue that investors should consider blending gold and silver for investments because of their low correlation with equities as well as with each other.
"Gold and silver tend to behave differently across market cycles. This low correlation means that when one metal stagnates, the other often provides support. As a result, a dual allocation creates multi-regime diversification," said Vijayakumar.
"Silver tends to outperform during times of high industrial demand, while gold rises in times of uncertainty. Switching effectively between them requires constant monitoring, data-driven signals, and disciplined execution, something most individual investors find difficult to manage," Vijayakumar said.
FoF: A dynamic way to invest in gold, silver
Experts say a passive fund of funds (FoF) is an effective tool for retail investors to invest dynamically in gold and silver exchange-traded funds (ETFs).
The benefits are many. For example, FoF enhances tax efficiency by avoiding frequent capital gains events.
Moreover, it is managed by professionals, so allocation decisions are guided by a quantitative, data-driven model rather than guesswork.
Retail investors need not make much effort to diversify their portfolios. FoF automatically gives them exposure to both metals, ensuring balance across defensive and cyclical regimes.
Experts say a dual allocation through a professionally managed, tax-efficient passive FoF structure enables investors to draw on the best of both worlds. By combining the resilience of gold and the potential of silver, a gold–silver FoF helps investors prepare for all seasons of the market.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.