Gold and silver retreat from peaks: Here's what the price reset means for your portfolio

When sentiment sours, it makes any asset class look ordinary. For gold and silver, this is one such moment. Everyone’s hot favourites in January, these precious metals have lost their sheen. Amid the sound of war drums, both gold and silver have uncharacteristically retreated from their lofty perch. From its peak on 29 January, gold has fallen nearly 20%, from Rs.1,75,000 per 10 gm to Rs.1,41,800 per 10 gm. Silver has taken a bigger beating. Its price has fallen by 45%, from Rs.3,96,000 per kg to Rs.2,19,500 per kg. The FOMO (fear of missing out) crowds have long vanished, licking their wounds. Gold exchange-traded funds (ETFs) have seen net inflows plummet from a record Rs.24,000 crore in January to net outflows of Rs.725 crore in May, before seeing net inflows of Rs.3,400 crore in June. Silver ETFs saw net outflows for four consecutive months, from February to May, before recovering in June. When will the safe-haven assets find their footing again?

Safe havens in retreat

Gold and silver put on a show of resilience in 2024 and 2025 amid market dislocations, cementing their status as safe havens. Both precious metals initially seemed to benefit from the rising “geopolitical risk premium” embedded into their prices. Eventually, speculative, momentum-driven flows drove the prices up vertically. But as the West Asia conflict entrenched itself, disruption in oil supplies pushed oil prices higher, stoking fears of inflation and possible rate hikes. Consequently, a spike in US Treasury yields has pushed the US dollar higher. Both are negative for gold and silver.

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Investors’ focus has clearly shifted to the anticipated rate hikes by US Federal Reserve, with factors such as central bank gold-buying and industrial silver demand taking a backseat. The precious metals are now more sensitive to the moves in the US dollar. Chirag Mehta, Chief Investment Officer (CIO) , Quantum Mutual Fund, observes, “After an extended rally, profit booking in gold due to rebalancing of portfolio amid stress on other assets, and fundamentally a strengthening of the US dollar and real yields led to a pullback.”

Experts insist that the correction is not merely a case of mean reversion in prices. Kunal Valia, Founder, StatLane, a registered research analyst, insists the correction was primarily a rates-driven repricing rather than mean reversion. “Both metals had appreciated at a pace that left little room for disappointment, and when the Federal Reserve adopted a more hawkish stance and real yields moved higher, the opportunity cost of holding non-yielding assets reasserted itself. Crowded positioning then unwound with characteristic speed.” He further remarks that silver’s materially steeper correction reflects its dual identity. It trades as both a monetary asset and an industrial commodity, and during this episode it came under pressure on both fronts.

The rise. The reversal

The next leg of the journey

After a record run, the sharp correction in the two precious metals has removed some of the excesses. However, this does not necessarily mean the slide is over. What is happening currently is a necessary normalisation, avers Ashwin Patni, Head, Wealth Management Solutions, Julius Baer India. “We should not forget that even with the large correction that we have seen between February and July this year, gold prices remain up over a one-year period and significantly up over 3- and 5-year periods. The excess was probably larger in the case of silver – which is a shallower market –and we have seen a sharper correction accordingly there,” he adds.

Most experts maintain that the longterm thesis for gold and silver is still intact. The recent correction has repriced the asset class; it has not invalidated the long-term investment thesis, Valia asserts. Varun Fatehpuria, CEO, Daulat Wealth Management argues, “The structural supports— sustained central bank accumulation, resilient Asian consumer demand, and persistent concerns around US debt levels— remain firmly in place.”

Patni says, “The structural grounds for gold remain the same–to act as a portfolio diversifier during higher macro and inflationary uncertainty. The other big theme of reserve diversification and a more fragmented global order have also not gone away.”

Mehta observes that expectations of further Fed rate hikes have pushed real US interest rates higher and flattened the US yield curve, placing downward pressure on the gold price. Historically, however, such pressure has tended to ease once markets conclude that policy has become sufficiently restrictive. “As expectations shift from further tightening towards eventual easing, the headwind from higher real rates should begin to fade, allowing gold to recover,” asserts Mehta.

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The precious metals’ last run-up was characterised by momentum-driven excesses. However, the next leg of the metals’ journey is likely to look very different. Valia maintains, “In our view, the next phase of the precious metals cycle is likely to be driven less by momentum and more by fundamentals. A moderation in monetary policy, accompanied by easing real yields, could provide the catalyst for renewed investment flows, while structural demand remains intact.”

Fatehpuria reckons the next leg up may be driven less by acute geopolitical shocks and more by inflation and interest-rate expectations. Mehta concurs, “While the next rally may not be driven by the same geopolitical events that supported previous gains, continued central bank buying, reserve diversification, and any moderation in real yields could provide a strong foundation for renewed upside. In our view, the next phase of the rally is likely to be driven more by structural demand and monetary policy expectations than by short-term market sentiment.”

The pain after the peak
Gold has experienced painful drawdowns after periods of sharp gains.

Wild swings, especially in silver

Sideways for longer?

But this shift could lead to fewer vertical moves in precious metal prices. Investors may not see a repeat of the quick, sharp gains in the near future. “Institutional investors and central banks are likely to play the patient long-term game. Therefore, we believe that the current phase could last for some more time although the medium to long term trend should remain positive,” says Patni.

Some experts are more circumspect about the future of the yellow metal. Hitesh Jain, Lead Analyst, YES Securities, believes the macroeconomic regime that underpinned this rally is gradually coming to an end. “Over the next three to five years, gold is likely to underperform most risk assets and industrial commodities, with prices potentially remaining range-bound rather than extending the structural bull market witnessed over the past few years.” Jain insists this view is not based on eroding geopolitical risks or the end of central bank purchases. Those may yet persist. His scepticism is rooted in a far more powerful structural force—the rising scarcity of capital.

Gold has historically performed best when capital is abundant. The previous decade was characterised by excess liquidity searching for financial assets. The coming decade is likely to be characterised by competition for savings, as companies embark on one of the largest capex cycles witnessed in decades. Higher demand for capital inevitably translates into higher real interest rates. That spells trouble for gold.

Jain contends that central bank purchases may cushion, but not drive the next leg for the yellow metal. “One of the strongest bullish arguments for gold has been persistent central bank accumulation. While central banks may continue diversifying reserves amid geopolitical fragmentation, reserve diversification alone is unlikely to offset the powerful macro effects of structurally higher real interest rates.” In other words, central bank buying may prevent a collapse in gold prices but is unlikely to generate another decade of outsized returns if real yields continue moving higher.

Rather than expecting a dramatic collapse in gold prices, investors should prepare for a prolonged period of relative underperformance, Jain asserts. Gold could increasingly resemble a lengthy phase of sideways movement punctuated by short-lived rallies during geopolitical shocks.

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This is not unusual. History is replete with periods when gold delivered subdued returns. Whenever it has slumped, the pain for investors has been prolonged. Gold took 10 years to reclaim its 1980 peak and seven years to regain its 2012 high. Silver’s journey has been even more dramatic. After plunging 50% during the 2008 global financial crisis, it rebounded sharply to a record $49.5 per troy ounce in 2011, only to endure a long, painful decline before finally recovering in 2025.

After the frenzy, flows into gold, silver ETFs have dwindled

Rethinking strategy

When asset prices remain subdued for an extended period, it is natural for investors to get jittery. But reacting to it is akin to jumping in when the FOMO was at its peak. Fatehpuria contends the recent volatility is a timely reminder that precious metals are a portfolio diversifier, not a core engine of long-term wealth creation. “The mistake many investors make is chasing these assets after a sharp rally and then abandoning them during a correction— precisely the opposite of what disciplined allocation demands.”

Patni remarks, “The worst thing for any investor to do is to let price movement decide their strategic asset allocation decisions. Investors need to look at the long-term picture and be very suspicious when there is a FOMO feeling combined with near vertical price moves in any asset.”

Experts maintain that the strategic role of precious metals in a diversified portfolio remains unchanged. The only thing that has changed is the retail euphoria that has gotten unwound, Patni maintains. Fatehpuria insists the correction is best understood as a healthy reset after an extraordinary run, rather than a breakdown in the underlying story. What investors should reconsider are their expectations and position sizing, avers Valia. The recent correction is a reminder that even long-term strategic assets experience periods of meaningful volatility, he says.

Investors should only take exposure to the precious metals as part of their asset allocation, and not try to ride momentum. Valia asserts, “We continue to advocate a strategic allocation to gold within a diversified portfolio, accumulated gradually through disciplined, staggered investments rather than attempts to time market cycles.”

However, Valia insists that silver should be viewed differently. “It is inherently more volatile, carries higher cyclical sensitivity, and, as the recent correction demonstrated, is capable of experiencing drawdowns significantly larger than those of gold.” Most experts maintain that portfolio diversification can be achieved purely with gold. Silver can be a tactical bet at best. If you are not sure how to take exposure to the precious metals, multi-asset allocation funds offer a good alternative to individual ETFs. For those who want dedicated exposure to both, a few fund houses offer gold-silver combo funds in the form of ETFs and funds of funds.