For long-term asset allocators, however, buying silver simply because it looks like “cheap gold” is a lazy thesis, and a category error that can materially distort portfolio construction.
Silver is not gold’s little brother. It is a different asset with a different personality. Gold functions primarily as a monetary metal, driven by real interest rates, currency debasement, and central-bank behaviour. Silver, by contrast, has a split identity. It can act as a monetary hedge in certain phases, but it is also an industrial metal deeply tied to economic activity. That duality matters far more than relative price levels.
On Monday, spot gold rose 1.98% to a record $5,081.18 per ounce, as investor flocked to safe-haven assets amid rising geopolitical uncertainties, according to a Reuters report. Spot silver was up 5.79% at $108.91 per ounce, after hitting a record of $109.44.
The “safe-haven” trap
One of the most persistent misconceptions among retail investors is that silver offers the same protection as gold in periods of stress. Gold has repeatedly demonstrated its ability to hold, or even gain, value during geopolitical shocks, financial crises, and episodes of policy uncertainty.
Silver does not behave the same way. Roughly 50-60% of annual silver demand comes from industrial uses, including solar energy, electronics, and electric-vehicle supply chains. This linkage makes silver far more sensitive to global manufacturing cycles.
In a deflationary slowdown or recession, precisely when investors expect defensive assets to perform, industrial demand weakens. In such environments, silver tends to trade less like gold and more like base metals such as copper. Instead of cushioning portfolios, it often sells off alongside other risk assets.
Replacing gold with silver in a defensive allocation therefore increases, rather than reduces, economic sensitivity. What appears to be insurance can end up amplifying cyclical exposure.
The volatility tax
Silver’s volatility is often marketed as a virtue, more upside potential. In practice, it imposes a tax on long-term compounding. An asset that surges and then suffers deep drawdowns can deliver lower geometric returns than a steadier one, even if average returns look similar.
This dynamic is visible in long-cycle data from India. Silver has produced spectacular rallies, but these have frequently been followed by extended periods of stagnation or decline.
After peaking in 2011, silver prices in India fell nearly 50% and remained below that high for close to a decade. Even across a full market cycle, the compounding outcome has been underwhelming relative to the risk taken.
From 1990 to 2024, silver delivered an approximate CAGR of 7.6%, compared with gold’s approximately 10.6%. The lower return came with significantly higher volatility and deeper drawdowns, at times exceeding 50%. Repeated boom-bust cycles explain why silver’s long-term wealth creation has lagged more stable assets despite occasional eye-catching gains.
Where silver fits—and where it doesn’t
An asset with this degree of volatility can have a role in a portfolio, but not as a core holding. Core allocations are meant to provide stability and resilience across cycles. Silver does not consistently offer either.
Silver should never be treated as a substitute for gold. A more appropriate framing is to view silver as a cyclical or risk-asset allocation, closer in behaviour to equities than to defensive hedges. In portfolio terms, it belongs in the satellite bucket rather than the core.
Discipline over timing
For investors who choose to hold silver, timing is rarely the answer. The metal often moves in abrupt, non-linear bursts—long periods of inactivity punctuated by short, violent rallies. Chasing breakouts typically leads to disappointment once prices consolidate.
The only way to manage such an asset is through mechanical discipline. Set a fixed allocation, say 10-12% of the portfolio, and rebalance periodically. If a sharp rally pushes the allocation well above target, trim the excess. Avoid emotional attachment to price spikes.
Silver is not cheap gold. It is expensive volatility. It can reward disciplined investors who respect its industrial and cyclical nature, but it tends to punish those who mistake it for a free hedge or a guaranteed catch-up trade. Handle it with caution.
The article should be attributed to Prasenjit Paul, equity research analyst at Paul Asset & Fund Manager at 129 Wealth Fund.
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