To invest in precious metals from a diversification standpoint, gold and silver are two meaningful avenues. In recent times both these precious metals have made all-time highs.
In Indian rupee terms, on April 22, 2025, the price per 10 grams of 24k gold crossed Rs 1 lakh amid geopolitical and macroeconomic uncertainty, along with weakening in the US dollar. On March 28, 2025, the price of silver per kg also passed Rs 1 lakh backed by industrial demand.
If we consider gold-to-silver ratio, which is calculated by dividing gold price by silver, it has crossed a little over 100 as of April 30, 2024.
The graph above shows that a remarkably high gold-to-silver ratio was also the case during the COVID-19 pandemic.
While this ratio plunged for a brief while thereafter, it once again has been on an upward trend and more pronounced since last year. At present this ratio, a little over 100:1, is noticeably higher than the decade-long average.
What this ratio denotes is that silver is currently undervalued compared to gold. The precious yellow metal in recent years has witnessed a fast run-up. Going by the present ratio, you would be able to purchase 100 ounces of silver to one ounce of gold.
In other words, a higher gold-to-silver ratio seemingly indicates that silver is reasonable or cheap as the case may be from an investment standpoint compared to gold, and vice versa.
That being said, since the lows of the COVID-19 pandemic, both gold and silver have delivered handsome absolute returns of +137% (i.e. +18% CAGR) and 178% (i.e. +22% CAGR) in Indian rupee terms as of April 30, 2025.
One can say that during the pandemic, investors who chose to invest in the white metal were rewarded better.
Is There an Upside Potential for Silver Even Now?
Well, apart from being a precious metal that holds cultural significance in India and is symbolic of wealth and prosperity, it’s also an industrial commodity.
Silver is used in electronic goods, solar panels, switches, electric vehicles, medical instruments, satellites, 5G technology, Internet of Things (IoTs), many other applications.
Hence, the fortune of silver as an asset class is closely linked to the outlook for the industrial world and the overall economy.
In other words, silver is a pro-cyclical commodity. If macroeconomic conditions are conducive and industrial growth is encouraging, then usually, it bodes well for silver.
However, due to the pro-cyclicality, silver may be more volatile than gold. Simply put, the returns could be lumpier with sharp up and downward movement.
Given the Trump 2.0 administration’s protectionist policies, particularly tariffs, silver is expected to remain volatile. One needs to see what happens after the 90-day hold period on reciprocal tariffs ends on July 9, 2025.
If steep reciprocal tariffs stay, in a potential trade war, the US could slip into a recession and ripple effects of that would be seen on many economies, including the emerging market economies.
When Trump earlier, in the first week of April, announced steep reciprocal tariffs on several countries, it did weigh down on silver.
If uncertainty looms over the economic growth due to Trump 2.0 protectionist policies, silver may lag or underperform.
What About Gold?
Gold, on the other hand, is counter-cyclical. Meaning, it performs better in times of macroeconomic and geopolitical uncertainty, plus has proved to be a hedge against inflation over the long term.
At present, factors such as looming geopolitical tensions, Trump’s tariff tantrums, trade policy uncertainty, potential trade wars, risk of imported inflation, and high global public debt, recent weakening in the US dollar, and volatility in financial markets, are keeping the spotlight on gold.
Simply put, smart investors are taking refuge in gold (by investing in gold ETFs and gold saving funds) for its trait of being a safe haven and a store of value in times of uncertainties and risks.
Even central banks recognising the risks in play for the global economy, as a part of their foreign exchange reserve management, are actively buying gold. Much of the buying has increased in view of Trump’s protectionist policies.
As of FY25, the Reserve Bank of India (RBI) held 880 tonnes of gold. Year after year the RBI has continually increased its gold reserve since the COVID-19 pandemic. Today, India is at the 7th spot with countries holding the highest gold reserves.
The weakening of the dollar (which is a reserve currency) and potential risk to global economic growth have encouraged the RBI (and many other central banks) to buy gold, considering it to be a secure asset.
That being said, past data shows that even a stronger dollar hasn’t been able to curb the long-term uptrend of gold. This is because, unlike financial assets, gold is a real asset – meaning gold does not carry credit or counterparty risk.
Going forward, to support economic growth, if major central banks resort to policy interest rate cuts in 2025 and address liquidity concerns, it will be positive for gold.
What Should Investors Do?
You see, although the gold-to-silver is slightly above 100 and the decade-long average, it is still well below the all-time high of 126.5 seen in March 2020 during the pandemic.
So, given that, the current ratio of a little over 100:1, cannot be considered very cheap. The margin of safety isn’t very comfortable yet.
There are headwinds in play for industrial outlook and global economic growth, which may not work well for silver.
The Silver Institute’s latest World Silver Survey also points out the following:
“Silver’s “failure to launch” is mainly due to the macro and geopolitical drivers of the past couple of years being primarily supportive of gold’s more widely accepted quasi-monetary properties.
Related to this, some of the key market participants of the past two years, for example, macro/generalist funds and sovereigns, are comfortable with the gold’s market depth and tradition as a diversifier, but less so with silver’s smaller size and industrial attributes.
Its strong supply-demand conditions also have had as yet a limited impact on its price, due to still plentiful above-ground stocks of silver.”
The latest World Silver Survey also explains many silver bulls remain disappointed with silver’s price performance. This mostly reflects how it has fluctuated relative to gold.
At present, the fact is, that the fundamentals for gold look more solid considering the macroeconomic and geopolitical environment.
Even the World Gold Council (WGC) has expressed that given gold’s strategic significance and the economic uncertainties that continue to look ahead, investors should carefully consider the portfolio benefits gold can offer in 2025 and beyond.
So far in 2025 gold has gained 25%, while silver is up 13% as of April 30, 2025.
However, keep in mind that past instances of superior performance may not necessarily be sustained in the future. Like any other investment, gold price too can witness volatility, short-term corrections, as well as phases of stagnant growth.
Nevertheless, gold shall prove to be an effective gold as a portfolio diversifier and hedge. You may allocate around 10-15% of your portfolio to gold with a long-term view of over 5 to 10 years.
In the gold rally if the allocation has exceeded this limit, book some profits and trim it down.
Invest strategically and sensibly. Be thoughtful in your approach.
Happy Investing!
This article first appeared on PersonalFN here.
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