What role can gold and silver play in a portfolio

What role can gold and silver play in a portfolio

The gold price has enjoyed a period of strong performance since the beginning of 2024, which has left many people scratching their heads.  Unlike many other investments gold pays no income, US real yields are positive, and it looks like global central banks are not cutting base rates as quickly as was initially hoped. Finally, and partly because of high relative US interest rates, the Dollar is strong.

Notwithstanding these headwinds the price of gold has broken through various key price resistance levels set in 2011-2012. Whenever the price action in any asset runs counter to well-established fundamental economic relationships, investors ought to take note. More interestingly still is that silver, golds less desirable cousin, [1] hasn’t moved as much. More about this later.

The world is a dangerous place

The Russian invasion of the Ukraine and the deterioration of relations between China and the United States are watershed geopolitical events. Heightened global tensions alone are enough to include Gold in portfolios, but something much more impactful has now been made possible by the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (REPO Act). This legislation has been signed into law by President Biden and permits, at least in principle, the confiscation of Russian forex reserves held in the United States [2].

Obviously, it isn’t necessarily as simple as we have made out and there are several significant legal and political hurdles to surmount. Nevertheless, the REPO Act has raised the opportunity cost of holding one’s forex reserves in Dollars. Any state that finds itself at odds with America or her allies has the incentive to buy gold, and possibly silver too; an incentive which has been strengthened by this legislation.

The investment options for Chinese households are less than attractive

 Chinese citizens are faced with a difficult choice regarding where to invest their savings. On the one hand the security and seemingly perpetual price appreciation associated with their local property market has proved illusionary[3]. Alternatively, there is the volatility and poor performance of the local stock market. Gold appears to be becoming a legitimate alternative store of value for the Chinese [4].

Net-zero requires silver

We recently hosted Georges Lequime who co-manages the Amati Strategic Metals Fund in our offices. We discussed several commodity markets and the role each has to play in the energy transition. Like gold, silver has a monetary dimension due to its relative scarcity in the Earth’s crust. Furthermore, silver has industrial applications because it is an excellent conductor of electricity. In a world that is rapidly electrifying silver has obvious advantages. The ratio of the price of gold to silver is extended in historical terms and there is a shortage of supply [5]. Consequently, we wonder whether there is an opportunity for silver to catch up with gold.


Whilst for technical reasons some softness in the price of gold may be expected in the short term, we continue to see the merits of both metals in a diversified portfolio. There will be occasions where it might be advantageous to have direct exposure to each metal through an exchange traded instrument. At other times we may include, via a fund, exposure to the listed equity of mining companies. Whichever route we take, both metals fit well with our thematic approach to private client investment management.

[1] Gold (Au) and Silver (Ag) are known as ‘coinage metals’ and are members of the same chemical group on the Periodic Table
[2] This is a complex matter with various implications. See further https://www.brookings.edu/articles/why-do-the-u-s-and-its-allies-want-to-seize-russian-reserves-to-aid-ukraine/
[3] https://www.forbes.com/sites/miltonezrati/2024/03/01/the-plan-for-chinas-property-crisis-may-cost-more-than-280-billion/?sh=7d49e77e567f
[4] https://www.economist.com/china/2024/04/25/chinas-young-people-are-rushing-to-buy-gold
[5] Slide 1 (silverinstitute.org) https://www.silverinstitute.org/wp-content/uploads/2024/04/Metals-FocusWSS2024Launch.pdf

Disclaimer: This communication is issued and approved by Whitman Asset Management Limited (“Whitman”) which is Authorised and Regulated by the Financial Conduct Authority. The value of investments may fall as well as rise and your capital is at risk. The information does not constitute financial advice or recommendation and should not be considered as such. Conduct your own research and seek independent financial advice when required.

Although Whitman uses all reasonable skill and care in compiling this report, no warranty is given as to its accuracy or completeness. The opinions expressed accurately reflect the views of Whitman at the date of this document based on our views at such time regarding market conditions and other factors, may depend upon assumptions or projections that may not prove to be correct, and are subject to change. The opinions stated are honestly held, they are not guarantees and should not be relied upon. 

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