Over the last two years, gold, silver, and other precious metals have increased in value significantly, catching the eye of many investors. Gold recently climbed above $4,700 per ounce, and silver now trades over $90 per ounce. These are record-high prices for both metals. With such strong gains lately, some investors may be curious about whether they should add these assets to their portfolios. As with any investment, it’s helpful to step back and look at the bigger picture to understand their history and role in a well-balanced portfolio.
Many investors think of precious metals as “safe haven” investments—meaning they hold their value during uncertain times. However, precious metals and other commodities can experience dramatic ups and downs in price. Right now, gold and silver are rising alongside many other types of investments because of uncertainty about monetary policy (decisions made by central banks about interest rates and money supply), fiscal policy (government spending and tax decisions), and geopolitical risk (international tensions and conflicts). It’s important to think of these assets not as tools for short-term trading, but as parts of a broader investment plan that aligns with your long-term financial goals.
Precious metals often rise during uncertain times
Several factors have pushed gold and silver prices higher recently. One major factor has been tension between the White House and the Federal Reserve (the central bank of the United States). This has created questions about the independence of the central bank and the future direction of monetary policy, especially as Jerome Powell’s term as Fed chair ends in May 2026. When interest rates fall and inflation concerns rise, the value of the dollar can weaken, leading some investors to look for assets that can maintain their value over time.
Another important factor is that central banks worldwide have been buying gold steadily in recent years. They are diversifying their reserves—meaning they are holding a variety of different assets instead of just U.S. dollars. Central banks need to hold enough reserves to manage their monetary policy and keep their currencies stable. These purchases of gold and other assets have increased amid heightened geopolitical uncertainty and concerns about currency stability.
Both metals also have industrial uses, including in electric vehicles, solar panels, and artificial intelligence hardware. So they play multiple roles: as precious metals, as safe haven assets, and as industrial commodities.
It’s hard to predict when precious metals will rise
Looking at history, periods of uncertainty about monetary policy have often coincided with strong performance in precious metals. For example, in the 1970s, both gold and silver prices rose dramatically as the economy experienced stagflation (a combination of stagnant economic growth and high inflation), reaching their peak around 1980. Similarly, both metals rose from 2008 to 2011 during the global financial crisis, and again during the 2020 pandemic.
In each case, investors turned to precious metals when uncertainty about monetary policy and economic conditions was highest. However, prices for both gold and silver began to fall soon after conditions started to improve.
This creates at least two challenges for investors who are attracted to these investments based on their recent strong performance. First, trying to predict gold and silver prices means trying to predict the direction of interest rates, inflation, and other economic factors. As we’ve seen in recent years, these factors are very difficult to forecast accurately. Many concerns that investors and professional economists had as inflation rose in 2021 and 2022 did not play out as expected.
Second, while it’s natural to be drawn to investments that have done well recently, history shows that precious metal rallies are very difficult to time. For instance, the 1970s gold rally was followed by two decades of falling prices. Gold peaked above $800 in 1980, a level it wouldn’t reach again until 2007.
The accompanying chart compares gold’s performance to the S&P 500 (a broad measure of the U.S. stock market) since the 2007 market peak. While gold has had periods of strong performance, the stock market has also performed well over these periods. For investors focused on recent precious metals rallies, this longer-term view may be surprising. However, it makes sense because the stock market has historically risen over long periods of time.
This pattern applies to silver as well. Despite strong industrial demand, silver has experienced long periods of poor performance between rallies. For example, silver experienced a strong rally in the late 1970s. During this time, a famous episode occurred when the Hunt brothers tried to control the silver market by accumulating large amounts of silver and buying futures contracts (agreements to buy silver at a future date). While they pushed prices higher for a while, prices eventually crashed as new supply entered the market and regulators introduced restrictions on leveraged buying of commodities (using borrowed money to buy commodities).
Other precious metals show similar patterns. Between 2016 and early 2022, palladium gained over 500%. This rally was driven by limited global supply and greater use in applications such as catalytic converters for cars. However, after reaching its peak, prices fell sharply over the next two years.
Precious metals should fit with your financial goals
These examples show that, in situations where it makes sense for investors to have exposure to precious metals and commodities, gold and silver are best viewed as parts of a broader commodities allocation (a portion of your portfolio dedicated to commodities) or as part of alternative investments (investments beyond traditional stocks and bonds). The Bloomberg Commodity Index, for instance, currently allocates 14.9% to gold and 3.9% to silver, alongside other commodities such as industrial metals, energy, and agricultural products. This diversified approach to commodities exposure helps manage the ups and downs that come with any single commodity.
The reason for including precious metals in portfolios is that they behave differently from stocks and bonds. Their value comes from their scarcity, their roles as stores of value, and their industrial uses. This means they often react to market and economic events differently from traditional asset classes (categories of investments like stocks, bonds, and cash), which can help stabilize portfolios.
However, precious metals also have important drawbacks. Most notably, they generate no income, unlike bonds or dividend-paying stocks (stocks that pay regular cash payments to shareholders). This lack of income also makes these assets difficult to value, which is another reason they experience dramatic booms and busts. A portfolio that is too heavily weighted toward gold and silver may sacrifice the long-term growth potential of stocks and the income generation of bonds. So, even if precious metals might help in specific market environments, they may not align with long-term goals.
The accompanying chart shows that many asset classes have contributed to portfolio returns recently, not just precious metals. While gold and silver have certainly performed well, there will always be individual investments that shine during particular periods. The key is building portfolios that can benefit from various market conditions rather than focusing too much on recent winners.
The bottom line? Gold and silver have experienced strong gains over the past two years, but long-term investors should view them within the context of their overall portfolio. Their value doesn’t come from their recent performance, but from how they contribute to portfolio balance across different market environments.
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