Is now the right time to invest in gold, silver and oil? How commodities strengthen portfolio diversification
The timing is crucial as the market braces for volatility in an already volatile commodity sector.
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Gold, oil, and silver have peaked at record levels this year, and as prices correct, investors are closely tracking global factors influencing the prices, including interest rates, geopolitical developments, and supply dynamics.
Gold surged just above Rs 2 lakh per 10 grams for the first time at the January-end, and silver above Rs 4.5 lakh per kilogram. With the US-Iran war, which began on February 28, Brent crude prices peaked at $124.24 per barrel in April, gold at Rs 1,73,600 per 10 grams in March, and silver at Rs 3,07,590 per kilogram in May this year.
By July 23, gold hovered about a two-week high near Rs 1,45,000 per 10g. Silver traded at around Rs 2,25,600 per kg, and Brent crude was near $97 per barrel on Thursday.
All three commodities serve as potential portfolio diversifiers. For investors, is now the right time to diversify funds across gold, oil, and silver? What are the allocation risks, limits, and investment instruments that are available? Here’s what investors should know.
Balance is the key
“Commodities can help strengthen a portfolio because they respond to different economic drivers than traditional financial assets, such as stocks and fixed-income investments. These assets can offer diversification benefits, especially during times of market stress, because they are impacted by different factors than stocks and bonds,” Ruchit Thakur, Market Analyst at VT Markets, said.
He suggests that, given the short-term volatility of commodity prices, allocations should remain balanced, as commodity prices typically fluctuate independently of traditional market cycles.
Here are some key aspects of gold, oil, and silver investors should know before considering investments in these three assets.
Evaluate portfolio needs
Renisha Chainani, Research Head at Augmont, agrees that it’s a reasonable time to consider adding gold, silver, and crude oil; however, it’s not a must-do.
“Investors should consider commodities only if they address a specific portfolio need, such as inflation protection, diversification, or exposure to industrial demand, rather than investing simply because prices are making headlines.
She estimates that, currently, gold is holding near record highs on central bank buying and rate-cut hopes, silver has surged on industrial demand and a stretched gold-silver ratio, while oil looks pressured by oversupply.
Allocation in gold, silver, oil; where to invest
Chainani suggests that a common strategy is to keep commodities as a satellite allocation of around 15-20 percent of the portfolio instead of a core holding. Within this allocation, gold typically receives the highest weight due to its relative stability, followed by silver, while crude oil generally gets the smallest allocation because of its sensitivity to geopolitical developments and supply-demand dynamics.
“For those looking to invest, options include physical gold and silver, Gold ETFs, Silver ETFs, digital gold and digital silver, and Electronic Gold Receipts (EGRs), while crude oil exposure is generally taken through oil ETFs, futures contracts, or energy-sector stocks, depending on an investor’s risk appetite and investment experience,” Chainani said.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.