Kotak AMC's Nilesh Shah says gold, silver should form only small part of investment portfolio

Gold and silver may be glittering again, but investors should exercise caution, according to Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company.

Speaking to CNBC-TV18, Shah emphasised that precious metals should form only a small portion of an investment portfolio.

“Do invest in gold and silver, but be aware that these are assets without intrinsic value and hence should form only a small part of your portfolio — whether that’s 5%, 10%, or 15% depends on your risk appetite and time horizon,” he said.

Shah noted that unlike equities or bonds, gold and silver do not generate cash flows, dividends, or bonuses, making fundamental valuation difficult. “Their value lies purely in centuries of collective belief and trust,” he added.

On the current gold rally, Shah attributed the surge mainly to central bank buying triggered by the Russia-Ukraine war. The freezing of Russia’s foreign exchange reserves prompted several central banks to reconsider their holdings, shifting part of their allocations from securities to gold.

While Western central banks maintain 60–70% of their reserves in gold, Eastern countries such as India, China, and Japan hold only around 10%, a gap that is now narrowing.

However, Shah cautioned that the rally may not be sustainable. “Commodity prices fluctuate. If they’ve gone up, they will come down too. A sharp run-up like this is likely to be followed by a correction,” he said, adding that investors should monitor central bank behavior closely.

On silver, he highlighted a strong catch-up rally, driven by industrial demand from electric vehicles and solar energy, as well as central bank purchases. He also pointed out that silver in India trades at a 10–12% premium over international prices due to supply shortages.

“When you buy a silver ETF today, you’re paying a 10–12% premium upfront,” he said.

For new investors, Shah recommended systematic investment plans (SIPs) to average out purchase costs over time and warned against chasing past returns.

He also flagged a potential long-term risk for gold: the emergence of “manufactured gold.” Referring to experiments converting mercury into gold via nuclear fusion, Shah said such innovations could eventually affect natural gold prices, much like lab-grown diamonds impacted the natural diamond market.

Watch accompanying video for entire conversation.