Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
Saxo Group
Precious metals like gold, silver, and platinum may not generate income, but they still hold a distinct place in investment strategies. Investors continue to turn to them for one reason: they behave differently when markets break down.
For decades, these assets have served as hedges against inflation, buffers during geopolitical stress, and anchors in diversified portfolios. But their roles are evolving. Central banks are still stockpiling gold, reinforcing its role as a reserve asset. Meanwhile, inflation pressures remain uncertain, and demand for silver and platinum is shifting toward industrial use, especially in solar energy and clean tech.
In this environment, calling precious metals a "safe haven" isn't enough. The better question is: safe from what, and for how long?
Precious metals are rare, naturally occurring elements with economic value. What makes them "precious" is a combination of scarcity, durability, liquidity, and a long-standing role as stores of value. For investors, they offer something different from equities or bonds: tangible, finite assets that are less directly exposed to credit cycles or central bank policy.
The core group includes gold, silver, platinum, and palladium. These four types of precious metals are actively traded, broadly regulated, and widely accepted across global markets. They differ from base metals like copper or nickel, which are more abundant and typically linked to construction and heavy manufacturing.
Gold is primarily defined by its monetary role, with minimal industrial demand. Silver straddles both investment and industrial use, functioning as a store of value and a key input in electronics and clean technologies. Platinum and palladium are primarily industrial, with demand tied closely to catalytic converters and emissions-control systems in the auto industry. Other metals, such as rhodium or iridium, also fall into the precious category, but their markets are smaller, more volatile, and far less liquid.
Precious metals tend to carry significantly more value per unit of weight than base metals, making them easier to store and transport at scale. As a result, investor interest typically concentrates on the four core metals: gold, silver, platinum, and palladium—often held in portfolios for strategic or defensive reasons.
Over the centuries, gold has preserved wealth in ways few other assets can match, especially during periods of systemic risk. Unlike most commodities, it isn't consumed or depreciated—it's stored. That alone makes it different. Its primary function isn't industrial but monetary.
Today, its relevance is still based on trust. Central banks now hold over 36,700 metric tonnes of gold globally, with the United States, Germany, and China among the largest reserve holders. These tonnes of gold represent about 17% of all the gold ever mined. For many countries, gold reserves are a form of diversification—supporting financial credibility and offering protection against currency volatility or geopolitical shocks. This is why the demand for gold in central banks remains stable and often increases during periods of global uncertainty.
For private investors, gold tends to perform best when real interest rates are low or negative, when fiat currencies are under pressure, or when broader markets sell off. Its role as a hedge against short-term inflation is mixed, but over longer periods, it has consistently preserved purchasing power during inflationary cycles.
That said, gold isn't a growth asset. It doesn't produce income, and its price is influenced more by sentiment, real yields, and dollar strength than by supply-demand fundamentals. But when stability matters more than return, few assets have a track record as reliable.
Silver straddles two investment narratives: store of value and industrial commodity. This dual role gives it flexibility—functioning as a partial hedge during market stress while offering upside during periods of economic expansion. That versatility also makes it more complex and more volatile than gold.
Industrial demand now drives over half of silver's global usage. Key sectors include electronics, solar energy, automotive components, and medical devices. Its high conductivity and antimicrobial properties make it essential in clean technology, where gold plays no equivalent role. However, this industrial relevance also links silver's price to broader cyclical trends and output levels.
This dynamic makes silver less consistent than gold as a safe haven but more responsive during reflationary periods and growth-driven inflation. It can outperform in risk-on phases but often lags when industrial demand contracts. Its lower per-ounce price makes it accessible for retail investors—especially in physical form—while silver ETFs and futures maintain high liquidity for larger or tactical allocations.
As an inflation hedge, silver tends to respond best when inflation is driven by industrial growth rather than supply shocks. Its price movements rarely mirror gold's exactly, positioning it as a complementary asset in diversified portfolios, balancing defensive potential with cyclical upside.
Platinum stands out for its rarity and industrial significance. It is considerably less abundant than gold or silver, with mining operations predominantly located in South Africa and Russia. This geographic concentration can lead to supply vulnerabilities, although recent assessments suggest that current sanctions on Russian base metals are unlikely to disrupt platinum markets in the near term.
Unlike gold, platinum's value is chiefly derived from its industrial applications. Approximately 40% of global platinum demand originates from the automotive sector, where it is essential for catalytic converters in internal combustion engine vehicles. Additionally, platinum is utilised in petroleum refining and medical devices and has potential applications in hydrogen fuel cell technologies, though the latter's impact on demand is currently modest due to slower-than-expected adoption rates.
The platinum market is characterised by its volatility, influenced by factors such as substitution between platinum and palladium in automotive manufacturing. Such shifts can rapidly change demand dynamics and pricing. Moreover, the market faces structural challenges, including a projected supply deficit of 848,000 ounces in 2025, driven by constrained mining outputs and low recycling rates.
Despite these challenges, platinum presents speculative opportunities for investors interested in industrial commodities linked to technological advancements and supply-demand imbalances. While it lacks the traditional monetary role of gold or the dual identity of silver, platinum's position in the industrial sector underscores its potential relevance in diversified investment portfolios.
Precious metals have long been viewed as safe-haven assets, but their role in today's portfolios is more complex. They can offer downside protection and diversification but not without trade-offs. Whether they fit depends on your investment horizon, risk profile, and broader asset allocation.
Here are the main benefits:
Gold, silver, and other precious metals tend to correlate poorly with equities and bonds. This makes them effective for reducing portfolio volatility, especially during financial shocks or risk-off environments.
Gold has historically preserved purchasing power during long-term inflationary periods. While short-term performance varies, it often acts as a store of value in inflationary cycles. Silver may provide some hedging benefits when inflation is tied to industrial expansion, though its inflation sensitivity is less consistent.
Physical precious metals aren't issued by any institution and carry no credit risk. This makes them attractive during episodes of systemic stress, bank failures, or monetary instability.
Gold and silver are traded globally through futures markets, ETFs, and by buying physical bars and coins from reputable dealers. These markets are deep and efficient, allowing investors to enter or exit positions easily.
Precious metals are recognised and accepted worldwide. In periods of capital controls, currency devaluation, or geopolitical unrest, gold in particular can serve as a portable store of value.
Here are the main drawbacks:
Precious metals do not pay interest or dividends. In higher-rate environments, the opportunity cost of holding them increases, especially relative to income-generating assets like bonds or dividend stocks.
While gold tends to be more stable, silver and platinum are subject to sharp swings driven by industrial demand, economic cycles, and investor sentiment. Even gold can be reactive to real yields and currency strength.
Owning physical bullion requires secure storage and insurance. These costs can reduce net returns, especially for smaller portfolios or investors without access to institutional-grade custody.
In some jurisdictions, including the US, precious metals are taxed as collectibles. This can lead to higher capital gains rates than those applied to equities or mutual funds. Certain ETFs may be subject to the same rules, depending on their legal structure.
Because metals are often treated as crisis hedges, investors may buy them after prices surge and sell after declines. Without a disciplined strategy, market timing errors can reduce the long-term benefit of holding precious metals.
Gold and silver can help reduce overall portfolio volatility, but their allocation should reflect your risk tolerance, investment goals, and market outlook. For most long-term investors, precious metals work best as a strategic diversifier, not a core growth holding.
Conservative portfolios often allocate between 2% and 5% of total assets to precious metals, with gold preferred for its lower volatility and consistent performance during market downturns. Balanced or inflation-sensitive portfolios may allocate closer to 10%, particularly during periods of monetary instability or currency depreciation. Tactical investors may adjust exposure dynamically based on signals like falling real yields, central bank policy changes, or rising geopolitical tensions.
Gold generally acts as a steadier hedge against systemic shocks, while silver carries more price volatility and economic sensitivity due to its industrial applications. This makes gold more suitable for core defensive exposure and silver better suited for tactical or satellite positioning.
While precious metals don't generate income, a well-sized allocation can offer valuable protection during market stress. By moving independently from traditional assets, they can help offset losses elsewhere and strengthen overall portfolio resilience.
Investors can access precious metals through various instruments, each with distinct advantages, trade-offs, and implications for cost, liquidity, and risk.
Bars and coins remain the most direct way to gain exposure to gold, silver, platinum, or palladium. These are tangible, unleveraged assets with no counterparty risk. However, secure storage and insurance add costs, and selling physical metal can involve wider bid-ask spreads, especially during market stress or periods of increased demand.
Precious metals ETFs offer liquid, exchange-traded exposure to spot prices. These instruments allow for intraday trading and simplified access, but they may carry management fees and, depending on jurisdiction, less favourable tax treatment.
Investing in companies that mine or refine precious metals offers indirect, often amplified exposure to underlying metal prices. These equities can outperform in bull markets but come with higher volatility and risks tied to operations, management, and commodity input costs. Mining ETFs and mutual funds diversify this exposure across multiple firms and geographies, reducing single-company risk.
Futures contracts provide leveraged access to gold, silver, platinum, and palladium, often used by institutional investors and advanced traders. While they offer capital efficiency and direct exposure, they require margin maintenance, carry rollover risk at expiration, and are sensitive to short-term market fluctuations.
Allocated metal certificates or digital gold platforms allow investors to own metal without taking physical delivery. These solutions reduce storage costs and offer flexibility but introduce counterparty risk. Investors should verify whether the metal is fully allocated and insured and whether the custodian is transparent and regulated.
Gold, silver, and platinum retain relevance, not because they react to every market shift but because they behave differently when it matters most. Their value lies in how they respond when other assets falter: Gold offers stability when real interest rates fall; silver reflects both inflation and industrial activity; and platinum captures supply-side constraints and evolving technological demand.
None of these metals generate income or scale directly with economic growth. However, their defensive properties, global liquidity, and long history of resilience give them a distinct role in diversified portfolios. When used selectively and weighted appropriately, precious metals can add balance, especially when traditional asset classes are under stress.