Gold has had quite a magnificent run, blasting off more than 21% year to date. However, the red-hot surge may be far from over, as global trade uncertainties mount and the U.S. dollar looks to weaken further due to the tariff war.
Of course, gold could be a more volatile ride as tariffs de-escalate. Given the high bar set during “Liberation Day” and turbulent weeks that followed, one could argue that things can only get better from here as more deals are made, more chats are had, and global investors regain faith in the U.S. dollar.
Under such a scenario, market waters could calm, and the gold trade could falter. But, at the very least, diversified investors would be net beneficiaries as the relief to the stock market would likely be significant. Either way, I view gold’s incredibly low correlation to the equity markets (I’d be inclined to think it’s closer to negatively correlated amid the Trump tariff war) makes it an invaluable portfolio stabilizer.
But does that mean you should own more gold (or silver) than equities?
Doing so would be ill-advised. While gold’s recent performance has been remarkable, there’s no guarantee that the current price rally will last. Ultimately, it depends on what happens next with Trump’s trade war with the world. Furthermore, gold is an unproductive asset that is also capable of underperformance.
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Gold has all the right drivers in place. But is it getting too hot to handle?
Indeed, gold crumbled between 2012 and 2015. And if you were hanging on, you weren’t paid any dividends either. While I continue to view gold as great for portfolios (TFSAs and RRSPs, too) in moderate doses (think 3–5% of a portfolio), investors shouldn’t ignore the other shining metals that may offer a better “value” at this juncture. Sure, it’s next to impossible to “value” gold, given the lack of fundamentals and the many variables that go into nudging the spot price. That said, whenever gold soars while other metals are left behind (at least for the most part), other metals may have more to offer.
Notably, silver and copper prices have not shared the same shine gold has enjoyed in recent quarters. Arguably, these metals have been in a hangover since Trump pulled the curtain on Liberation Day tariffs. And while silver and copper aren’t a “safe haven” as gold is, given their industrial applications beyond just investment demand (though copper isn’t a very popular metal to invest in due to its low value), I do find that both metals can further diversify one’s portfolio.
Copper arguably has a higher beta than silver (and especially gold), given it tends to swing higher during periods of economic expansion. If you’re worried about a looming recession, copper could be a metal to steer clear of. Still, with prices already under pressure, there’s a case for contrarian investors to buy the dip.
The glimmering case for silver: A better “value” than gold?
Silver is a low-beta metal that may make the most sense for investors looking for a bit of a hedge without having to “chase” a red-hot run. While silver has had its moments this year, prices have struggled to break out past the $31 levels. Indeed, the resistance level may be too strong to break anytime soon. Regardless, the widening silver-to-gold ratio suggests silver is “severely undervalued” at today’s prices.
Personally, I’m a big fan of the Sprott Physical Silver Trust (TSX: PSLV) at just shy of $15 per share. The closed-ended fund (CEF) boasts a 0.58% management expense ratio (MER) and trades at a 3.1% discount to net asset value. For the silver bugs out there, I’d not be afraid to look to the CEF as a portfolio diversifier if you’re looking beyond gold for low-beta exposure.
