Diversifying your portfolio with precious metals

• An allocation of 5–25 percent precious metals has historically improved the risk-adjusted return of a diversified portfolio, because the metals are driven by forces other than equities and bonds.

• Precious metals carry no counterparty risk in the underlying commodity, unlike equities, bonds and cash, which all rest on someone else’s ability to pay or on their credibility.

• A macro backdrop of record-high government debt, rapid money-supply growth and politically frozen currency reserves has driven central banks to buy gold at the fastest pace in decades.

• Gold and silver behave differently: gold is the monetary anchor with low equity correlation, while silver is half industrial metal and swings more.

• Rising real interest rates are the clearest headwind for a higher gold price, but central-bank buying and geopolitical concern have historically often offset that effect.

• For a Swedish investor there are four routes to precious-metals exposure, with significant differences in tax, cost and risk profile.

Precious metals have taken on a renewed role because they respond directly to the risks that characterise today's macro environment. Unlike fiat currencies, no central bank can create more gold or silver, which makes them a hedge against inflation. They also act as a hedge against fiscal concern, because capital tends to seek real assets when confidence in governments' ability to carry their debt wavers.

US government debt passed 40 trillion dollars in August 2026, and interest costs now exceed the defence budget. This is a situation that over time will likely require some combination of higher growth, tax increases, spending cuts or continued monetary expansion to manage. During the pandemic of 2020–2022 the US M2 money supply grew by more than 40 percent in two years. Together with disrupted supply chains and rising energy prices, this contributed to the highest inflation since the 1980s, which eroded the purchasing power of currency, real wages and savings.

When Western countries froze around 300 billion dollars in Russian central-bank assets in 2022, most of which were held in Europe, central banks in China, India, Turkey, Poland and Saudi Arabia concluded that reserves held in the dollar-based system carry a political risk that gold does not, and they increased their gold purchases sharply. Central banks' net gold purchases in 2022–2024 were the highest in decades. In parallel, the BRICS+ group has expanded and bilateral trade in local currencies has increased, which does not challenge the dollar's position immediately but signals that alternatives to today's system are slowly being established.

What makes precious metals useful in a diversified portfolio is a combination of three properties.

The first is the absence of counterparty risk. Equities rest on companies' future profits, bonds on the ability of governments and companies to repay, cash on the credibility of the central bank. Precious metals are physical assets with no issuer and no credit risk, which makes them a structural counterweight in a diversified portfolio that otherwise consists mainly of financial contracts.

The second is low correlation with equities and bonds. Gold has historically moved on drivers other than the stock market, and the low correlation has historically helped lower portfolio risk over time, even though gold is not a reliable hedge in the short term. During the stagflation of the 1970s gold rose sharply while equities performed weakly. During the financial crisis of 2008 gold ended the year essentially unchanged while the S&P 500 fell around 38 percent, although gold also fell during the acute liquidity crisis in the autumn before recovering.

The third is inflation protection over long periods. In the short term prices move independently of the rate of inflation, but in environments of high inflation, currency devaluation or sharp monetary expansion, precious metals have historically preserved or increased purchasing power in real terms.

Classic allocation models land at 5–25 percent precious metals. Harry Browne's 'Permanent Portfolio' allocates 25 percent to gold, while the popular 'All Weather' portfolio, built on Ray Dalio's principles, places roughly 7.5 percent in gold and 7.5 percent in other commodities. The lower end is enough to noticeably reduce a portfolio's volatility without giving up return, while a higher allocation provides stronger protection in currency and inflation crises. How to think about the overall allocation is described in our article on portfolio strategy and asset allocation.

The metals differ and should be weighted differently

The precious metals do not move alike, which has practical significance for how they can be weighted in a diversified portfolio.

Gold is the least volatile precious metal and functions primarily as a monetary asset. The price is driven by central-bank buying, the level of real interest rates and geopolitical uncertainty, and its correlation with the stock market is low and at times negative.

Silver has an industrial share of more than half of demand, around 55–60 percent in recent years, above all solar cells, electronics and batteries. The electrification of the vehicle fleet and the expansion of solar energy have created a structural demand driver. Silver swings more than gold in both directions and therefore provides a leverage effect on gold's movements. The relationship between them is measured by the gold/silver ratio, how many ounces of silver are needed to buy one ounce of gold, which has historically moved between roughly 40 and 80 but peaked around 125 in 2020, and is used as a relative-valuation tool. The ratio is explained in more detail in our resource on the gold/silver ratio.

The platinum group, PGMs, is normally also counted among the precious metals but lacks the monetary history of gold and silver. Gold and silver have been used as means of payment and stores of value for thousands of years, a role that has given them a special position in the financial system. Platinum was first described in the 1700s and the other platinum-group metals in the 1800s, and the group is instead driven mainly by industrial demand.

Precious metals are not risk-free assets, and three risks are worth understanding before investing.

Real interest rates and monetary policy are the clearest headwind. Rising real rates weigh on the gold price because the metal provides no ongoing return. In 2022 real rates were such a counterweight, but central banks' record buying and geopolitical concern held the price up and gold ended the year essentially unchanged. In 2023 the price rose 13 percent as the market began to price in that the Federal Reserve's rate hikes were over, even though real rates were still high.

Price volatility is the second risk. Silver, platinum and palladium have historically moved considerably more than gold and can produce large swings both up and down in a short time, because they are also affected by industrial demand.

Geographical concentration is the third. A large share of the world's gold, silver and PGM production takes place in a handful of countries, which makes the market sensitive to political decisions, export restrictions and regional crises.

For a investors there are four main routes to precious-metals exposure, and they differ on points that determine the net outcome.

Physical metals, coins and bars, give direct exposure to the metal price without intermediaries. But ownership comes with practical friction. Tax treatment varies from country to country: investment gold is exempt from VAT or sales tax in many jurisdictions, while silver, platinum and palladium are often taxed, so the rules in your own country need checking before you buy. On top of that come premiums over the spot price and ongoing costs for storage and insurance. Physical metals also fall outside most tax-advantaged savings accounts and investment wrappers, which in many cases means a less favourable tax outcome than other forms of exposure

ETC's are exchange-traded products with passive exposure. Physically backed ETCs hold a corresponding amount of metal in a vault, which gives price exposure without the investor having to handle storage.

Mining shares are financial instruments with the same counterparty risk as any equity, but their underlying exposure is linked to physical commodities with a geologically limited supply. This gives a different risk profile from equities whose value rests on services, brands or financial flows.

Daily-traded commodity funds give exposure to the metal price via a portfolio of producers, spread across several companies and regions. Because a miner's profit margin widens faster than the metal price rises and compresses just as quickly when it falls, mining equities carry leverage to the underlying metal — traditionally they stand to gain more in a rising market, and to lose more in a falling one. Unlike owning individual mining shares, the selection of companies, risk diversification and ongoing analysis are handled by a manager, and the funds can be held in an ordinary investment account.

Daily-traded commodity funds are the approach we take at AuAg. Our conviction is that these metals are essential to modern life and that their importance will only grow. The four funds offer four distinct routes into the sector: AuAg Silver Bullet targets silver miners, AuAg Gold Rush combines gold producers with royalty and streaming companies, AuAg Essential Metals holds a broad spread of miners across the metals of the energy transition with copper as its largest weight, and AuAg Precious Core is the only one of the four to own physical gold, alongside producers of metals essential to electrification supply chain.

Precious metals earn their place in a portfolio because they are no one's liability. In a macro environment of record government debt, rapid money-supply growth and central banks buying gold at the fastest pace in decades, that quality matters more than usual. Historically, an allocation of 5–25 percent has been enough to improve risk-adjusted return without giving up upside. Gold anchors the allocation, silver adds industrial exposure and larger swings, and the platinum group follows industrial demand. What remains is the form of exposure – physical metal, ETC, mining shares or daily-traded fund – a choice that shapes cost, risk and tax outcome as much as the metal price itself.