Planning to invest in gold and silver this Diwali? 7 experts decode the risks, outlook and allocation strategy

Buying gold and silver during Diwali is a long-standing tradition in India, with many investors also viewing the festive season as an opportunity to review their portfolios and consider fresh investments in precious metals. However, after a strong rally followed by a sharp correction in 2026, investors may be wondering whether to add to their gold and silver holdings, wait for prices to stabilise or rebalance their existing exposure.

Experts believe that while gold and silver continue to have a role in portfolios, investors should be mindful of near-term volatility, interest rate movements and their overall asset allocation. Their views differ on the preferred metal and the ideal allocation, but they broadly emphasise the importance of avoiding momentum-driven decisions.

What is driving gold and silver prices?

Gold and silver prices have faced pressure from rising energy prices, inflation concerns and hawkish signals from the US Federal Reserve. These developments have reduced expectations of monetary easing and weighed on precious metals.

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Rahul Khetawat, Senior Vice President and Fund Manager at 360 ONE Asset, said that the key factors to watch in FY27 include signals from the US Federal Reserve on interest rates and inflation, as well as developments towards a resolution of the conflict in the Middle East. Central bank purchases and investment demand continue to provide support to precious metals.

Tapan Patel, Fund Manager – Commodities at Tata Asset Management, said that inflation, elevated yields and central bank tightening have dominated the short-term outlook, despite supportive long-term factors. However, he believes concerns around global growth, central bank diversification, de-dollarisation and US fiscal sustainability could continue to support long-term investment demand for gold and silver.

Patel also pointed to the impact of geopolitical uncertainty and changing weather patterns on commodity prices. He said investors have increasingly recognised the benefits of having commodity exposure in their portfolios.While both metals have a place in portfolios, some experts currently favour gold over silver. Khetawat said 360 ONE Asset’s portfolio positioning is tilted towards gold. Given the prevailing macroeconomic and geopolitical uncertainties, the fund house prefers a measured allocation to precious metals, with a relatively larger share in gold.

He believes gold may offer better risk-reward in the current environment because of inflation concerns, geopolitical risks and broader macroeconomic uncertainty. Silver may also present opportunities, but its price movements are influenced by industrial demand and broader economic activity, apart from investment flows.

Satish Dondapati, Fund Manager at Kotak Mahindra AMC, said gold prices have corrected nearly 3% in US dollar terms over the past week, touching their lowest level in almost a year. Softer US bond yields and a weaker dollar could support prices, but the Federal Reserve’s hawkish stance and expectations of higher interest rates for longer have kept gold under pressure.

He added that the ongoing Iran conflict has disrupted global energy markets, keeping crude oil prices elevated and adding to inflation concerns. Despite these geopolitical risks, gold has struggled to gain support as markets remain focused on the US Federal Reserve’s interest rate outlook.

Dondapati believes gold may remain under pressure in the near term, with further volatility possible. He advised investors against deploying the entire investment amount at current levels and suggested staggered buying during price declines. However, he said gold can continue to form part of a long-term portfolio as a hedge against uncertainty and for diversification.

Should investors buy more gold after the correction?

Kalpen Parekh of DSP Mutual Fund cautioned investors against increasing exposure to gold simply because it has delivered strong returns in recent years.

He said gold should be viewed as a portfolio diversifier rather than an asset in which investors should keep chasing returns. Unlike equities, gold does not have underlying earnings or cash flows, and its price is influenced by global uncertainty, interest rates, currencies and investor demand.

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Parekh said investors who are underweight on gold may find the recent 25% correction a relatively better opportunity to add to their allocation. However, those whose gold exposure has increased significantly following the rally may consider rebalancing some of their holdings into other asset classes.

He added that investors do not need to exit gold or keep adding to it based on recent price movements. The objective of asset allocation is to hold different asset classes that behave differently across market cycles, rather than continuously moving money into investments that have recently performed well.

How much should investors allocate to gold and silver?

Abhisek Bahinipati, Head – Passive Investments at Invesco Mutual Fund, said that an allocation of around 15% of a portfolio to precious metals may be sensible for most investors. Within this allocation, he suggested keeping roughly two-thirds in gold and one-third in silver. This would translate into an allocation of about 10% to gold and 5% to silver.

More conservative investors may consider limiting silver exposure to around 3%, given its higher volatility. Younger investors with longer investment horizons may be able to take a slightly higher allocation to silver, he said.

Bahinipati cited a portfolio comprising 60% equity, 25% debt and 15% silver, which delivered a return of 12.4% between Diwali 2025 and September 2026, compared with 8.2% for a traditional 65:35 equity-debt portfolio. The portfolio with silver exposure also generated a higher Sharpe ratio, indicating better risk-adjusted returns.

He said investors should first define their target allocation and use it to guide their decisions. If gold and silver have grown beyond their intended portfolio weight because of price appreciation, investors may consider trimming the excess and reallocating it to asset classes where they are underweight. If the allocation remains within the desired range, staying invested may be a better option.

What is the outlook for gold and silver?

The near-term outlook remains uncertain as precious metals face competing forces. Higher interest rates and bond yields make non-yielding assets such as gold and silver less attractive, while central bank purchases, investment demand and geopolitical uncertainty provide longer-term support.

Motilal Oswal Private Wealth said higher yields, a firm dollar and the possibility of tighter monetary policy could continue to create short-term volatility in gold prices. Recent US inflation data have also kept the possibility of further Federal Reserve tightening alive.

However, the firm noted that demand for gold is broadening. Central banks continue to accumulate reserves, ETF holdings have reached record levels, and concerns around fiscal sustainability and sovereign debt are encouraging investors to hold assets without an issuer or counterparty risk. It therefore maintains a Neutral allocation to gold.

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Nuvama Wealth Research cautioned that a sharp correction in precious metals could trigger liquidation and eventually redirect liquidity towards equities as relative valuations become attractive.

Bahinipati said the longer-term outlook for both metals remains constructive, even though volatility may persist in the near term. He pointed out that central banks purchased 244 tonnes of gold in the first quarter of 2026 alone. Silver, meanwhile, is on track for its sixth consecutive year of supply deficit, with industrial applications accounting for around 58% of total demand, driven by sectors such as solar power, electric vehicles and electronics.

For Indian investors, a weaker rupee could provide an additional layer of support to precious metals returns, he said.

How should investors approach gold and silver this Diwali?

Patel suggested that investors look beyond gold and silver and consider building a diversified commodity allocation as part of their portfolios. He said investors can access commodities through registered commodity exchanges, ETFs, Sovereign Gold Bonds and mutual fund schemes offering commodity exposure.

Some asset management companies also offer commodity exposure through hybrid and multi-asset schemes, while certain exchange-traded commodity derivatives strategies provide exposure to a wider range of commodities.

Bahinipati said investors should focus on gradual accumulation and disciplined asset allocation rather than trying to predict short-term price movements.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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