“Asset allocation must never be anchored with a recency bias,” warns Pradeep Gupta, Executive Director and Head of Investments India at Lighthouse Canton. Yet that’s precisely what’s happening as flows into gold ETFs and mutual funds surge, with investors reallocating from equities into precious metals based largely on recent outperformance.
The stampede intensified as gold crossed $5,000 an ounce and silver breached $100 an ounce internationally, milestones that have only amplified the fear of missing out. But wealth managers are sounding the alarm: this tactical shift away from equities signals a fundamental abandonment of disciplined investing principles, potentially at the worst possible time.
“What we are witnessing currently is unprecedented and far from normal. An outcome and price levels very few would have imagined just years ago,” says Gupta.
“Momentum is being chased while geopolitical upheaval has provided appropriate fertile ground for incremental upward movement in the near to mid-term as well.”
The numbers fueling this reallocation frenzy are undeniably compelling. In calendar year 2025 alone, gold delivered 75% returns, while silver soared 120%, a performance that has made even long-term equity investors question their commitment. But advisors warn that chasing this rally carries profound risks.
“At the core of it, the larger issue is the tendency to override risk-taking ability, show little regard for underlying fundamentals and the price–value gap, and make misplaced assessments of the alternatives under consideration,” Gupta cautions. “At the end of the day, these are not cash-flow-generating assets.”The question many investors are now asking: Is a 20% allocation to precious metals not enough? Wealth managers say that allocation is already at the upper limit—and going beyond it fundamentally alters portfolio risk profiles.
Historically, institutional investors have maintained precious metals exposure in the 5-15% range. “A 20% allocation is already at the upper end of that spectrum,” says Chakrivardhan Kuppala, co-founder and Director at Prime Wealth Finserv. “Going beyond this tends to increase portfolio concentration in assets that, while defensive, do not generate income or long-term growth on their own.”
The silver rally, while spectacular, carries particular risks. The metal has delivered negative returns 50% of the time over the last 16 years, despite finding support from industrial demand in clean energy, electric vehicles, and AI data center hardware. Supply deficits have spanned five consecutive years, yet sustainability remains uncertain. “Whether this industrial demand-led equation will sustain at any price is anyone’s guess for now,” Gupta notes.
More critically, historical patterns suggest investors may be buying at precisely the wrong moment. “The Nifty-to-Gold ratio is currently at levels that, in previous cycles, have preceded periods of equity outperformance,” Kuppala points out.
“This doesn’t guarantee a reversal, but it’s a reminder that periods like this often reflect a cycle, not a permanent shift.”
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“At the current juncture, it very well appears to be a run-up due to the risk-off phase, if not the peak of a commodity cycle,” Gupta adds, highlighting the timing risk inherent in the current reallocation wave.
The performance surge has been driven primarily by macroeconomic forces—heightened global uncertainty, aggressive central bank gold purchases, and geopolitical risks—rather than fundamental structural shifts in the asset classes themselves.
“It is important to understand that this performance has been largely driven by heightened global economic uncertainty, aggressive central bank gold purchases, geopolitical risks, and strong industrial demand for silver, rather than any fundamental structural shift in these asset classes,” explains Subhendu Harichandan, Executive Director at Anand Rathi Wealth.
“Historically, gold and silver tend to be cyclical, performing well primarily during periods of elevated uncertainty and equity market stress.”
Unlike equities, returns from precious metals are driven by demand–supply dynamics and macroeconomic factors rather than underlying cash flows or earnings growth. “Increasing allocation to precious metals after a sharp rally carries the risk of poor timing, and from an asset-allocation perspective, gold should be viewed as a hedge and diversifier rather than a return driver,” Harichandan warns.
His firm recommends that investors maintain an 80:20 allocation between equity and debt, with gold treated as a partial substitute within the debt allocation rather than an addition on top of it. “This approach helps improve diversification without materially diluting long-term growth potential,” he says.
Gupta’s assessment of the current equity exodus is blunt: “The shift away from equities is tactical. Any rebound, mean reversion, and growth-led path will bring investors back into the game.”
The message from wealth managers is clear: while the rally in gold and silver has been extraordinary, abandoning disciplined asset allocation to chase momentum risks turning a sensible portfolio hedge into a concentrated bet—just as the cycle may be turning. For investors tempted to dump stocks for precious metals ETFs, the cost of recency bias could prove painfully expensive.
