Tata Mutual Fund has recommended a strategic allocation to both gold and silver in investor portfolios, citing a favourable macro environment driven by falling interest rates, dollar volatility, and robust industrial demand—particularly for silver. While gold is seen consolidating in the short term after a strong rally, silver is poised for further gains, supported by both its industrial and precious metal characteristics.

Gold Holds Long-Term Promise, Silver Set for Catch-Up Rally

Tata Mutual Fund said that with the U.S. Federal Reserve expected to begin rate cuts, both gold and silver stand to benefit from increased demand amid dollar weakness and global macro uncertainty. Gold, having already rallied significantly, may see short-term consolidation, but its long-term bullish fundamentals remain intact, the fund house noted.

In contrast, silver has been gaining momentum due to its unique position as both an investment asset and an industrial metal. Tata Mutual Fund said silver prices have surged to around $38/oz, marking a ~25 percent rise year-to-date, and this rally is likely to continue amid improving investment demand and widening supply deficits.

Industrial Demand, Supply Constraints to Boost Silver

Tata Mutual Fund highlighted that silver’s role in the solar and renewable energy sectors is a key structural driver. The commodity is heavily used in solar panel manufacturing, and current installation levels are trailing output estimates by 30 percent—indicating robust demand potential. Moreover, only 28 percent of global silver output comes from primary mining, with the remaining 72 percent being a byproduct of other metal refining, which makes its supply chain vulnerable.

Additionally, the fund house pointed out that supportive macroeconomic measures from China have led to stronger demand trends, echoing silver’s performance patterns last seen during the 2011–2013 bull run. A broad global recovery, particularly from China and developed economies, may amplify silver's role as an industrial and investment asset.

Low Interest Rates and Trade Uncertainty Favor Bullion

According to Tata Mutual Fund, bullion prices tend to have a negative correlation with interest rates. As such, any interest rate cuts by the U.S. Fed in late 2025 or 2026 would act as a tailwind for silver. Simultaneously, geopolitical uncertainty and ongoing trade-related tensions may continue to support silver prices as investors seek safe-haven assets.

Gold/Silver Ratio Signals Silver Undervaluation
Tata Mutual Fund added that the gold/silver ratio—currently fluctuating above 90—suggests silver remains undervalued relative to gold. Historically, the average ratio has hovered around 70–80, indicating further room for silver to rally in order to close the gap. The ratio had previously hit a peak of 100, reinforcing the argument for mean reversion in silver’s favor.

In summary, Tata Mutual Fund believes the current environment makes a compelling case for silver exposure over a 2–3 year horizon. With gold offering long-term stability and silver presenting strong medium-term growth prospects, the fund house recommends a balanced allocation to both metals. Silver, backed by strong industrial demand, a tight supply scenario, and macro tailwinds, may well outshine gold in relative terms in the coming cycles.

Courtesy: Livemint