As tensions in the Middle East have eased slightly, precious metals such as gold and silver have once again come into focus, staging a notable rebound after witnessing steep declines during the peak of geopolitical uncertainty. Reflecting this swift turnaround, major Gold ETFs have rallied by around 8 to 10 per cent in just the last two trading sessions, while Silver ETFs have outperformed with gains exceeding 15 per cent.
At such times, investors are often tempted to jump into these funds, expecting strong returns. But is this rally sustainable? Let’s take a closer look, understand what these ETFs are, and evaluate what investors should do now.
What are Gold and Silver ETFs?
Gold and Silver ETFs are exchange-traded funds that invest in physical gold or silver and aim to mirror their domestic market prices. These instruments are listed on stock exchanges and can be bought or sold like shares through a demat account. Each unit is backed by actual bullion held by the fund house, ensuring transparency. Gold and Silver ETFs offer multiple advantages for investors.
They eliminate concerns around storage, theft, and purity associated with physical metals. These ETFs provide high liquidity, allowing easy buying and selling during market hours. They closely track market prices, ensuring transparent pricing without making charges. Investors can start with small amounts, making them accessible. Additionally, they help diversify portfolios and act as a hedge against inflation and market volatility, enhancing overall risk management in uncertain economic conditions.
When Safe Havens Fail
Rising geopolitical tensions involving Iran, Israel, and the United States have unsettled global financial markets. Typically, such uncertainty drives investors towards safe-haven assets as a hedge against risk. However, the recent trend has been somewhat unusual. Instead of rallying, precious metals like gold and silver witnessed a notable decline, defying traditional expectations amid heightened geopolitical stress.
The United States is now largely energy self-sufficient, which alters its response to rising oil prices. Instead of hurting the economy and weakening the dollar, higher oil prices can actually support the U.S. economy, particularly its domestic energy sector. As a result, the U.S. dollar has remained strong during the current phase of geopolitical stress. This has a direct impact on gold and silver prices. Since these metals are priced in U.S. dollars, a stronger dollar makes them more expensive for global investors, thereby reducing demand and putting downward pressure on prices.
At the same time, safe-haven capital is increasingly flowing into the dollar rather than precious metals. Additionally, the sharp rise in oil prices indicates a late phase in the commodity cycle, where demand concerns and economic stress begin to emerge. This combination has led to recent weakness in gold and silver.
What should investors do now?
Following a prolonged rally from late 2025 into early 2026, which delivered outstanding returns to gold and silver investors, many participants entered the market driven by FOMO at elevated valuations. As seen in the charts, these funds subsequently witnessed a sharp correction, highlighting the risks of chasing momentum.
Gold ETF Silver ETF
No one can accurately predict what will happen next in the markets, whether it is geopolitical developments or movements in oil, the dollar, or precious metals. In such an environment, discipline becomes critical. Chasing rallies after sharp price increases can expose investors to sudden corrections, while a staggered investment approach can help navigate volatility more effectively. Asset allocation plays a crucial role here. Instead of overexposing to a single asset class during uncertain times, investors should maintain a balanced portfolio across equities, debt, and commodities.
This helps manage risk while ensuring participation in different market cycles. Gold ETFs can be used as a portfolio stabiliser rather than a primary return driver. A modest allocation of around 5 to 10 per cent can help reduce overall portfolio risk. Silver ETFs, on the other hand, may be better suited for investors with a higher risk appetite and a long-term investment view. Most importantly, investment decisions should be guided by long-term goals rather than short-term news flows. Geopolitical developments can shift quickly, and so can market sentiment.
(Disclaimer: This article uses information originally published by Dalal Street Investment Journal (DSIJ). The views expressed are those of the original authors and not necessarily of ABP Network Pvt. Ltd. This content is provided for general informational and educational purposes only and should not be construed as investment, financial, legal or tax advice. Readers are advised to conduct their own research and/or consult a qualified financial advisor before making any investment decisions. This content is for informational purposes only and should not be treated as investment advice. ABP Network, its employees and associates shall not be responsible or liable for any losses or damages arising directly or indirectly from the use of or reliance on this article or any information contained herein.)
