Amid gold-silver volatility, book partial profits in rallies to cut risks

Instead of chasing high prices, new investors must enter through systematic investment plans with a horizon of five years

After a sharp run-up, gold and silver recently saw a correction. Gold fell from ₹1,74,638 per 10 gram on January 29 to a low of₹1,48,150 on February 2 2026, a decline of 15.2 per cent. It has since recovered to ₹1,51,469 (as of February 6). The correction in silver was even sharper: it fell from ₹3,79,988 per kg on January 29 to ₹2,44,929 on February 6, 2026, a decline of 35.5 per cent.

 

What caused the correction?

 

Investor frenzy and FOMO (fear of missing out)-driven buying led to a sharp run-up in prices. Experts say the rally was overstretched and prices had moved into bubble territory. “Prices had risen too quickly and the market was primed for a correction,” says Siddharth Srivastava, head —ETF product & fund manager, Mirae Asset Investment Managers (India). As investors who had made money booked profits, the market fell.

 

Geopolitics also played a part. Markets had priced in the possibility of a strike by the United States (US) on Iran. “When those fears did not materialise, the war premium began to unwind,” says Deveya Gaglani, senior research analyst – commodities, Axis Securities.

 

The policy narrative shifted as well. The market had been discounting a dovish monetary policy outlook. The nomination of Kevin Warsh as the next Federal Reserve chair by President Donald Trump triggered a reassessment of US monetary policy path and the outlook for the dollar.

 

Once the price correction began, exchanges began to raise their margin requirements, leading to forced liquidations in a highly leveraged market. “Once prices started to fall, derivative trades unwound and exits piled up,” says Srivastava. Silver saw higher pressure than gold as speculative positions had built up through derivatives. 

 

Precious metals to remain volatile

 

Volatility in precious metals may remain elevated.  “Price movement is being driven more by sentiment and news flow rather than fundamentals,” says Gaglani. Daily triggers such as geopolitics, trade wars, and central bank policy announcements are causing sharp swings. With uncertainty expected to remain elevated in 2026, volatility in precious metals, too, is likely to be high.

 

Silver, which has historically had a higher beta, may remain more volatile than gold. “Over short-to-medium horizons, it can move about 1.5 to 1.7 times as much as gold,” says Gaglani.

 

Silver is easier to “corner” than gold. “Its smaller asset base and investor profile make it more susceptible to speculative trading,” says Srivastava. A less liquid market results in similar flows causing larger swings.

 

Unlike gold, which investors treat primarily as a monetary asset and hedge, over 50 per cent of silver demand is industrial—solar photovoltaic panels, electric vehicles, and electronics. This makes it sensitive to industrial cycles as well as safe-haven flows. Gold, on the other hand, sees steadier institutional or central bank demand, which evens out price action. Hence, while gold may remain volatile, its swings are likely to be less extreme.

 

Gold: Fundamentals intact

 

Gold is expected to continue playing its role as a portfolio diversifier over the medium to long term. Elevated global debt and the debasement trade are key tailwinds. “There is the fear that high debt may push central banks to keep rates low (to reduce debt-servicing costs) and tolerate higher inflation (to keep debt-to-GDP in check),” says Vikram Dhawan, head of commodities and fund manager, Nippon India Mutual Fund. Trade war-related frictions and shifts in the world order may lead to higher currency volatility, making the yellow metal a preferred hedge against currency depreciation.

 

Another tailwind is sustained central bank buying, which has accelerated in the past three to four years. This is driven by the de-dollarisation trend—the need to diversify away from the dollar. Gold may witness periodic price corrections due to bouts of profit-taking and macro shifts related to debt, trade war, and inflation.

 

Experts caution against treating gold as a momentum play or a trading asset. Dhawan suggests having a long-term allocation to it so that it provides diversification and hedging benefits.   

 

Outlook for silver

 

Despite the massive run-up, silver could gain in the long run if technological advancement favours higher silver consumption, particularly in green tech and high tech. Silver is a proxy or hedge linked to climate change. If the swing towards renewables gains momentum, demand for silver could rise.

 

The rally in silver faces two major risks. “Technology shifts could reduce the use of silver through substitutes, referred to as silver thrifting. And if prices rise too high too sharply, that would hurt demand,” says Dhawan.

 

Lessons from the episode

 

The recent correction suggests that while precious metals hedge geopolitical tension and inflation, they are not immune to sharp short-term corrections and profit-booking.

 

“Buying at record-high prices can create timing risk,” says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com.

 

Ideal asset allocation

 

Conservative investors should maintain 5 per cent in gold for capital stability and to minimise downside. Those with a moderate risk appetite may hold 5 to 10 per cent in precious metals, using a balanced mix of gold and silver to provide a volatility buffer without sacrificing growth. “Aggressive investors may hold 10 to 15 per cent in precious metals for higher potential returns, while accepting the probability of significant downside due to price fluctuations,” says Kumar.

 

Existing investors: Trim exposure

 

Adopt a strict rebalancing strategy based on asset allocation. Trim exposure to precious metals when it rises above a predefined share of the overall portfolio. “Book partial profits during rallies and reallocate to more stable assets or undervalued sectors,” says Kumar. Also, combine gold’s relative stability with silver’s cyclical potential to smooth portfolio returns across different economic phases.

 

New investors: Enter cautiously

 

Avoid large lump-sum investments when prices are at record-high levels. Instead, adopt a staggered approach (like a systematic investment plan) to average purchase costs. “Use gold as the primary defensive allocation for a safer entry, and treat silver as a smaller tactical addition if you have a higher tolerance for price swings,” says Kumar. New investors must enter with a horizon of at least seven years so that secular trends outweigh short-term corrections.