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

Gold and silver corrected sharply between January 29 and February 5, 2026. Gold fell from ₹1,74,638 per 10 gm on January 29 to a low of ₹1,48,150 on February 2, a decline of 15.2 per cent. It has since recovered to ₹1,51,891 (February 5). The correction in silver was even sharper: it fell from ₹3,79,988 per kg on January 29 to ₹2,54,339 on February 5, 2026, a decline of 33.1 per cent.

What led to the correction?

Investor frenzy and FOMO (fear of missing out)-driven buying led to a sharp run-up in prices. As prices soared, so did anxiety within the market. The rally was overstretched and prices had moved into bubble territory. “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.

 

Volatility tends to rise when investment flows become chunky. Fast inflows and outflows can accelerate both the up-move and the down-move.

 

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

 

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

 

Once the price correction began, exchanges began to raise their margin requirements, which led to forced liquidations. In a highly leveraged and crowded market, narrative shifts are often not gradual. “Once prices started to fall, derivative trades unwound and exits piled up,” says Srivastava.

 

Silver saw additional pressure as speculative positions had built up through derivatives.

Precious metals to remain volatile

Commodity experts expect volatility in precious metals to remain elevated in the coming days. “This is because price movement is being driven more by sentiment and news flow rather than fundamentals,” says Gaglani.

 

Daily triggers such as geopolitics, trade tariffs, sanctions and central bank policy announcements are causing sharp swings. With uncertainty expected to remain elevated in 2026, expect volatility in precious metals to stay high.

 

Silver is likely to be more volatile than gold. Historically, silver has shown a higher beta and can move more sharply than gold in either direction. “Over short-to-medium horizons, it can move about 1.5 to 1.7 times as much as gold,” says Gaglani. Its smaller, less liquid market means similar flows can create larger swings.

 

Experts also point to differences in demand. Unlike gold, which investors primarily treat as a monetary asset and hedge, over 50 per cent of silver demand is industrial — solar photovoltaic, 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 tends to even out price action. Gold may remain volatile amid macro uncertainty, but its swings are likely to be less extreme than silver.

 

Silver is also easier to 'corner' than gold. “Its smaller asset base and investor profile make it more susceptible to speculative trading,” points out Srivastava.

Gold: Long-term fundamentals intact

While gold is expected to witness near-term volatility and divergences, it will continue to play its role of a portfolio diversifier over the medium to long term. Elevated global debt is a key tailwind, alongside the debasement trade. “This 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 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 compared to long-term averages. This is driven by the de-dollarisation trend — the need to diversify away from the dollar. Despite the rally, gold remains relatively under-owned from a portfolio perspective.

 

However, gold may witness price corrections due to bouts of profit-taking. Significant macro shifts related to debt, trade war and inflation are also likely to contribute to volatility.

 

Experts caution against treating gold as a momentum play or a trading asset. They expect bouts of volatility, which may suit investors focused on asset allocation and generational wealth rather than technical or momentum trading.

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, silver demand could rise because it is an important ingredient in solar photovoltaic and electric vehicles.

 

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

Lessons from the recent upheaval

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 cycles.

 

“Another takeaway is that buying at record-high prices can create timing risk,” says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com. The episode has also reinforced the case for viewing precious metals as long-term assets rather than quick speculative trades.

Ideal asset allocation

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

How existing investors can tackle volatility

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

New investors must make enter cautiously

Experts advise new investors to avoid large lump-sum investments when prices are at record-high levels. Instead, adopt a staggered, systematic 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 only if you have a higher tolerance for price swings,” says Kumar. New investors must enter with a horizon of at least three to five years so that secular trends outweigh short-term noise and corrections.