Silver rally likely to end soon, investors should rotate profit to Indian stocks: Report

WhiteOak Capital advises investors to book profits on silver, now overvalued relative to historical levels, and reduce precious metals allocation. Funds recommend reallocating into diversified Indian equity funds or blue-chip stocks for better long-term growth and liquidity

New Delhi: Investors should consider booking profits on silver and rebalance into diversified Indian equity funds or blue chip stocks, a report said on Thursday.

The report from WhiteOak Capital Mutual Fund said that investors should trim precious metals allocation back to a safe haven allocation level and stop chasing further upside. “Book profits on silver, as its current valuation is the most over-extended relative to historical periods. Trim precious metals back to a safe haven level in your total portfolio,” the report said.

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The mutual fund said that silver’s huge outperformance relative to gold often signals the final speculative phase of a rally and warned that the metal’s current premium leaves it vulnerable to a sharp correction.

“When silver outperforms gold with high velocity or parabolic moves, it often signals the final, speculative stage of a run; one that historically ends against investors’ best interests,” the asset manager said.

The current Gold-to-Silver ratio has collapsed to about 46:1 versus a 10 year average near 80:1, the report said. The Gold-to-Silver Ratio (GSR) measures the relative value between the two metals. “When it drops below 50:1, silver is no longer cheap.

In previous cycles, a ratio this low has preceded a mean reversion where silver prices corrected significantly faster relative to gold,” the fund house further said. A weakening Rupee is often used to justify holding metals, but history shows it cannot save the investor from a speculative burst, it added.

“An ounce of gold or silver produces no cash flow. In contrast, the Nifty 50 companies reinvest profits to grow, and reward investors by returning cash (in the form of dividends), as well as through capital appreciation,” the fund house shared its view.

Since inception, the Nifty 50 (TRI) has matched or exceeded gold’s CAGR of around 13.2 per cent while providing far superior liquidity compared to holding physical metal, the report noted.