Gold and silver ETF rush signals rebalancing, not exit from equities, says expert

Gold, silver ETFs: Market participants say the recent surge in flows into gold and silver ETFs reflects a tactical rebalancing rather than a fundamental shift away from equities. With global macro uncertainty persisting, investors appear to be strengthening portfolio hedges even as equity markets remain resilient.

Alok Jain, founder of Weekend Investing, said equity markets are showing underlying strength despite periodic intraday corrections and widespread scepticism among investors. “Markets have corrected and consolidated for nearly a year and a half. Interest rates are easing, inflation is benign, and India has concluded key trade agreements with the EU, the US and Gulf countries. Conditions are actually very favourable for a rally,” he said.

Jain noted that rallies typically begin when investors least expect them. “Markets climb a wall of worry. There is never an announcement that a rally has started. It happens quietly, and only later do people realise they are being left behind,” he said, adding that foreign institutional investor (FII) flows are also beginning to improve.

He pointed out that broader markets, particularly midcaps and smallcaps, have started to show renewed momentum after prolonged underperformance. “These segments were beaten down to the point where investor hope had largely disappeared. That loss of confidence is often the backdrop against which sustainable rallies take shape,” Jain said.

Addressing concerns that strong inflows into gold and silver ETFs signal a peak in precious metal prices, Jain dismissed such interpretations as misplaced. “The inflows into gold and silver ETFs are not coming at the cost of equity allocations. Equity fund inflows have broadly remained intact. This is fresh allocation, likely replacing physical gold, sovereign gold bonds or even some debt exposure,” he said.

Jain stressed that asset allocation, not market timing, should remain the core strategy for investors. “A significant portion of capital should always remain invested in equities. Tactical adjustments can be made at the margins, but trying to time markets usually leads to missed opportunities,” he said.

He also highlighted the global context, noting that bonds still dominate portfolios worldwide. “There is close to $170 trillion parked in bonds globally, while less than 1% is allocated to gold. Over this decade, reallocations toward precious metals are inevitable. Writing off the precious metals rally based on short-term flows is a flawed narrative,” Jain said.

According to Jain, the rise in gold and silver ETF participation should be seen as a structural improvement in investor behaviour. “Investors are gradually moving away from reactionary decisions and towards disciplined, long-term allocation. That shift, more than the absolute flow numbers, is the most constructive signal for markets,” he added.