Precious metals may present an opportunity for investors to diversify their portfolios further and potentially benefit from the distinct investment characteristics precious metals have historically offered.

In our view, investors can best realize these potential benefits by regarding precious metals as a distinct asset class, separate from other commodities and alternative investments.

Historically, a precious metals allocation increased the efficiency of a diversified stock-bond portfolio. They can also act as core risk-management tools for investors by providing effective diversification against risk-facing assets. This may help reduce performance drawdowns during equity market volatility. Precious metals can also serve as a hedge against extreme events and market turmoil.

The rise of precious metals in modern markets

Precious metals, including gold, silver, platinum, and palladium, have grown in prominence over the years as viable investment alternatives to include in asset allocations. This helped as the development of physical metals exchange-traded funds (ETFs) brought gold holdings out of the basement and onto the portfolio statement. Asset allocation seeks to increase risk-adjusted returns through diversification, based on the principle that different assets perform differently under varying market and economic conditions. For several decades, investors have achieved this through traditional asset classes, such as stocks, bonds, and cash.

This changed after the early 2000s saw two financial crises – first in 2001, then again in 2008. Since then, more investors have sought to include non-traditional asset classes, also known as alternative investments, in their portfolio mix to help manage risk exposures.

Like other commodities, precious metals are global assets that are partly driven by fundamentals, such as supply and demand, over the long term. However, unlike commodities, precious metals tend to behave like currencies, with valuations tied to another currency, typically the US dollar. Macroeconomic and monetary factors, including interest rates, exchange rates, and inflation, serve as key drivers.

A diversified basket?

Additionally, precious metals have diversified drivers of demand, which differentiate price movements during different parts of the market cycle. Consequently, precious metals have historically had low correlations with other markets, particularly equities and commodities, which tend to be highly cyclical. These factors can set precious metals apart as a “true alternative” with distinct diversification, risk management, and investment qualities.

While gold was the strongest performer among precious metals in 2024, no single metal has consistently led the pack over time (Chart 1).

A diversified basket of precious metals tends to perform more consistently vs. any single metal. It creates exposure to both the cyclical and non-cyclical drivers of gold, silver, platinum, and palladium as a whole. A basket offers further opportunities to benefit from diversification advantages of an asset class while maintaining the unique qualities inherent to the individual precious metals.

A core risk-management tool?

An allocation to precious metals may be an attractive risk-management tool. Precious metals can be a dynamic and multi-faceted hedge against many forms of risk. They also have a track record of mitigating investor portfolios against severe market drawdowns. This is especially useful for long-term investors seeking to hedge against a broad spectrum of both known and unknown risks.

Precious metals have historically shown low correlations with most asset classes, particularly equities. Over the past two decades, precious metals have exhibited lower correlations with both US and global equities compared to other alternative investments (Chart 2).

This low correlation is a result of the diverse sources of demand across gold, silver, platinum, and palladium. Pro-cyclical sources of demand, including jewelry, consumer, and industrial applications, increase as the economy grows and incomes rise.

Counter-cyclical sources of demand, primarily investment demand, pick up during economic slowdowns and market pullbacks. This is because, during these times, interest in stores of value and defensive assets tends to increase. These pro-cyclical and counter-cyclical sources emerge at different times, resulting in low overall correlations with the broader market and economic cycle. As a result, precious metals can act as effective diversifiers against traditional risk assets, particularly equities. Holding precious metals can help investors diversify against their equity exposure.

The benefits of effective diversification¹

The benefits of diversifying in precious metals are critical today, as effective diversification has become increasingly challenging to achieve since the 2008 global financial crisis.¹ Correlations across alternative investments rose dramatically in 2008 compared to the preceding period from 2003 to 2007 (Chart 3).

Following 2008, however, the correlations and exposure of several alternative investments to global equities, particularly through commodities and real estate investment trusts (REITs), have remained elevated compared to their pre-crisis levels. Meanwhile, precious metals remain an exception – highlighting their effectiveness as a true alternative investment.

Precious metals have also historically remained resilient during extreme events and market turmoil (Chart 4).

A precious metals basket has historically posted positive returns when volatility has spiked. This represents a sharp contrast to global equities, which have exhibited negative returns and significant drawdowns during the same periods.

A divergence from commodities

In an environment of market fear, global equities tend to experience large sell-offs as investors attempt to reduce exposure to risk assets and seek more stable, defensive investments. The track record of precious metals performing well in the face of market uncertainty showcases their potential as a risk-management tool.

The investment community often classifies precious metals as commodities, which dictates how they’re used in asset allocations. This has some merits. Precious metals are global assets with similar physical production and storage treatment to broader commodity sectors, such as energy, agriculture, and base metals. However, we believe that certain properties of precious metals make them an asset class distinct from commodities.

Lower correlation

Broad commodities, like other alternative investments, have a higher equity correlation than precious metals. Commodities have exhibited a correlation of 0.51 with global equities, whereas the correlation of precious metals at 0.25 has been half as strong during the same period. This difference between precious metals and commodities becomes even more tangible when evaluating their performance.

Precious metals have returned to 9.39% annualized, while commodities returned only 1.13% annualized, with a clear divergence beginning in 2008 as the global economy slowed (Chart 5). While equities have recovered since then, commodities have not; they remain tied to their particular fundamental challenges.

Upside and downside capture measures highlight one of the most attractive advantages that precious metals offer over broad commodities (Table 1).

Source: Bloomberg, Aberdeen Investments. Note: Precious Metals = abrdn Physical Precious Metals Index (GLTRI Index), Commodities = Bloomberg Commodity Index Total return (BCOMTR Index), Global Equities = MSCI World Net Total Return USD Index (NDDUWI Index). Exhibit data from 1/02/2003 - 4/30/2025.

These measures illustrate how an investment is affected by the fluctuations in the stock market, as it rises and falls. Historically, when global equities have experienced positive returns, precious metals have captured 50.7% of this upside, and commodities have captured 45.9%.

Less downside capture

Conversely, when global equities have experienced negative returns, precious metals have captured only 14.4% of the downside. Commodities, on the other hand, have historically captured more than four times the equity downside (61.7%) compared to precious metals.

This means that precious metals may be more efficient. Historically, they capture desired equity movements with roughly half of the positive equity returns and one-seventh of the downside returns (Table 2).

Source: Bloomberg, Aberdeen Investments. Precious Metals = abrdn Physical Precious Metals Index (GLTRI Index), Commodities = Bloomberg Commodity Index Total Return (BCOMTR Index), Global Equities = MSCI World Net Total Return USD Index (NDDUWI Index). Exhibit data as of 4/30/2025. *Annualized returns **The inception date for the precious metals index is 1/02/2003. **The inception date for the Bloomberg Commodity Index is 1/02/1991. **The inception date for the MSCI World Index is 12/31/1969.

The opposite is true for commodities, which capture more of the undesirable downside equity movements than are offset by the positive equity moves they capture.

Overlooked in commodity indices?

Another reason investors should consider precious metals as a distinct asset class compared to commodities is their current weightings within broad commodity indices. The highest contributors to commodity index performance are the energy and agriculture sectors, accounting for a range of 66% to 83% (Chart 6).

These sectors tend to have higher equity sensitivities and exposures to equity risk than is commonly realized.

Investors may not realize that a broad commodities allocation may not provide sufficient exposure to precious metals. Most of the major commodity indices have precious metals as the smallest sector in their composition. When evaluating four major commodity indices, the sector weights for precious metals range from 6% to 19%. This means that a 5% portfolio holding in commodities translates to a portfolio exposure to precious metals of only 0.28% to 0.94%. We believe this type of allocation, which is less than 1% at the portfolio level, will prevent investors from reaping the unique potential benefits that precious metals can offer in a portfolio.

¹ Diversification does not eliminate the risk of experiencing investment losses.

Important Information

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance is not a guide to future results.

The abrdn Silver ETF Trust, abrdn Gold ETF Trust, abrdn Platinum ETF Trust, abrdn Palladium ETF Trust and abrdn Precious Metals Basket ETF Trust are not investment companies registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Trusts are not subject to the same regulatory requirements as mutual funds. These investments are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility.

Commodities generally are volatile and are not suitable for all investors. Please refer to the prospectus for complete information regarding all risks associated with the Trusts.

The value of the Shares relates directly to the value of the precious metal held by the Trust and fluctuations in the price could materially adversely affect investment in the Shares. Several factors may affect the price of precious metals, including: A change in economic conditions, such as a recession, can adversely affect the price of the precious metal held by the Trust. Some metals are used in a wide range of industrial applications, and an economic downturn could have a negative impact on its demand and, consequently, its price and the price of the Shares; Investors’ expectations with respect to the rate of inflation; currency exchange rates; interest rates; Investment and trading activities of hedge funds and commodity funds; and global or regional political, economic or financial events and situations. Should there be an increase in the level of hedge activity of the precious metal held by the Trust or producing companies, it could cause a decline in world precious metal prices, adversely affecting the price of the shares.  Should there be an increase in the level of hedge activity of the precious metal held by the Trust or producing companies, it could cause a decline in world precious metal prices, adversely affecting the price of the shares.

Also, should the speculative community take a negative view towards the precious metal held by the Trusts, it could cause a decline in prices, negatively impacting the price of the shares. There is a risk that part or all of the Trusts’ physical precious metal could be lost, damaged or stolen. Failure by the custodian or sub-Custodian to exercise due care in the safekeeping of the precious metal held by the Trusts could result in a loss to the Trusts.

The Trusts will not insure its precious metals and shareholders cannot be assured that the custodian will maintain adequate insurance or any insurance with respect to the precious metals held by the custodian on behalf of the Trust. Consequently, a loss may be suffered with respect to the precious metal that is not covered by insurance.  Commodities generally are volatile and are not suitable for all investors.

Diversification does not eliminate the risk of experiencing investment losses.

Investors buy and sell shares on a secondary market (i.e., not directly from Trusts). Only market makers or “authorized participants” may trade directly with the Trusts, typically in blocks of 25k to 50k shares.

This material must be accompanied or preceded by the prospectus. Carefully consider each Trust’s investment objectives, risk factors, and fees and expenses before investing. To view the prospectus, please click here – abrdn Silver ETF Trust, abrdn Gold ETF Trust, abrdn Platinum ETF Trust, abrdn Palladium ETF Trust and abrdn Precious Metals Basket ETF Trust.

The abrdn Physical Precious Metals Basket Shares ETF Index reflects the daily performance of an investment in a precious metals basket in a proportion equal to 0.03 ounces of gold (based on LBMA Gold Price PM), 1.1 ounces of silver (based on LBMA Silver Price), 0.004 ounces of platinum (based on LBMA Platinum Price PM) and 0.006 ounces of palladium (based on LBMA Palladium Price PM). The S&P 500 Index is a capitalization-weighted index of 500 stocks selected by the Standard & Poor’s Index Committee designed to represent the performance of the leading industries in the U.S. economy. One cannot invest directly in an index. Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes.

THE LBMA GOLD PRICE AND LBMA SILVER PRICE, WHICH ARE ADMINISTERED AND PUBLISHED BY IBA, SERVES AS, OR AS PART OF, AN INPUT OR UNDERLYING REFERENCE FOR THE TRUST. EACH OF THE LBMA GOLD PRICE AND LBMA SILVER PRICE IS A TRADE MARK OF PRECIOUS METALS PRICES LIMITED, AND IS LICENSED TO IBA AS THE ADMINISTRATOR OF THE LBMA GOLD PRICE AND LBMA SILVER PRICE. IBA IS A TRADE MARK OF IBA AND/OR ITS AFFILIATES. THE LBMA GOLD PRICE AM, LBMA GOLD PRICE PM, LBMA SILVER PRICE AND THE TRADE MARKS LBMA GOLD PRICE, LBMA SILVER PRICE AND IBA, ARE USED BY THE SPONSOR WITH PERMISSION UNDER LICENCE BY IBA. IBA AND ITS AFFILIATES MAKE NO CLAIM, PREDICATION, WARRANTY OR REPRESENTATION WHATSOEVER, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED FROM ANY USE OF THE LBMA GOLD PRICE, THE LBMA SILVER PRICE, OR THE APPROPRIATENESS OR SUITABILITY OF THE LBMA GOLD PRICE AND LBMA SILVER PRICE FOR ANY PARTICULAR PURPOSE TO WHICH IT MIGHT BE PUT, INCLUDING WITH RESPECT TO THE TRUST. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL IMPLIED TERMS, CONDITIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, AS TO QUALITY, MERCHANTABILITY, FITNESS FOR PURPOSE, TITLE OR NON-INFRINGEMENT, IN RELATION TO THE LBMA GOLD PRICE AND LBMA SILVER PRICE, ARE HEREBY EXCLUDED, AND NONE OF IBA OR ANY OF ITS AFFILIATES WILL BE LIABLE IN CONTRACT OR TORT (INCLUDING NEGLIGENCE), FOR BREACH OF STATUTORY DUTY OR NUISANCE, OR UNDER ANTITRUST LAWS OR OTHERWISE, IN RESPECT OF ANY INACCURACIES, ERRORS, OMISSIONS, DELAYS, FAILURES, CESSATIONS OR CHANGES (MATERIAL OR OTHERWISE) IN THE LBMA GOLD PRICE AND LBMA SILVER PRICE, OR FOR ANY DAMAGE, EXPENSE OR OTHER LOSS (WHETHER DIRECT OR INDIRECT) YOU MAY SUFFER ARISING OUT OF OR IN CONNECTION WITH THE LBMA GOLD PRICE AND LBMA SILVER PRICE OR ANY RELIANCE YOU MAY PLACE UPON IT. ALPS Distributors, Inc. and Aberdeen are not affiliated entities. Aberdeen Investments Global is the trade name of Aberdeen’s investments business, herein referred to as “Aberdeen Investments” or “Aberdeen”. In the United States, Aberdeen Investments refers to the following affiliated, registered investment advisers: abrdn Inc., abrdn Investments Limited, and abrdn Asia Limited.

ALPS Distributors, Inc. is the marketing agent for abrdn Silver ETF Trust, abrdn Gold ETF Trust, abrdn Platinum ETF Trust, abrdn Palladium ETF Trust and abrdn Precious Metals Basket ETF Trust.

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