Why Have Precious Metals Become the Best Investment Class?

Written by: Marin Onorato and Goran Dubček, Mathematica Capital Partners

Given the meteoric rise of silver and gold in 2025, it is logical to ask what forces have influenced the prices of the two most well-known precious metals and whether we can draw any conclusions that will be useful in the future.

Three years ago, after Russia invaded Ukraine, the United States and its allies responded with a series of sanctions, among which the freezing of Russian assets denominated in dollars and euros held in foreign banks stood out.

This measure represented a precedent that clearly showed the world that in wartime circumstances, foreign financial assets can quickly become a tool of political pressure. Due to this risk, already during 2022, numerous Asian central banks began to significantly change the structure of their foreign exchange reserves.

Instead of relying on Western currencies, they increasingly invested in gold and currencies of developing countries, while the share of the US dollar in their portfolios gradually decreased. We see this event as a turning point in investing in gold and other precious metals.

In most financial textbooks, gold is mentioned as a financial asset that long-term “preserves” the value of money and should be present in some smaller proportion in every portfolio. The most commonly mentioned amount is 5 percent of the portfolio. However, a few weeks ago, one of the most famous investors of all time Ray Dalio stated that he suggests raising that ratio to 15 percent due to several factors.

In addition to geopolitical risks, there is also distrust in the US dollar due to persistently high inflation since the pandemic and irresponsible fiscal and monetary policies in Western countries that continuously diminish the value of fiat currencies. Finally, after the price of gold and silver rose by over 50 percent in the last two years, there is also the herd effect, or trend following.

Trend following and the herd effect are not easy to quantify, but there are certain measures we can use to analyze whether new moments exist in financial instruments. The simplest way is, of course, to observe the transaction volumes passing through exchanges, but it is even more interesting to observe the volumes of futures and options on instruments related to gold.

Indeed, the volume of options on the most well-known ETF that tracks gold was five times higher than the average for the rest of the year last week. This also affected the price of options, which is even 4 standard deviations above its long-term average. These statistics suggest that “small” investors have begun to dramatically buy call options on gold, not as a long-term investment but as a short-term speculation.

These are often moments when one should be particularly cautious, as volatility is increased, but prices are often at inflection points. This does not mean that the price of gold will not continue to rise in the medium term due to the first two factors we mentioned, but a correction in the short term is likely.

When we talk about high volatility in precious metals, it is historically important to mention the Hunt brothers and the record that was surpassed this year. The price of silver has risen by nearly 70 percent, reaching $53 per ounce and surpassing the 1980 record of $49.45 per ounce.

In the late 1970s, the Hunt brothers believed that high inflation would destroy paper money (similar to what many analysts believe today) and began to accumulate silver stocks. At one point, the Hunt brothers and their partners held about one-third of the world’s total silver.

However, they attempted to execute certain financial engineering by buying physical silver and then the same through futures that sellers could not deliver, which led to market destabilization and a price increase of silver from $6 per ounce in 1979 to $49.45 in January 1980. Exchanges soon changed the margin rules, and the price fell by 50 percent in just a few days.

The price reached on January 18, 1980, was first surpassed in October 2025, a little over 45 years later. This episode tells us that gold and silver are short-term susceptible to hysteria accompanied by corrections, but they have also historically proven to be good value keepers in the fight against inflation and monetary and fiscal irresponsibility.