The Trade War Crisis and Precious Metals’ Diverging Paths

In recent months, the global economy has been rattled by a resurgence of trade tensions, most notably between the United States and China.  This modern-day tariff war, escalating into a full-blown geopolitical standoff, has created uncertainty in markets across the globe.  Amid this turmoil, gold prices have surged to new all-time highs, day after day. while silver has conspicuously lagged behind.  This divergence has puzzled many investors and prompted serious questions about whether now is the right time to continue to invest in these precious metals, especially when we start hearing more uncles and aunties beginning to talk about investing in gold (shoe-shine boy theory).

Gold’s Meteoric Rise: A Flight to Safety

Gold, together with the long term US Treasury bonds, have historically been viewed as a “safe haven” asset, one that holds or increases its value during periods of economic and geopolitical instability.  The first time I blogged about gold was back in March 2024 when I bought my first ounce of gold bar, and where I was mocked by someone for chasing the high price of gold at that point in time (about SGD 2,800/oz) with typical retail mindset.  Fastforward to today, as the trade war escalated and risk sentiment in global markets worsened, investors flocked to gold for protection.  This is especially the case this time round, as the 10-year and 30-year US treasury bonds were under threat due to massive selling pressure for these long term bonds from the unwinding of the basis trade done by hedge fund managers, causing the yields of these bonds to spike up quite uncontrollably.  Details of this basis trade unwinding can be viewed in this previous post.

Gold Price Performance in Singapore Dollar (retrieved from Bullionstar)

• April 2023: SGD 2,620 per ounce

• April 2025 (All-Time High): SGD 4,556 per ounce

• Percentage Increase: 73.9%

This remarkable rise reflects the broader global trend, where central banks (particularly in the BRICS countries) are diversifying away from the US dollar and increasing their gold reserves.  Additionally, concerns about de-dollarization, inflation persistence, and debt sustainability in developed economies have pushed institutions and investors to hedge against systemic risk.

Silver’s Underwhelming Performance: An Industrial Dilemma

Silver, though also a precious metal, behaves quite differently.  It has dual utility, used in both investment and industrial applications.  As a result, silver tends to underperform during economic slowdowns, since its industrial demand drops off sharply.

Silver Price in Singapore Dollar (retrieved from Bullionstar)

• April 2023: SGD 32.08 per ounce

• April 2025: SGD 45.43 per ounce

• All-Time High (April 2011): SGD 59.40 per ounce

• Current Performance vs ATH: 23.5% below peak

While gold surged 73.9% over the last two years, silver only appreciated about 41.6%, and is still trading far below its historical high.  In fact, during volatile moments in this trade war cycle, silver even declined more steeply than gold.  Why was this the case?

1)     Industrial Demand Weakens in Trade Wars

Trade wars typically slow global manufacturing and industrial activity, which are key sources of silver consumption.  From solar panels to electronics, demand for silver takes a hit when global trade tightens.

2)     Lack of Safe Haven Appeal

Unlike gold, silver is not seen as a primary store of value or reserve asset by central banks.  During crises, investors prioritize gold for wealth preservation, further reinforcing the divergence.

3)     Higher Volatility and Speculative Positioning

Silver is more volatile than gold due to its thinner market.  During uncertain times, speculative capital often exits silver faster than it exits gold, leading to sharper short-term declines.

4)     Gold/Silver Ratio at Multi-Decade Highs

The gold/silver ratio (ounces of silver needed to buy one ounce of gold) is currently at 106.65 : 1, near the historically high of 123.90 : 1 reached in March 2020 during the pandemic.  This indicates gold is significantly outperforming silver, consistent with flight-to-safety behavior.

Investment Outlook: Should You Buy Gold, Silver, Both, or Neither?

1)     Reasons to Still Consider Gold

• Acts as a hedge against geopolitical risks, currency debasement, and inflation.

• Central banks are still buying gold, indicating strong long-term support.

• With real interest rates flattening or possibly turning negative again, gold could continue its rally.

2)     Reasons to Consider Silver

• Trading at a discount to its historical high, thus there is potential for catch-up rally.

• Green energy demand (solar, EVs) offers long-term tailwinds post-trade war.

• Gold/silver ratio may revert in silver’s favor.

The current tariff trade war has shown us a textbook example of diverging metal behavior - gold thrives on fear, while silver struggles with industrial slowdown.  While both metals remain relevant in a portfolio, their roles are starkly different.  Gold is your crisis insurance, while silver is your high-beta play for global recovery.  As always, it is important to align your investments with your risk profile and time horizon.  Precious metals may glitter, but only with the right strategy will they shine for your financial future.

Personally, at this juncture, I will not be buying any more gold.  This is because prices are at all time highs, and since gold does not generate any dividends or interests, thus risk outweighs rewards at current price.  However, I will also not sell my one and only ounce of gold.  I will just continue to hold on to it as a form of diversification to my overall portfolio.  On the other hand, I may consider buying more silver when I have spare cash and price of silver remain depressed.  However, I will ensure my entire precious metal allocation will not exceed 2% of my entire investment portfolio (current allocation only at 0.72%).  Barista FIRE, here I come...!