- Michael Allison, CFA
- Jun 22
- 2 min read
By Michael Allison, CFA
This week’s Chart comes to us courtesy of my friend and former Eaton Vance colleague, Henry Peabody and his firm, Riverhead Research.
Precious vs Industrial: A Tale of Two Metals
The performance of precious metals relative to industrial metals has exploded to levels that exceed even the stagflationary episodes of the late 1970s and early 1980s. If history is any guide, markets are trying to tell us something, namely that investors are again seeking refuge from inflation, government largesse, and geopolitical chaos.
Precious metals like gold and silver have always been the go-to hedge against instability. They don’t throw off cash flow, but they do something arguably more important in periods like this: they hold trust. Trust when fiat currencies are being diluted. Trust when policymakers lean too far into fiscal expansion. And trust when the global chessboard starts to shake.
Riverhead Research nailed this shift in their June 7th piece from which we borrowed this week’s Chart. They note that gold’s outperformance relative to industrial metals “is mind-blowing,” and that even in China, a nation not typically prone to western-style doomsaying, retail savers are hoarding gold amid crashing real estate and declining trust in financial institutions .
Industrial metals, by contrast, live or die by economic growth. Copper, nickel, aluminum are pro-cyclical and demand driven. They rise with factory orders and housing starts. So when we see the ratio of precious to industrial metals spike, it’s not just about the price of gold going up—it’s a macro signal that global growth may be decelerating while inflation remains sticky.
To put a finer point on it: precious metals hedge against, industrial metals bet on. One is defensive, the other offensive.
This bifurcation underscores a critical portfolio construction insight: true diversification means allocating across economic regimes, not just asset classes. When forward returns from traditional risk assets look meager and policymakers are fumbling with tools that have lost their edge, holding some “trust capital” in precious metals looks less like a hedge and more like a necessity.
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