Trump's 50% tariff shock: Is it time to increase your gold, silver exposure?

US President Donald Trump’s August 6 executive order slapping an additional 25 percent levy on Indian goods on top of a 25 percent tariff for buying Russian oil has fuelled fears of  a full-blown trade war and concerns for the Indian economy.

A few hours after Trump’s announcement, Indian equity benchmarks were trading 0.5 percent lower for the third straight day, as export-oriented sectors such as textiles, diamonds, leather and chemicals brace for new trade barriers.

With the market trading lower, investors are once again looking to traditional havens such as gold and silver to ring-fence their investments from Trump tariffs.

“Tariff wars usually spark global uncertainty, and that is when gold and silver shine. These metals act as safe‑haven assets, rising whenever equities turn volatile or geopolitical risk increases, ” said Viral Bhatt, founder, Money Mantra, a personal finance solutions firm.

Higher tariffs can also stoke inflation by making imports costlier, prompting investors to protect their purchasing power through bullion. “This perfect storm can turn precious metals into a strong hedge against market turbulence,” Bhatt said.

After taking a backseat to equities and other risky assets, gold is shining again this year. It delivered gains of 12 percent in FY24 and 16 percent in FY23, MCX data shows. In the past year, its rally has been remarkable. Prices in India have already soared nearly 30 percent, nearing the Rs 1 lakh mark. Silver, too, has surged, driven by robust industrial demand, particularly from the solar and electronics sectors.

Central banks are also hoarding gold at unprecedented levels, adding over 1,000 tonnes to global reserves in 2024 alone. Nations such as China and Russia are leading the charge, aiming to reduce their reliance on the US dollar.

After the stellar performance, does gold's recent rally has more steam left?

Time to go heavy on precious metals?

If you are reeling from equity losses or seeking asset protection amid erratic trade policies, gold and silver can offer stability to your portfolio.

"In today's highly uncertain economic climate, with geopolitical tensions and tariff wars creating a sense of instability, precious metals like gold and silver are increasingly sought after as a safe haven for investors. This environment is further bolstered by several key factors: there is strong market anticipation of rate cuts starting in September, central banks are continuing to acquire large quantities of gold despite its record-high prices, and ETF buyers have now joined the rally," stress, Vandana Bharti, head of commodity research at SMC Global Securities.

Silver, in particular, is experiencing a perfect storm of demand, benefiting not only from its safe-haven status but also from robust industrial consumption driven by key sectors with limited supply. Considering these factors—a fragile currency market, fears of rising inflation due to tariffs, and downward revisions of major economic data—it would be prudent to allocate at least 10-15% of a portfolio to gold and silver. "A larger weighting toward silver may be particularly advisable, as it is widely expected to have more significant upside potential compared to gold, which has been trading in a higher price band for several months," says Bharti.

So, what is the best strategy in the current scenario? Experts favour a tactical approach rather than an aggressive bet on gold and silver.

“A tactical increase in gold and silver allocation makes sense but with caution. In a diversified portfolio, 5–10 percent exposure is ideal. Given tariff risks and interest‑rate uncertainty, investors can consider raising gold allocation by 2–3 percent for the next six–12 months, while using silver selectively through ETFs or fund‑of‑funds," Bhatt said.

ETF vs FoFs

Investors can access gold and silver in digital form through exchange-traded funds (ETFs) or ETF Fund of Funds (FoFs), offering exposure to precious metals without the hassle of physical storage. These options differ in cost, convenience and taxation.

Gold and silver ETFs invest directly in physical bullion and trade like equities on stock exchanges. They require a demat account and are best suited for investors comfortable with market transactions.

ETFs generally offer cost‑efficient exposure with expense ratios in the 0.4–0.6 percent range.

Gold and silver FoFs invest in ETFs and don’t require a demat account, making them easier for retail investors to access. The trade‑off is a higher expense ratio, typically 0.7–1 percent.

By using ETFs or FoFs, investors can avoid storage and purity risks while diversifying their portfolio and adding hedge against volatility.

In a world where tariffs can double overnight, gold and silver offer investors a safety net amid choppy waters but they should be part of a broader financial safety net, not a standalone fix.