This article was issued and approved by Square Mile Investment Services Limited which is registered in England and Wales (08743370) and is authorised and regulated by the Financial Conduct Authority.
The recent sell-off in gold and silver was both severe and abrupt, particularly given the precious metals’ extraordinary rally throughout the entirety of 2025. While gold and silver prices are still far higher than they were at this time last year, the sudden reversal in sentiment has rightly reminded investors just how quickly things can change.
This volatile start to 2026 can be cause for concern and thus calls for a reassessment of gold’s long-term role as a diversifier, its behaviour during short-term market stress and, ultimately, any exposure we have to it in our portfolios today.
Key takeaways
- Despite the recent sell-off, gold can continue to offer long-term diversification benefits, particularly during times of heightened geopolitical tensions or market stress.
- Short-term performance in precious metals can be highly volatile, temporarily eroding some diversification benefits.
- Portfolio exposure through indirect holdings via underlying managers requires scrutiny, just as direct allocations do.
The big correction
In 2025, gold and silver enjoyed a sustained period of positive momentum. These gains reflected the incredible level of investor demand, created in part by unease over geopolitical tensions worldwide. To a certain extent, this behaviour was to be expected as, during times of uncertainty, gold has long been a source of protection. However, the continued demand for precious metals eventually led to stretched conditions, with indicators reaching extreme levels.
Enter 2026, and the reversal in the fortunes of gold and silver was dramatic. The nomination of Kevin Warsh as Federal Reserve Chair was the trigger for the sharp reassessment by investors of their precious metal holdings. Kevin Warsh is seen by markets as hawkish on inflation and interest rates. And so, subsequent to the nomination news, gold fell between 9-11%[1] in a single session, its steepest decline since 1983. Silver, meanwhile, suffered a gargantuan 26-35%[1] collapse, one of the worst daily moves in modern commodity history.
The case for gold as a long-term diversifier
Despite the sharp, volatile movements in gold prices of late, the longer-term investment case remains the same. Historically, gold generally performs best during periods when confidence in financial assets takes a nosedive, which can make it a key holding during times of market stress. As gold is not correlated to equity and bond markets, it can act as a crucial protective buffer in portfolios.
So, while markets for the precious metal have undoubtedly become more volatile in the last few weeks, that does not automatically negate the benefit of owning gold. Over longer time horizons, and in the right circumstances, gold can have a stabilising effect on portfolios, particularly in times of market jitters, rather than times of economic optimism.
The problem in the short term
There is no denying, however, that the recent short-term dynamics can feel anything but stable. When market demand from investors was as strong as it was, followed by an equally strong reversal, there is always the chance that short-term volatility could look like it may overwhelm the long-term benefits of gold and silver.
What caused such a strong, long upward trend initially is open for debate. An upward trajectory for gold would usually be paired with central bank gold purchases increasing or currency and fixed income markets signalling concern about long term, higher inflation or a collapsing dollar. None of which was seen in the markets.
Some, therefore, pointed to a key difference being investor demand driving markets up particularly through Exchange Traded Funds (ETF) purchases. That investor demand was likely to have been exacerbated by the ongoing geopolitical tensions that pervaded 2024 and 2025. Investors have historically sought refuge in gold during times of fear, similar to our current global backdrop.
The importance of portfolio discipline
What’s interesting, however, is that regardless of the rationale for upward momentum, there came a point where gold and silver became too expensive for many investors’ investment case. For gold and silver, that point came at the end of January 2026 with Kevin Warsh’s nomination. The abrupt turnaround emphasises the need for strong discipline when it comes to portfolio management and why it’s vital to always be mindful of the underlying fundamentals of any investment - even gold.
We don’t hold any direct allocations in gold or silver in our Titan Square Mile portfolios. However, we must remain alert to indirect holdings via underlying managers in our portfolios. Any exposure through them is continuously monitored and framed within the broader context of our portfolios so we ensure we remain consistent with overall risk objectives. Given both the increase in short-term volatility and the difficulty in assigning an underlying value to gold, our team approach remains to pick underlying managers with the flexibility to invest in both physical and gold-related equities.
Moreover, the market’s recent volatility underscores why any exposure, whether direct or indirect, must always have a justified place in terms of a wider, diversified portfolio strategy. While gold is often seen as a flight to safety and a way to mitigate some of the potential risk of equities and bonds, it still has its own investment profile, which means it also comes with disadvantages. Including it in a portfolio, therefore, must only be done if it supports that portfolio's resilience, in a wide range of economic and market outcomes.
Important Information
This document is marketing material issued and approved by Square Mile Investment Services Limited ("SMIS") which is registered in England and Wales (08743370) and is authorised and regulated by the Financial Conduct Authority. The independent research is provided by Square Mile Investment Consulting and Research Limited ("SMICR") which is not authorised or regulated by the Financial Conduct Authority and does not undertake regulated activities. Titan Square Mile is a trading style of SMIS and SMICR. SMIS and SMICR are wholly owned subsidiaries of Titan Wealth Holdings Limited (Registered Address: 101 Wigmore Street, London, W1U 1QU).
This document is aimed at professional advisers and regulated firms only and should not be passed on to or relied upon by any other persons. It is not intended for retail investors, who should obtain professional or specialist advice before taking, or refraining from, any action on the basis of this document. It is published by, and remains the copyright of, SMIS. SMIS makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SMIS at the date of issue but may be subject to change without reference or notification to you. This document does not constitute investment advice, a recommendation regarding investments or financial advice in any way and shall not constitute a regulated activity for the purposes of the Financial Services and Markets Act 2000. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SMIS shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. SMIS does not accept any responsibility for errors, inaccuracies, omissions, or any inconsistencies herein. Past performance is not an indication of future performance.
Date: February 2026
