Gold & Silver: Buy-and-Hold vs Trend Following

Not everything that glitters is gold

February 2026. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • Gold and silver had decades of exceptionally poor returns
  • Applying a trend following strategy improved their Sharpe ratios
  • However, it reduced their diversification potential for equity portfolios

INTRODUCTION

Thematic investing is often best described as performance chasing wrapped in a compelling narrative. Most investors are indifferent to a good story unless it is accompanied by attractive returns. Unfortunately, mean reversion is a powerful force in financial markets, and thematic strategies tend to underperform following periods of exceptionally strong performance. This dynamic makes thematic investing a structurally weak investment approach.

This phenomenon is most evident in equity markets, where valuations impose a natural ceiling on how far stock prices can rise. Investors might recall the hype of cannabis stocks in 2018, unprofitable software companies in 2022, and metaverse stocks in 2023.

But what about assets such as gold or bitcoin? Since these assets lack clear valuation anchors, one might argue that their prices could, in theory, rise indefinitely. In practice, however, mean reversion remains observable in these asset classes.

The sharp rallies in gold and silver over the past year have prompted renewed performance chasing by investors. In this piece, we highlight the risks associated with allocating to precious metals and explore ways to mitigate them.

LONG-TERM PERFORMANCE OF GOLD & SILVER

The long-term performance of gold and silver relative to the U.S. dollar shows largely flat returns from 1900 through the 1970s, followed by a boom-and-bust cycle in the 1980s. This was followed by an extended period of weak performance until the global financial crisis of 2008, which reignited investor interest in precious metals as a means of capital preservation. More recently, both metals appear to have entered a hyperbolic phase, often attributed to growing concerns about the U.S. dollar, as rapidly rising U.S. public debt undermines investor confidence.