There’s more to responsible investing than just diversification. Buying, holding, and rebalancing investments has certainly produced solid results over many investment periods, but by choosing a static allocation and never wavering from it, an investor is very beholden to the time period in which they are investing. Consider that for the 25-year period from 1956 through 1981, an investor who was half in stocks and half in bonds, rebalancing religiously, earned an average of 6.1% per year, which was only 1.1% higher than inflation. However, the investor who started investing in the exact same portfolio beginning right after that in 1982 earned 11.6% per year for the next 25 years, which was 8.5% above inflation.
Such different results for two identical portfolios, managed the exact same way. It’s not as if the first investor was worse than the second investor; they just weren’t as lucky with their time period. As much as we do believe in the virtues of choosing a sensibly diversified portfolio and rebalancing over time, we also know that there is more to successful investing. That is why at Cadence we not only hold client assets in the more well-known stock and bond categories, but we also care about the relative values and growth potential of many investment categories not considered “traditional”, because we do not want performance to suffer from investing in a time period that does not particularly favor a cookie cutter approach.
For years now we have believed that precious metals and the mining company stocks associated with them were undervalued relative to other sectors of the financial markets. We started including precious metals exposure in our client accounts nearly ten years ago. We continued increasing our exposure to these asset classes over time, believing they held better growth prospects than the US stock market. As such, our clients have much more exposure to these areas than the vast majority of investors. We weren’t looking to hit a home run with these investments, but to provide growth for client portfolios from an area of the financial markets that we believed had greater upside than the more common investment areas. Which brings me to the last 13 months.
Since the end of 2024, the worst performing investment of our five most utilized precious metal investments has returned nearly 100%. That’s the worst one. The best one, silver, is coming close to tripling in value the past 13 months. Over that same timeframe, investments in the S&P 500 and NASDAQ are up 17% and 20%, respectively.
Like I mentioned earlier, we weren’t intending to swing for the fences with our precious metals exposure; we just knew they had considerable upside potential, and then a variety of factors combined to drive prices up sharply higher in a relatively short period of time. This begs the question: what do you do with an investment that is now worth dramatically more than just 13 months ago? Do you keep it, hoping for further growth, or do you sell it, lock in those gains, and find the next potential undervalued investment?
The answer in this case, as it turns out, is a little bit of both.
It is very normal for fast-growing investments to give up some of their gains before continuing higher. That happened last year for a couple weeks in the fall when our precious metal investments were down between -7.6% and -19.5%, while the S&P 500 and NASDAQ were up between 2.5% and nearly 4%. We fully expect this to happen again, and maybe multiple times, before this precious metals cycle finally runs out of steam. Rapid investment growth, like tech stocks in the late 90’s and what precious metals have been doing since the beginning of last year, can create strong emotions in investors. When assets grow that high, every penny feels earned, and any subsequent loss can feel cruel. Just remember that if you would be happy with a 25% gain, that gain is the same whether the asset took a straight road to 25% higher, or if it first went to 50% and then lost 17%. Guard against getting overly emotional should these assets give some of their gains back.
If you look at how precious metal prices behave relative to US stocks over time in the chart below, you can see there are long periods of time where one outperforms the other, and then it flips. The straight gold line segments show the average moves over time of precious metals, specifically gold and silver, while the straight red line segments show the average moves over time of the S&P 500:
As you can see, there are long periods of time, up to 20 years, where one trades sideways or even loses value while the other increases aggressively. Stocks did not appreciate much in the 70’s, whereas gold and silver exploded. However, in the 80’s through 2000, gold and silver gave up many of those gains, while it was stocks’ turn to explode. Back and forth it went, until five years ago when the pattern was abandoned, with both stocks and precious metals enjoying solid growth. This also happened a couple times when stocks were recovering from the tech bubble burst and the Great Recession – both stocks and precious metals appreciated impressively at the same time. This most recent time, however, stocks were not recovering from anything nearly as significant as those two prior crashes, so how do you determine which one has more growth potential at this point in time? Are stocks headed toward a peak, only to fall relative to precious metals, or is it the other way around?
Among the factors we consider when evaluating these possibilities are the relative prices of precious metal and stock market indexes to each other over time. You can chart the indexes cycles, but that will not tell you if one is potentially a better value than another at any point in time. There are situations where even though one investment has fallen in price and another has risen, the one that is falling is still relatively expensive compared to the one that is rising.
Consider the price of the longest tracked gold and silver mining index, XAU, relative to the price of the S&P 500 Index over time.
As we saw in the last chart, gold and silver prices mostly declined between 1980 and 2000, while stock prices were rising. It’s no surprise to see that the relative price line of gold and silver mining stocks versus the S&P was also falling over that period, as the dividend (top number – gold and silver prices) was getting smaller while the divisor (bottom number – S&P 500 price) was getting larger. Likewise, when stocks traded sideways from 2000 through 2012 and gold and silver prices were rising, the relative price line in the chart above was rising. Basically, when the red and black line in the chart above is above the horizontal black line, it means mining stocks are expensive relative to the S&P 500, and when the red and black line is below that horizontal line, it means mining stocks are cheap relative to the S&P 500.
We would, however, still invest in precious metals assets even if the relative price line were to rise above the estimated longer-term average depicted by the horizontal black line. There are more factors to buying and selling assets than just whether or not they appear expensive or cheap relative to something else, and we would still be interested in owning these assets after they are no longer “cheap” because there can be a lot of room for relative price growth above the long-term average. We simply use this chart as a way of measuring where in the cycle these prices are to each other.
Currently, mining stocks are still cheap compared to the S&P 500, even though precious metals and precious-metal mining stocks have dramatically outperformed the S&P 500 over the past 13 months. Gold and silver prices themselves may be close to reaching parity with stocks, but the mining stocks are still relatively cheap compared to the overall stock market.
So, if an investor were looking to lock in precious metals’ and mining stocks’ recent gains, now does not appear the time to buy into the S&P 500 with those gains, as they’d be selling an investment that is still relatively cheap, and they’d be buying and investment that is still relatively expensive. As a result, one of the answers to the early question of what do you do with an investment that is worth so much more than it was 13 months ago is NOT to sell it and buy an investment that is still EVEN MORE expensive.
Instead, what we have done with our precious metal assets is manage their risks now that they have risen so far, so fast. In our core portfolios, we do this by rebalancing, which sells the excess in gold, silver, and mining positions and allocates those gains among the portfolios’ diversified investments, thereby systematically selling high and buying low. In our active portfolios, we have continued to trim our exposure to metals as they have grown, and their allocation in the portfolios is nearly identical to where it was at the end of 2024. We have not completely sold out of any of our metals positions in any of our portfolios, so much as brought them back into balance. With some of the gains, we have increased our exposure to energy stocks, which we feel could be the next area to enjoy outsized returns.
When you do catch the tiger by the tail, first keep yourself safe, and then enjoy the ride. There will be some bumps – you are riding a tiger, after all – and we do think double-digit pullbacks are likely at times. When these happen, it does not mean the strategy of owning these assets has stopped working. With the increased attention on precious metals everywhere from individual investors up to hedge funds and central banks, and with prices of precious metals and mining stocks still being cheap relative to stocks, we think this tiger has more room to run, despite the bumps that will occur.
Editor’s Note: This article was originally published in the February 2026 edition of our Cadence Clips newsletter.
Important Disclosures
This blog is provided for informational purposes and is not to be considered investment advice or a solicitation to buy or sell securities. Cadence Wealth Management, LLC, a registered investment advisor, may only provide advice after entering into an advisory agreement and obtaining all relevant information from a client. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions
The views expressed in the referenced materials are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
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