By Quentin Fottrell
'Before you ask, there is nothing extreme about 5% of my &#34;alternative&#34; assets'
&#34;Should I handle it differently?&#34; (Photo subject is a model.)
It's a valid question.
A reader wants to know. &#34;I'm spooked, perhaps understandably. When looking at my asset diversification I treat gold and silver as separate categories from my assets, and an unusual part of my retirement plan. Should I handle it differently? Do they belong in my portfolio? And before you ask, no, there is nothing extreme about 5% of my 'alternative' assets.&#34;
They are correct to treat them very differently than stocks. Do not rely on gold and silver for your retirement. They are typically regarded as a &#34;safe haven&#34; and a hedge against volatility in times of economic and geopolitical uncertainty, sure, but they don't give the kind of returns you would expect to earn in the S&amp;P 500. SPX
These commodities took a beating last Friday, after a year-long bull run. Fears eased about the stability of U.S. monetary policy after President Trump nominated Kevin Warsh, seen as favorable to more interest-rate cuts, to be the next Federal Reserve chair. But that seems like too easy an explanation.
Gold prices are now, after all, down roughly $600 to $5,102 per ounce early Wednesday from their recent highs. But lest we forget, gold prices were just $2,893 per ounce a year ago, so they've also risen a lot in the last 12 months. A more likely explanation: (1.) Millions of investors raced to invest in a &#34;safe haven.&#34;
People were buying out of fear, seeking higher ground in a time of geopolitical turmoil. (2.) The rise in gold prices has been stunning to watch and, with a surge of excitement, even more people piled in. That added to a quasi &#34;gold rush&#34; among investors who understandably hungered for a piece of the action. Is that the kind of asset you would rely on in retirement?
Gold and silver, in a large quantity, are not for retirees.
Bottom line: Gold and silver (SI00) are not growth assets. They provide a long-term hedge - not a bet - against the stock market. They don't compound earnings, and they have historically lagged stock-market returns by a wide margin. In large quantities, the letter writer is correct, they are poor choices for retirees.
Commodities provide psychological safety during times of high interest rates, inflation worries, currency concerns and/or geopolitical unrest, especially as President Trump continues to challenge old economic partnerships, providing diversification and acting as a psychological safe place for some investors during volatile periods.
That works both ways. As Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, told MarketWatch this week, the rush to buy gold led to a &#34;crowded&#34; or &#34;extreme&#34; momentum trade that turned &#34;parabolic over the past few weeks.&#34;
Take a look at this chart, comparing the movements of gold, silver, the S&amp;P 500 and Dow Jones Industrial Average DJIA. As the researchers note, sometimes stocks and gold move together, sometimes they don't - and this can change even during recessions.
Related: 'I'm on a fixed budget': Silver and gold are too rich for my blood. What else can I gift my adorable grandchildren?
At times, the price of gold (GC00) even barely changed. Investors spread assets across different investment classes to manage risk. When investments don't move together, the researchers say, a drop in one can be softened by gains in another. That doesn't necessarily happen here.
Price volatility aside, gold and silver remain solid long-term bets. J.P. Morgan analysts wrote in a note to clients that they believe gold still has upside. &#34;We remain firmly bullishly convicted in gold over the medium term...&#34; They said demand still remains strong.
In fact, they forecast enough demand from central banks and investors this year to push gold prices to $6,300 per ounce by the end of 2026. &#34;We are not yet close to a place where the structural rally in gold is at risk of collapsing under its own weight,&#34; they added.
Gold and silver are sometimes talked about together, but they are different asset classes. They don't look the same, and they certainly don't perform in the same way; gold, for starters, is seen as a countercyclical asset. Central banks overwhelmingly purchase more gold GC00 for their reserves instead of silver.
Central banks overwhelmingly purchase gold over silver.
They have experienced sharp drawdowns in the past week, before regaining some ground. Safe havens don't always equate to stable prices, especially during a resetting of the postwar Western alliance. That's why they work best as small, long-term investments designed to spread risk.
As Naeem Aslam, chief investment officer at Zaye Capital Markets in London, wrote on MarketWatch: &#34;This was not a shift in sentiment alone. It was a sudden contraction in global liquidity - one that spilled directly into assets widely regarded as physical stores of value.&#34;
&#34;This was not a fundamental shock,&#34; he added. &#34;Inflation data did not suddenly change. Policy expectations did not reverse overnight. What failed was the assumption that assets widely viewed as defensive would remain liquid under stress.&#34;
A 5% allocation to alternatives, including gold and silver SI00, is not so cruel or unusual; they belong in small quantities. It's not extreme or speculative. Adjust your expectations accordingly. They will experience surges and they will suffer the same falls as any other asset class. So, yes, they are only ever complementary to your portfolio.
Related: 'I'm facing an ethical dilemma': My widowed mother is cutting my step siblings out of the family trust. Do I have a responsibility?
More columns from Quentin Fottrell:
'This is our second marriage': We're in our 60s. How do we split expenses if we move in together and rent one house?
'Hell of a story, isn't it?': My brother stole $500K from my ailing father. Can we get justice?
'We live on Social Security and pensions': I'm in my 70s and my house needs repairs. Do I take out a $50K loan - or sell stocks?
'I'm rich in everything but parents': I inherited $400K. Is it unwise to use this money to buy a house with my fiancé?
Check out the Moneyist private Facebook group, where we look for answers to life's thorniest money issues. Post your questions or weigh in on the latest Moneyist columns.
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-Quentin Fottrell
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
02-04-26 0038ET

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Gold prices have surged above $5,000 per ounce, raising concerns about its suitability for retirement portfolios. While gold is often viewed as a safe haven during economic uncertainty, it does not provide the growth potential of stocks. Analysts caution that gold and silver should not be relied upon heavily in retirement plans, as they lag behind stock market returns. Despite recent volatility, demand for gold remains strong, with forecasts suggesting prices could reach $6,300 per ounce by 2026. Gold is primarily favored by central banks, distinguishing it from silver in investment strategies.

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'I'm spooked': Gold is back above $5,000, but is it a high-risk bet for your retirement?