You may have noticed a lot of media coverage recently about the big rise in the value of precious metals such as gold and silver.
Investors may view such commodities as a safe option during market upheaval. This is why demand has increased and driven up the value in recent years.
For example, according to The Royal Mint, the price of gold on 24 February 2026 was £3,814 per ounce. This meant that the value had more than doubled over the previous two years. The value of silver has increased at a similar rate in the same period.
However, while it can be tempting to look to commodities like gold and silver to grow your wealth, it is important to be aware of the potential downsides of over-reliance on this type of investment.
Precious commodities can appear to be an attractive investment option
There is no doubt that, on a superficial level, gold and silver appear to be a good investment opportunity, particularly given their recent price gains.
Gold, in particular, has long had emotive connotations as a tangible sign of great wealth and long-term financial security.
It has been a go-to source of wealth for hundreds, if not thousands, of years, thanks to its rarity and the great effort people put into extracting it from the ground, which adds to its value.
Furthermore, until relatively recently, gold underpinned many national currencies, which were directly convertible to gold at a fixed price.
Another attraction of commodities is owning assets that actually exist and that, theoretically, you can hold and touch. However, it is unlikely you will ever get to hold the ounces of gold you buy as an investment!
Despite these perceived benefits, if you excuse the pun, it is important to consider the other side of the coin when investing in silver and gold.
Gold and silver are generally an inflexible investment
There are some important differences between owning precious commodities and holding equity funds, made up of shares in companies.
As assets, commodities only offer you a value, as they do not provide income or dividends. This makes them highly inflexible and means you miss out on the compounding effect of dividends and extra shares, which can help drive much of the long-term investment value you will enjoy from equities.
Remember that companies will pay dividends even if the actual value of shares goes down, as dividends are paid based on the number of shares you hold rather than the overall value.
In comparison, commodities just have a value, and the only way to make a profit is to sell them. This makes them a highly inflexible investment from an income perspective.
The value of precious metals has not always increased
It would also be wrong to assume that the growth in the value of gold and silver over the last two years will continue.
Indeed, for many years, the values failed to keep pace with even relatively low inflation rates. For example, Bullion Vault confirms that in August 2011, the value of gold peaked at £1,132 per ounce. It did not reach that value again until June 2019, a period of almost eight years.
So, it is dangerous to think of gold and silver as effective hedges against inflation. In fact, there is a risk that they could cost you money.
Unlike commodities, businesses can adapt to changing circumstances
Individual shares give you a direct stake in a business. Equity funds take that one step further and allow you to own shares across a range of companies.
Each of those companies will have plans to grow and provide services to customers. This ambition has underpinned the capitalist system and delivered huge wealth for centuries.
Because of that history, evidence suggests that even when businesses run into difficulties, they can adapt, innovate, and continue to make profits.
For example, tech companies employ some of the cleverest people in the world. They are currently driving an AI boom, which is boosting company values and share prices. Even if that boom peters out, they will look for other ways to stay profitable and drive new advances.
In comparison, when the value of commodities falls, there is not much that anybody can do about it apart from wait until markets shift in their favour again.
Businesses across different sectors work in different ways, with the defining ethos of profitability. By effectively diversifying your portfolio, you can give yourself the best chance to enjoy your share of those profits and grow your wealth.
Indeed, many global equity funds incorporate mining companies, including those that extract gold and silver. They will have profited from the recent gold boom, so your diversified portfolio will have captured some of those gains.
A diversified portfolio can help you enjoy long-term investment success
Comparing precious metals and equities can help reinforce key principles for managing your investment strategy.
It is difficult to time the market and judge when a particular asset has reached a low value, so you can buy it and enjoy future growth.
How many people genuinely made a big bet on gold in 2016 when it was worth just £716 per ounce?
You are more likely to enjoy long-term investment growth through having a diversified portfolio that is robust enough to deliver steady returns over an extended period.
That way, you can mitigate the risk of a market downturn by holding investments across a range of sectors and regions.
This is a far more effective and less stressful way to grow your wealth than simply looking for the next big thing.
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Please note
This article is for general information only and does not constitute advice. The information is intended only for individuals.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.