Geopolitics, Gold, and the Case for Multi-Asset Portfolios

Gold Price Trend Over Time

Source: https://tradingeconomics.com/commodity/gold

So let’s rewind back to 2022 to understand why the uptrend started. In Feb ‘22, Russia, headed by Putin, invaded Ukraine to demilitarise the country and de-nazify its leadership. Ukraine resisted fiercely – its President refused to flee the country, citizens took up arms to defend their country, and some Western countries rushed in funds, arms, and sanctioned Russia in support of Ukraine. As part of the sanctions, the USA, EU, UK, Canada and Japan froze about $300-330 billion of Russia’s forex reserves. Suddenly, Russia lost about half of its war reserves!

To other countries, especially the emerging variety, this development was a clear warning. Before 2022, the understanding was that Central Bank reserves were untouchable, even during conflicts. That belief collapsed overnight, and countries were faced with the harsh reality that if their assets (read forex reserves) were held in Dollars or Euros inside Western legal systems, they could be confiscated/frozen by political decision. Central Banks quickly realised that, along with other risks, currencies now also carried geopolitical confiscation risk.

Central Banks quickly started reassessing how safe their own forex reserves really were. As part of the diversification process, they started buying gold. See, the advantage of holding gold is that it sits outside foreign legal systems and cannot be frozen electronically. Between 2022-24, Central Banks from China, India, Turkey and parts of the Middle East bought gold at the fastest pace in decades, as a geopolitical insurance. 

Gold demand statistics

Source: https://www.gold.org/

Since 2022, the chart indicates a marked increase in gold purchases by central banks (shown in lavender).

While Russia and Ukraine continue to slug it out, in Jan’25, Donald Trump was elected as the 47th President of the USA. His policy of pursuing tariff wars has led to fears that global supply chains would be disrupted, leading to high inflation across the world. This has continued to push up demand for gold, which is the world’s favourite inflation hedge. In addition, Trump’s idea of running budget deficits, pushing up US debt levels by increasing defence spending and implementing tax cuts has spooked the markets. To cap it all, there are now concerns about the independence of the US Federal Reserve (the USA’s equivalent of the RBI). These issues, plus the usual FOMO about the gold price rally has led to increased ETF demand in 2025, contributing to increased momentum in the gold price. 

ETF Gold Purchases

Source : https://www.gold.org/

Recent silver price trend 

Source : https://tradingeconomics.com/commodity/silver

Now lets leave gold and move on to silver. Silver prices have been trending up recently due to the familiar story of supply-demand imbalance. Demand for silver has been trending up for a while now due to increased usage in electric vehicle ecosystems, AI data centers and solar panels. As clean energy and other digital technologies continue to expand, demand for silver will continue to stay high. However, on the supply side, production of silver has barely increased over the years, and global stockpiles are quickly shrinking. It is also difficult to mine more silver quickly as it is usually extracted as a byproduct when mining other metals like copper, lead and zinc. This imbalance is the major contributor to the silver price rise. Silver ETFs have also been seeing increased inflows recently, pushing up prices further.   

Recent INR / USD trend

While gold and silver have been trending up, the Rupee seems to be in a freefall. Since May ‘25, the Rupee has depreciated by more than 8% against the Dollar. Global trade and geopolitical tensions, Indian companies rushing to buy Dollars and FPIs dumping Indian stocks are all contributing to this trend. One of the key triggers for the depreciation is the 50% tariff imposed by the USA on Indian imports. A direct outcome of this tariff is an unprecedented increase in Dollar demand in India. See, when tariffs increase, the Dollar inflow to exporters decreases while import needs, capital outflows and hedging requirements keep the demand high. This puts pressure on the Rupee. Foreign portfolio investors also sold more than $10 billion in equities last year, adding to the downtrend. 

So let’s summarise what has been happening over the last 3 years – geopolitical conflict in Russia and the Middle East, weaponisation of currencies and reserves, trade wars, currency depreciation and expectation of inflation and fiscal stress. 

This brings us to the important question of multi asset smallcases. When risks are multiple and keep multiplying, investors should go the multi-asset smallcase way to adapt.

This analysis is restricted to 4 multi asset smallcases and covers data between 12th Feb 2021 to 29th Jan 2026. This timeframe allows for comparison between our multi-asset smallcase and equity large-cap index. For this discussion, we will not consider asset allocation smallcases.

Take a look at the table below, and we will jump into the specifics.

The first thing that stands out is returns; all the 4 smallcases have either matched or done significantly better than equity largecaps when it comes to returns. This is because while equities have underperformed recently, gold has done well to shore up returns.

Next, we have risk-adjusted returns, which are returns generated by the smallcase / portfolio for every unit of risk taken. Of course, the higher the number, the better. And as can be seen, all the 4 smallcases have done exceptionally well. Different assets tend to have different risk profiles, and by strategically allocating funds between different assets, investors can optimise the risk-adjusted returns. This is especially relevant in the current market cycle, where different asset classes are witnessing varied risks.

Volatility indicates the overall riskiness of the smallcase; the higher the number more riskier the investments are. Max drawdown helps understand how much an investment fell at its worst. The numbers show how the multi-asset smallcases have lower volatility and drawdown compared to equity largecaps.    

The important takeaways from the recent market behaviour are that gold is a safe haven asset that responds to geopolitical and currency risks, while equities work well when economies are growing. Multi-asset smallcases combine these exposures and help reduce reliance on any single outcome. By cushioning the portfolio during equity downturns while remaining invested in growth assets, they seek to deliver a more resilient return profile. In today’s market regime, controlling drawdowns and staying invested through uncertainty is as important as chasing returns, and this is where multi-asset smallcases shine.

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