A 20 percent portfolio allocation to Gold and Silver is going mainstream

In a seismic shift, Morgan Stanley CIO Michael Wilson recently came out with an investment strategy that includes a 20 percent allocation to gold.

Now a Sprott executive has followed suit, telling a mainstream financial network's audience that investors should consider shifting from the traditional 60/40 portfolio to a 60/20/20 allocation.

This isn't typical messaging on mainstream financial networks.

Historically, the conventional wisdom on Wall Street was a 60/40 portfolio, with 60 percent of the holdings in equities and 40 percent in fixed-income investments, primarily bonds. The theory is that these asset classes balance each other, with stocks strengthening in a strong economy and bonds creating a hedge during downturns.

However, bonds have lost their safe-haven status in recent months. Last spring, at the height of tariff uncertainty, gold and silver rallied as bonds sold off. Gold and silver seem to be the last safe havens standing.

Given the changing market dynamics, Wilson said investors should consider a 60/20/20 strategy, swapping half of the bond portfolio for gold to serve as a “more resilient” inflation hedge.

In an interview on CNBC Tuesday (Oct. 14), Sprott director of ETF management Steven Schoffstall echoed Wilson, saying a 20 percent allocation to gold and silver will likely yield a better return than the traditional portfolio.

He noted that the pivot toward a lower interest rate environment with the Federal Reserve now in a cutting mood will likely benefit the metals.

“Gold's always traditionally been viewed as a safe haven for economic turmoil, geopolitical instability, things that we're seeing right now, because it doesn't have a yield. Generally, falling interest rates are beneficial for gold. That's when we see a lot of investors start to move into gold.”

This has been evident in the surge of money into gold ETFs in North America.

Schoffstall said this reflects growing investor acceptance of gold in the West.

“Typically, it's been viewed as a fringe or outside metal and allocation tool.”

He noted that “more prominent economists are starting to suggest shifting from a 60/40 model to something closer to a 60/20/20 where it's 60 percent equities, 20 percent fixed income, 20 percent gold.”

Schoffstall pointed out that gold and silver are the ultimate hedge.

“What you get out of gold is that hedging to the broader investor universe. When you start thinking about things like correlations – how well does gold move versus other aspects of the economy – we tend to see low to moderate correlations across most major asset classes, and an inverse correlation to the U.S. dollar – all aspects of the economy that investors are starting to feel uneasy about at the moment.”

This interview isn’t as surprising as the announcement from the Morgan Stanley CIO, given Sprott’s focus on metals and critical minerals. However, it reinforces a visible shift in mainstream investment strategy in the U.S., and, notably, he had this discussion on CNBC, a mainstream financial network that tends to ignore gold at best and generally dismisses it outright.

Schoffstall said that even with gold at over $4,000, he still sees plenty of upside given persistent geopolitical tensions, trade uncertainty, and high levels of global debt.

“I don't think those overlaying macro factors are going away anytime soon, and I think that's something that investors are really latching on to.”

He also noted steady central bank gold buying. 

“Over the last three years it's been about a thousand tons per year. We're still seeing continued buying from central banks. What that does is allow central banks to de-dollarize their assets. They can move out of Treasuries, move into gold, and at the same time they can actually repatriate that gold back to their home countries for their own self-storage. It gets it out of the way of sanctions that could potentially come from the United States or other countries.”

Pushing precious metals allocations to 20 percent will require a lot of additional buying. Currently, investors with “significant” allocations to gold don’t generally hold more than 5 percent in their portfolio. Schoffstall said investors would be well-positioned with a 5 to 15 percent allocation to physical gold and silver, depending on risk tolerance, along with exposure to gold and silver mining stocks. 

“Gold miners, silver miners, they have operational leverage to the underlying price of gold or silver, which typically allows them to outperform over longer periods of time in bull markets.” 

In closing, Schoffstall was asked what would convince him that the gold and silver bull markets might be winding down. 

“For gold, what it would take is to see some of that risk coming off the table, geopolitical, economic risk. I would think that in the near term, that seems quite unlikely. If you're looking at silver, [it’s] a little bit different with that industrial component. If you start to see slowdowns in AI investments or a slowdown in the global economy, you could see some pullback in silver prices. But in our view, silver has actually been underinvested in for so long that we think there's still considerable room to run for silver.”

He cautioned that we could see more volatility in the silver market given the lack of central bank buying to support it. However, he said that volatility could work to the upside. 

When the news came out, I argued that a major investment firm like Morgan Stanley abandoning the venerable 60/40 portfolio represented a seismic shift in the investing world. 

Seeing this discussion on CNBC supports my conclusion. 

It will be interesting to see if other mainstream advisors follow suit. But whether they do or not, you should consider rebalancing your portfolio to include gold if you haven't already. The policies and economic dynamics driving this gold rally aren't going away any time soon. This monetary malfeasance can't be voted away. The best thing you can do is prepare and shield yourself from the inevitable consequences. 

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