ICICI Prudential AMC's Chief Investment Officer S Naren has issued a stark warning about precious metals showing signs of euphoria after their exceptional performance in 2025. The veteran fund manager advises investors to dial back their focus on gold and silver, which have dominated returns across multiple timeframes.

Precious Metals Rally Raises Euphoria Concerns

The warning comes after precious metals delivered extraordinary returns that positioned them as the best-performing asset class. Naren highlighted the risks in his 2026 outlook, noting that most global markets appear overvalued.

"The risks, however, remain," Naren said in his 2026 outlook posted on YouTube. "Most markets in the world look overvalued, particularly the US Nasdaq, and precious metals are showing signs of euphoria."

Indian Equities Show Resilience Despite Modest Returns

In contrast to the headline-grabbing rally in precious metals, Indian equities experienced what Naren described as "a year of hibernation." The Nifty ended 2025 with a relatively modest return of 10.5% but achieved a significant milestone by delivering positive annual returns for the tenth consecutive calendar year.

Despite strong macroeconomic fundamentals, including very low fiscal deficit, subdued inflation, minimal current account deficit and robust growth, the Indian rupee underperformed against all global currencies last year. In USD terms, Nifty delivered only about 4% return in 2025 due to currency depreciation, making Dalal Street the worst-performing major equity market globally.

Investment Strategy Recommendations for 2026

Naren expects a different trajectory for 2026, expressing optimism about India's market prospects. "We think 2026 should be different and India should outperform most markets in 2026," he said.

The fund manager recommends investors embrace asset allocation strategies and consider taking "a little bit of higher risk towards equity" compared to January 2025 levels, given Indian markets have trailed most global peers over the past year.

Key Investment Recommendations:

• Reduce focus on precious metals despite their strong performance
• Increase equity allocation compared to January 2025 levels
• Adopt flexible mandate schemes investing across all market segments
• Avoid concentrated bets on single areas or sectors

Long-term India Growth Story Remains Intact

Despite near-term challenges, Naren maintains confidence in India's long-term prospects. "We continue to like India's story, considering India is one of the best growth prospects in the next decade and has a very good demographic profile for long-term investors," he said.

The caution from India's seasoned money manager marks a notable shift for precious metals, which dominated investment returns through 2025 even as traditional equity markets faced headwinds.

Precious metals started the New Year trading session on a strong note, with both gold and silver posting significant gains on the Multi Commodity Exchange (MCX). Gold February futures opened higher by ₹1,195 at ₹1.36 lakh per 10 grams and held most gains through the session, closing up ₹795 or 0.59% at ₹1.36 lakh per 10 grams. Silver displayed an even more impressive performance, with March futures opening ₹3,168 higher at ₹2.39 lakh per kg and surging to close at ₹2.42 lakh per kg, marking a substantial gain of ₹6,133 or 2.60%.

Strong Performance Across Contract Months

The rally extended across different contract months, with gold April futures also trading higher by ₹721 or 0.52% to ₹1.40 lakh per 10 grams. Silver March contract touched an intraday high of ₹2.43 lakh per kg, demonstrating robust buying interest and steady momentum that carried forward from the record-breaking performance in the previous year.

International Markets Show Continued Strength

The domestic rally mirrored positive sentiment in international markets, where precious metals began the year on a strong footing globally. Gold and silver are extending their historic gains from the previous year amid persistent geopolitical tensions and expectations of lower interest rates in the US. Market participants point to a combination of international cues and local demand as key drivers for the current momentum.

Federal Reserve Policy and Market Dynamics

Minutes from the US Federal Reserve's December meeting reinforced expectations that policymakers could ease monetary policy if inflation continues to cool, although differences remain on the timing and pace of rate cuts. Lower interest rate expectations typically support non-yielding assets such as gold and silver, providing fundamental support for the current rally.

The supportive monetary policy environment, combined with continued central bank buying and a softer dollar, has created favorable conditions for precious metals. Geopolitical risks have also stayed elevated, with renewed tensions in Eastern Europe and tighter enforcement actions impacting global energy and trade flows, sustaining safe-haven demand for precious metals.

Market Outlook and Investment Perspective

Market analysts believe that most commodities, including precious metals, are likely to extend gains with the supportive global macro environment. The combination of firm spot demand, expectations of lower US interest rates, and persistent geopolitical uncertainties continues to underpin the bullish sentiment in precious metals markets.

The strong start to the New Year suggests that the momentum from the record-breaking previous year performance is carrying forward, with both gold and silver demonstrating resilience and attracting steady buying interest from investors seeking portfolio diversification and safe-haven assets.