The Effectiveness of Precious Metals as a Long-Term Investment in the Polish Context

Abstract

Precious metals have long served as a safe haven for investors, protecting capital value during periods of economic uncertainty, inflation, and political turbulence. Assets such as gold, silver, and platinum demonstrate relatively low correlation with traditional financial instruments, which makes them attractive tools for portfolio diversification. In the context of the Polish market, characterised by its relatively young capital market and regulatory instability, an analysis of the long-term effectiveness of investments in precious metals becomes particularly significant. 
The aim of this study is to evaluate the effectiveness of precious metals as long-term investment instruments, with particular emphasis on the specificity of the Polish market. The analysis seeks to determine whether the inclusion of precious metals in the portfolio of a domestic investor can serve as an effective hedge against capital depreciation or enhance overall portfolio returns. 
The study employs daily closing prices of four selected precious metals: gold, silver, platinum, and palladium, compared against the performance of the WIG20 and mWIG40 indices, as well as 10-year government bonds. Based on the collected data, an assessment of individual assets was conducted, including rates of return, risk, and performance indicators such as the Sharpe ratio, Jensen’s alpha, the Treynor ratio, and the regret levels. Furthermore, portfolio optimisation was carried out, identifying both the minimum variance portfolio (MVP) and portfolios maximising returns for investors with specified levels of risk aversion. 
The results suggest that precious metals, particularly gold and silver, represent justified additions to an investment portfolio. Both assets exhibited higher returns than other instruments during the examined period, with gold also demonstrating the lowest risk aside from government bonds. Additionally, the low correlation of precious metals with stock indices, negative in the case of gold, indicates that these assets may serve as a valuable alternative to traditional instruments during economic downturns while simultaneously enhancing portfolio stability.