With the festival season looming, it would be appropriate to check out which of the precious metals makes for a good investment.

Going by what chartists and analysts say, if you are considering investments in gold and silver, you should hold your horses for now, given the high prices.

However, fairly steady returns are assured over the long term if you diversify investments and add bullion to your portfolio of equity or bonds. And investments, especially in gold, are expected to resume during Diwali, when prices are historically lower.

But among the glittering array of precious metals, only gold and silver trade competitively in India, leaving little to choose from.

Going by past data, chances are if you are making pure investments in silver your returns would be higher than in gold. But here comes the caveat -- this can be enjoyed only by those who have a high risk appetite.

If your portfolio investments in the last six years contained only silver your absolute cumulative returns would have been 22.9 per cent. In comparison, gold would have fetched you slightly lower returns of 21.8 per cent. Another caveat: One of the parameters that should set alarm bells ringing in your head is price volatility.

Says bullion consultant Bhargava Vaidya, "Gold over a sustained period of time gives the most steady returns and is beneficial to invest in, especially in portfolios as a hedge. Silver, on the other hand, though cheaper, is meant for the risk takers at heart given its tendency of daily volatility of roughly 2 per cent."

He added that a month ago, gold would have been an ideal investment given its reaction to inflationary pressures. But considering the rise in prices, most investors are currently selling off as it is peaking. They are waiting to reinvest when the prices correct in a few weeks.

"Gold has already overreacted to inflation and would be a good buy when it comes down to $380 levels, expected during Diwali," Vaidya said. On Wednesday, it had already declined to $410 from $420 levels at the beginning of the week, owing to the flaring up of crude oil.

Also, gold has just overcome a 20-year bear trend and is currently poised at the beginning of a long bullish cycle. Besides, analysts predict a likely crash of the US dollar in the next year, post the elections there is likely to keep the bullion markets buoyant for at least four to five years.

Analysts say 20 per cent of the portfolio investments in bullion is the ideal allotment.

According to data from the National Commodity and Derivatives Exchange of India, over the past six years, gold has been much less volatile at a range of 12-18 per cent compared with 15-25 per cent for silver. Correspondingly, silver has a much higher risk than gold.

Now, if you diversify your investments between bonds, equity and bullion, silver is likely to give slightly higher  returns as the risk is reduced (See chart).

Annually, bonds give steady returns of approximately 8-9 per cent. While gold and silver may not give as high returns, it is as safe as investing in currency over a sustained period according to Vaidya.

While stocks are known to give high returns, the range of volatility is much less in gold and silver as they are largely fundamental driven. This is what makes them good assets in portfolios.

The bottomline is, you may not mint, but you definitely don't lose!

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