A Comparison of Gold and Silver Investments

When the economy is turbulent and inflation is soaring, investors rush to precious metals. Both gold and silver are safe-haven investments in times when currencies and stocks are depreciating in value. 

The pandemic, in combination with the weak US dollar, has led to skyrocketing prices of gold exceeding $2,000 per ounce. Silver prices soared as well, reaching $28 per ounce in 2020. Nevertheless, investors should consider several aspects of comparison before investing in any of these valuable metals. These factors include volatility, price, storage space, industrial uses, and stockpiles. 

The following comparison might be helpful in making the right decision.

Volatility

The first point of comparison between these two precious metals is volatility. The total annual supply of silver is approximately one billion ounces, whereas the annual gold supply is about 120 million ounces. By looking at this information, one might easily conclude that the silver market is eight times larger than the gold market. 

Nevertheless, owing to the huge price difference between these commodities, the low silver prices makes the annual supply value much smaller than the gold supply. Despite its short-term price fluctuations, gold provides better long-term stability as an investment. The small size of the silver market makes this asset prone to price swings. See this page to gain a better insight into the causes, meaning, and significance of volatility in the market.

While the mining rate of silver is eight times higher, the value of gold is seventy times bigger. The rate at which the former rises in bull markets is much higher than the rate of the latter, but it also falls much faster. When the bull market is at the peak of its performance, investors are advised to sell the former to get greater returns. 

While on the topic of volatility, it’s worth mentioning that over seventy percent of the supply of silver is actually a mining byproduct for other metals. While its volatility might be attractive to investors speculating in the short-term, gold is undoubtedly more attractive in the long term. 

Price

Another point of comparison when considering an investment in any of these precious metals is their price. As already mentioned, gold is more valuable and expensive because of its rare nature. Silver provides the same benefits as the yellow-colored asset, such as tangibility, no default risk, no counterparty risk, privacy, etc. Hence, it allows investors to enjoy the same benefits at a much lower price. 

As of December 2021, the gold-silver ratio was 64.41 at its lowest and 79.98 at its highest. Looking back at 2020, the gold-silver ratio was 114.77, the highest it has ever been since 1915. Even when silver is expensive, it cannot exceed the value of gold. Investors should consider having at least a low amount of this asset in their portfolios. It’s particularly beneficial to investors with limited budgets. This site, https://www.wikihow.com/Calculate-Ratios, explains how to calculate ratios.

Storage space

Another crucial aspect of comparison is storage space. Individuals would need much more space to store silver compared to gold. The former is much less dense and larger in volume by as many as 84% in comparison with the latter. Consequently, investors might come across storage problems when investing in bullion. 

While a person can hold $40,000 worth of gold in a single hand, he/she would need approximately ten shoe boxes to store the same sum of silver worth. Investors should take this factor into account when calculating the fees for professional storage, which are likely to be higher due to the larger amount of metal. Transportation might be pricier as well. 

Regarding storage requirements, silver bars and coins have to be stored in a dry place where exposure to weather elements won’t be a problem. In contrast, gold won’t tarnish, takes up less storage space, is lighter to transport, and is more affordable to store. 

Industrial uses

The following point of comparison is the industrial uses of both precious metals. Just twelve percent of the gold supply is assigned to industrial uses, whereas a staggering 56% of the silver supply are applied in different industries. It’s used virtually everywhere, from medical applications to solar panels. Its value is indispensable for modern life, as almost all everyday products people use contain some. 

When the economy is strong, the demand for this asset is high. Nevertheless, the demand becomes weaker during deflation and recession. Most precious metal dealerships, like Texas Precious Metals, offer a wide array of gold and silver products. The latter demonstrates greater susceptibility to economic busts and booms. Its price is predicted to fall during a recession, which has already happened so many times throughout history. 

Let’s go back to the 1970s, infamous as the most unfavorable economic period in modern history. The second half of this decade brought a high inflation rate of 14%, war tensions, a high rate of unemployment, and an energy crisis. During a financial or monetary crisis, the role of silver as money is much more important than its industrial role. 

On the contrary, gold outperforms this asset when individuals are facing a financial crisis. It’s protected against economic slowdowns due to its limited industrial uses. 

Stockpiles

Last but not least, investors should consider the stockpile factor when comparing these precious metals. In the past, governments used to have copious silver inventories, but most of them no longer have such stockpiles. The only countries that still have such inventories are Mexico, India, and the US. The leading reason why governments no longer hold such inventories is the increased use of this metal in industries. 

Central banks, however, hold more than 34,000 tons of gold and continue to make purchases each year. Such continuous purchases have an increasing effect on the metal’s demand. In case governments commence to purchase silver, this decision would have a huge influence on the market and a sudden boost in price. 

Final thoughts

A detailed comparison is necessary before making any investment decision. 

Consider each of these factors carefully!

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