Gold and silver have always been valuable commodities, dating back to ancient civilizations. For centuries, these precious metals were used for currency and jewelry in many countries worldwide.
In modern times, gold and silver remain valuable investments for those looking to diversify their portfolios or hedge against economic uncertainty. Gold and silver are safe-haven assets owing to their long history of reliable returns.
Despite this commonality between the two metals, there are some differences that investors should know when considering which metal is a better investment option.
This article explores the parameters where gold and silver differ, helping you decide which metal is best for you.
Price and Volatility
Gold and silver are volatile assets, meaning their price can fluctuate depending on the state of the market. However, gold generally experiences less volatility than silver.
The implication is that gold makes a comparatively safer long-term investment option, offering greater stability and predictability in terms of returns. As an investor, you can use the relatively stable price of gold to your advantage, allowing you to make more reliable predictions on how much return you might generate from your investment.
On the other hand, silver is generally more volatile than gold, and its prices can vary significantly over short time frames. Silver has more potential for short-term gains but also carries a higher risk of losses. So, if you’re looking for short-term gains, silver may be a better investment option.
Gold vs. Silver Ratio
Professional investors sometimes compare the historic ratio between gold vs. silver to determine the relative valuation between these two precious metals. Historically it has cost between 15 to 100 ounces of silver to equal the value of 1 ounce of gold.
The highest ratio in modern history was recorded during the 2020 Covid market crash, where the ratio hit a high of around 122.
Over the past ten years, the common ratio of prices of gold to silver has been between 50 to 90. For most of 2022 to 2023, the ratio has hovered between 75 to 85. Therefore it’s a fair conclusion to suggest gold is currently overpriced relative to silver, based on historial data.
Gold vs. Silver: Long Term Returns
Gold and silver have great potential. Both metals perform optimally and are likely to remain a haven for investors for years to come. But which offers better long-term returns on your investment?
On the one hand, gold is a more desirable asset and has a historical record of protecting holders from inflation and economic downturns. Gold is a more reliable long-term asset because its price is less volatile than silver.
On the other hand, Silver has seen periods of wild price swings, making it a riskier long-term investment. However, silver’s lower cost means that investors can invest less money. But is it worth it?
Gold is a better choice if you invest long-term, as it provides greater protection against inflation and economic decline. Silver may be more suitable for short-term investments or trading, thanks to a higher potential for quick returns.
These precious metals are less commercially viable than other metals, such as copper and steel. However, between gold and silver, the latter has more industrial applications. Silver is used in various industries, including electronics, automobiles, solar panels, and healthcare products.
The high demand for silver in these industries can drive up the price of silver and make it a more attractive investment option. However, significant changes in the industrial demand for silver can also cause its costs to drop significantly, so consider the additional risk associated with silver investments.
Gold has fewer industrial uses, and its price tends to be more influenced by investment demand. Depending on your risk tolerance, gold might be the safer option when considering long-term investment opportunities. But if you want an asset that performs well in a strong economy, you should consider investing in silver.
Rarity and Scarcity
Gold and silver are both rare metals. It is estimated that about 80% of the world’s gold has already been mined. This statistic implies that the amount of gold available worldwide is finite, making it scarce. As a result, gold prices will likely rise over time due to their increasing scarcity.
Silver is more abundant than gold, and it is estimated that the world has about 530,000 metric tonnes left to mine. This increased availability means there will be less upward pressure on its prices than gold. However, it also means that silver is a more affordable investment option for those with limited capital.
Based on this rarity and scarcity, gold is more likely to increase in value over the long term than silver. But if you’re looking for an affordable precious metal investment option, silver might be the better choice. Your budget and risk tolerance will ultimately determine which metal is the wiser investment.
Inflation Hedge and Investor Protection
Inflation is an economic phenomenon that occurs when the prices of goods and services increase over time. As a result, the money in your pocket, if not invested properly, will become less valuable over time.
Gold is a more reliable inflation hedge than silver as its price is unaffected when the economy struggles, providing much-needed protection to investors. As a result, gold is a better asset to hold in times of economic turmoil.
On the other hand, Silver is more sensitive to economic conditions, and its prices can suffer when the economy is weak. You can take your chances with silver and reap the rewards if the economy improves, but gold may be the better choice for those looking for a haven in times of economic uncertainty.
Storage and Transportability
Silver is more affordable but also bulkier than gold. It takes up more space and is harder to transport, making it a less attractive option for investors who want to store their wealth in physical form.
On the other hand, gold is much smaller than silver, and you can easily move or store it without incurring high costs. Gold is an ideal asset for those who want to keep their wealth in a physical form, such as coins or bullion.
While you will pay less for silver, you will need larger storage space and more transport costs. Gold is a better choice if storage and portability are important to you.
Gold and silver are readily available in the markets, and you can sell or exchange them seamlessly. You don’t have to worry about holding onto them for extended periods like you would with other, less liquid investments.
Of the two, gold is more liquid than silver because it is more widely traded. As an investor, you may have an easier time selling your gold investments than silver. The demand and supply of gold are higher than silver, making it a more liquid asset.
Whichever metal you choose, liquidating your investment should be fine. You can unload your metal at pawns, coin or jewelry stores, banks, eBay, or online exchanges if you need to convert your physical gold or silver into cash.
The US government, central banks, and many other countries have significant gold reserves, which they can use to support their currencies in times of economic crisis. Silver, on the other hand, is less widely stockpiled, making gold a more dependable investment option.
Most governments used to hold silver reserves, but these have been dwindling over the years. The only countries that still have a large silver stockpile are India, Mexico, and the US, which have held onto their reserves for decades.
What does this mean for you? Gold is a more dependable asset because it is backed by government reserves, while silver may not be able to provide as much protection due to its limited stockpiles.
Ways to Own Silver or Gold
You have several ways to own gold or silver, including bullion bars and coins, jewelry, ETFs, mining stocks, futures contracts, and options.
- Bullion Bars and Coins: These are physical items you can buy or sell in coins, bars, rounds, and ingots. They are usually marked with their exact weight and purity, making them easy to trade.
- Jewelry: Precious metals such as gold and silver are used to make jewelry like earrings, necklaces, bracelets, etc. Buying jewelry is a popular way to invest in precious metals; jewelry has intrinsic and ornamental value.
- ETFs: Exchange Traded Funds (ETFs) allow investors to invest in gold or silver without purchasing bullion coins or bars. It allows individual investors access to highly liquid markets at a relatively low cost compared to buying metal products directly from dealers.
- Mining Stocks: Investing in mining stocks is another way to invest in precious metals. Mining companies are involved in the extraction and processing of gold and silver, so their share prices usually reflect the performance of these metals.
- Futures Contracts and Options: Futures contracts are agreements between buyers and sellers on a fixed price for assets like gold and silver and delivery later. Options allow investors to purchase the right but not the obligation to buy or sell an asset at a predetermined price for an amount of time.
Overall, each method has its advantages and disadvantages, and you should evaluate them carefully before making an investment decision.
Which is the Better Investment?
Do you want a short-term investment with the potential for quick profits? Silver is the best and most affordable investment to make money faster.
Gold is the better choice for a long-term investment with more stability and less risk. Gold prices have steadily risen due to its increasing demand and limited supply.
Ultimately, your choice depends on your investor profile, the risk you are willing to take, and your return on investment projection. Consider all factors carefully before deciding which precious metal is a better investment for you.
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.