Investors usually look to diversify their portfolio when the economy fails by purchasing precious metals to hedge against risk. The safe-haven assets of gold and silver offer a store of value and a reliable hedge against market uncertainties. Gold and silver share similar boom-and-bust cycles. However, these two investment assets have varying properties and thus offer different benefits and safety. This article highlights the differences between gold and silver to help you narrow down on which precious metal to invest. So, what is a better investment, gold or silver?
Gold vs. Silver: Track Record
Investors have used both precious metals to protect against inflation for a long time. Over this period, the two metals have different returns. Let’s compare their gains over 95 years:
An ounce of gold was $20.63 in 1925, and the price rose to $1893.66 for every ounce in December 2020. This return equates to 4.87% compounded annually.
In comparison, an ounce of silver was $0.68 in 1925. Over the same period, the price per ounce shot up to $26.53, indicating a 3.46% annual compounded return on investment. Comparing these two impressive figures, gold boasts a better return over the years, demonstrating a higher steady annual profit. With a better track record, gold is a better long-term investment. In 2020, according to Statista, gold gained 25% while silver gained 20% for the same period indicating gold’s better involvement value. However, historical data doesn’t always predict future performance.
Gold vs. Silver: Cost
Gold has always been more expensive than silver, mostly due to the abundance of silver compared to gold. On average, silver has 20 times more deposits compared to gold. When writing this article, the price of gold per ounce is $1,723.63, and an ounce of silver costs $18.61. So less liquid investors can purchase more silver than gold, making it an easier option.
Regardless, more is not always better. You can be exposed to greater potential gains and losses as a silver investor. Silver having less value than gold means your portfolio would experience more change relative to a gold portfolio.
Gold vs. Silver: Volatility
Most low-cost assets are highly volatile, and silver is no exception. Historically charts indicate that gold is a steadier asset with lower volatility. On extreme days, silver had twice or thrice the volatility of gold. Silver is more susceptible to extreme price swings with a smaller market share. So on a good day, silver’s value can skyrocket, but on bad days, the price can drastically decline compared to gold.
As a long-term investor, gold provides a safer alternative. However, for short-term investors looking for quick profits, the higher silver volatility provides exciting trade opportunities. As such, silver attracts individuals comfortable with high volatility.
Gold vs. Silver: Utility
These precious metals have relatively low commercial utility. Silver has more industrial applications in medicine, renewable energy, and electrical appliances such as electron microscopes and solar panels. On the other hand, gold mostly finds use in jewelry. More than 50% of silver is used industrially compared to gold’s 8%.
Due to its higher industrial demand, silver is more exposed to the global economy. If the need for silver keeps blooming, its price will significantly grow. In contrast, if an economic downturn heavily hits industries, silver’s demand would plummet, potentially causing the cost of the asset to reduce. With gold, an investor is relatively safe from economic downturns.
Gold vs. Silver: Future Trends
The financial market is extremely volatile, making it impossible to predict the future prices of these assets. Silver tends to perform well in a blooming economy with its high industrial demand. If the economy is projected to improve, the prices also tend to go up. However, in a failing economy, silver prices can go down.
Gold is a “countercyclical investment” and tends to move inversely to economic trends. Many investors rush to buy gold when the stock market improves and vice versa in a booming economy. As such, gold can be a safe investment during a recession.
Wallet investor provides a 5-year projected price for both assets. They predict an ounce of gold to be worth around $2522 and an ounce of silver around $31.5. Respectively it represents a 45.6% and 73.9% growth.
Bottom Line
To summarize, there is no better investment between gold and silver. Both precious metals are good portfolio diversifiers and inflation hedges. So, your investment should depend on your financial situation and goals. Gold offers a more stable haven. It is less exposed to economic downturns, thus a reliable long-term inflation hedge.
Conversely, investing in silver suits more short and medium-term investors. The metal is more accessible for people with lesser budgets and investors looking to profit from volatility. You can speculate on industrial demand and economic growth to potentially benefit from silver’s rallying prices.
I hope this article was helpful and that you found it interesting. If you have any questions, we will be more than happy to answer them below.
All the best,
Pete