Gold vs. silver (2023)
How to choose the right precious metal for your portfolio
Investing in precious metals has long been seen as a way to hedge against rising inflation and maintain your money’s purchasing power. You can purchase precious metals in their physical form or simply invest in an exchange-traded fund (ETF) to gain exposure to the value of a precious metal.
Two of the most popular precious metals are gold and silver. They both offer similar investing properties, such as holding their value during inflationary periods, and are seen as a store of value. However, they’re fundamentally different in many ways.
Are you looking to add gold or silver to your investment portfolio? There are a few things you should consider, such as historical performance, real-world utility, market correlation, and more. We’ve reviewed the unique properties of gold and silver and reveal what you should consider before investing in either.
Key insights
- There are many ways to invest in precious metals, including physical bullion and ETFs.
- Gold and silver are popular investments seen as an inflation hedge.
- Gold and silver behave differently in volatile markets.
- Gold is more sought after by investors, while silver has more utility in the marketplace.
Gold vs. silver: investments
There are several ways to invest in gold and silver. From physical bullion to ETFs, gold and silver are widely available in many markets.
- Physical gold and silver
- You can purchase gold and silver in a physical form known as bullion. The most popular way to do this is by purchasing gold or silver coins or bars. You can buy physical gold or silver directly through the U.S. Mint or a private precious metals dealer.
- Gold and silver ETFs
- Gold and silver ETFs are publicly-traded funds that can be purchased through most major brokers. These ETFs are typically backed by physical gold or silver and are highly liquid, meaning you can buy or sell them easily through an exchange. They also offer lower fees than investing in physical gold or silver.
- Gold and silver stocks
- There are stocks that correlate with gold or silver value, including mining stocks and stocks that collect royalties from mining activities. You can buy stocks from most online brokerages, but they don’t hold any physical gold or silver to back their value.
- Gold and silver IRAs
- Self-directed IRA accounts (SDIRAs) allow you to invest in alternative assets, and many companies allow you to purchase gold and silver within an IRA. These are typically marketed as “gold IRAs,” allowing you to buy physical gold or silver within your retirement account. The one caveat is that the precious metals are typically held with a custodian, and you can’t access them (without penalty) until retirement (currently age 59.5).
Gold vs. silver: use cases
Gold and silver are considered precious metals as they are limited resources mined for utility and value. But both serve different purposes in the marketplace.
Gold has long been held as a store of value and international currency that’s universally accepted around the globe. While gold has some real-world utility (such as dental work, electronics, and aerospace), most of its use is as an investment asset. It’s traded on the stock market through ETFs and futures contracts, making it a more speculative investment.
Silver, on the other hand, is very sought after for industrial needs and has many practical use cases. It’s used in auto manufacturing, solar panels, medicine, water purification, and of course, silverware. This gives silver a more steady demand than gold, though the price can certainly fluctuate in any economy.
» READ MORE: Best gold IRA companies
Gold vs. silver: cost
Gold is worth more than silver (per ounce), with one ounce of gold trading for around $2,040, while one ounce of silver is trading for around $25. This makes silver much more affordable to everyday investors, while gold requires a much larger up-front investment.
But, as mentioned before, there are several ways to invest in gold and silver, and you don’t necessarily need to buy one ounce of either to own them.
If you prefer investing in physical gold or silver, other than buying bullion online through the U.S. Mint or at a precious metals dealer, you can purchase coins for as low as 1/10th of an ounce. Prices are slightly higher than spot gold prices, but it’s a much more affordable way to invest in physical silver or gold.
If you purchase a gold or silver ETF, many brokers offer fractional share purchasing, allowing you to invest as little as $1 to own a fraction of the fund. This is a much more approachable (and affordable) way to invest in gold and silver.
Bottom line: Gold is about 80 times more expensive than silver (priced per ounce), but you can invest in smaller amounts if you desire.
» READ MORE: How to buy silver
Gold vs. silver: volatility
Before investing in anything, it’s critical to consider the risks. All precious metals have some volatility, and many can be more volatile than paper assets.
Precious metal values depend on the market conditions at any given time, and those conditions change 24 hours a day, seven days a week. However, because of the specific conditions that affect the price of gold and silver, they may help reduce the volatility of your diversified portfolio.
- Note: All investments have risk, but risk isn’t simple to calculate.
What causes gold and silver prices to change?
Various factors cause the value of gold to change. From inflation to economic uncertainty, the price of gold can rise as investors flock to “safe haven” assets. But in a low-interest rate environment with a growing economy, gold may fall out of favor and be sold off as investors focus on growth stocks and other assets.
Silver is more volatile than gold because it plays a much larger role in industrial operations and has lower liquidity in financial markets than gold. It’s far more important to consumer goods than gold, adding another factor to its market value. The cost of silver can vary depending on industry supply and demand in addition to market conditions.
Gold and silver are typically uncorrelated with the stock market
The volatility of precious metals is not necessarily comparable to other investments. While volatile in their rights, precious metals are often affected differently by market conditions than paper assets.
This means that when inflation increases or the stock market is unstable, precious metals may not be as affected. In a properly diversified portfolio, having investments with values that depend on different factors can be beneficial.
Gold vs. silver: returns
The return on investment is a major factor in any investment decision. Gold and silver have a long track record, being used as a currency for thousands of years and, more recently, as a speculative investment.
Mel Mattison, a Duke University MBA graduate and CFP professional, reflects on the history of both, stating that silver is “the poor man’s gold [and] has tended to underperform gold in the long-term but be more volatile in the short term.”
In 1922, gold was priced at $20.66 per ounce (not adjusted for inflation), and at the end of 2022, it was priced at $1,824 per ounce. This is an increase of over 8,000% over the last 100 years. But averaged out annually, it equates to only a 4.6% compounded annual growth.
In 1922, silver was priced at 65 cents per ounce, and at the end of 2022, it was priced at $23.96 per ounce. This is an increase of over 3,500% over the last 100 years. However, averaged out annually, it equates to only a 3.6% compounded annual growth.
Overall, gold has been a better long-term investment than silver. But if you adjust for inflation, gold and silver have barely kept up. Those returns pale in comparison to the average stock market returns during that same period, which averaged around 10.5% annually.
Gold vs. silver: pros and cons
Gold and silver have been around for thousands of years and have a storied history as an international currency, store of value and speculative investment. You can buy both in a physical form or through investing in ETFs or precious metal stocks.
But while gold is a favorite of investors during volatile markets, silver has more real-world utility but may be more volatile amidst poor economic conditions.
Here are a few pros and cons of each:
Pros and cons of investing in gold
Pros
- Gold is easier to buy.
- Gold has higher overall returns than silver.
- Gold is arguably less volatile than silver.
Cons
- Gold is much more expensive to buy than silver.
- Gold has less real-world utility.
- Liquidating a gold investment can involve high fees.
Pros and cons of investing in silver
Pros
- Silver is less expensive.
- Silver may become more valuable as industrial demand increases.
- Third point
Cons
- Silver is more volatile than gold.
- Silver demand may decrease with technological advances.
- Silver markets are less liquid than gold markets.
FAQ
Why is gold more expensive than silver?
Gold is much rarer than silver and has a higher market demand overall. This makes it a much sought-after commodity and has made gold much more valuable over the years.
Do you pay taxes on gold and silver?
When buying and selling gold or silver, there are special tax considerations to be aware of. While most investments are taxed at the standard capital gains rates of 0% to 20%, gold and silver are commodities and have a maximum long-term capital gains rate of 28%. This can increase your tax bill if you sell gold or silver with any significant gains.
How much gold or silver should you own?
Investing in gold or silver is a personal preference, and how much you own is entirely dependent on your specific financial plan. You should consider your risk tolerance, financial goals, investment mix and overall portfolio construction when evaluating how much to allocate toward precious metals (if any).
What other precious metals can you invest in?
There are several other popular precious metals you can invest in, including platinum, palladium and copper. Platinum and palladium have the most liquid markets for alternatives to gold and silver, and you can purchase them in the form of bullion, ETFs or stocks.
Bottom line
Investing in gold and silver can be a great way to diversify your investment portfolio into precious metals. Both metals are widely available and offer several different ways to invest. But gold and silver are also volatile investments that behave differently depending on current economic conditions.
If you’re considering investing in silver, the price is much lower than gold, but it’s a more volatile investment. And over the long term, it has not outperformed gold. Investing in gold can provide stable returns over long periods, but there’s still a risk of significant loss from speculating on gold.
Overall, both metals can be a part of your investment portfolio. Still, it’s best to work with a licensed financial advisor to create a financial plan for investing in precious metals.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- GoldPrice.Org, "Gold Price." Accessed May 10, 2023.
- APMEX, "Silver Spot Price." Accessed May 10, 2023.
- Macrotrends, “Gold Prices - 100 Year Historical Chart.” Accessed May 10, 2023.
- Macrotrends, “Silver Prices - 100 Year Historical Chart.” Accessed May 10, 2023.
- Official Data Foundation, “Stock market returns between 1922 and 2022.” Accessed May 10, 2023.
- IRS, "Topic No. 409, Capital Gains and Losses." Accessed May 10, 2023.
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