For many people, moving away from paper investments (such as stocks and bonds) and to precious metals makes sense. Silver and gold are two of the most popular ways to do this, and both offer certain advantages and disadvantages.
You can purchase silver and gold in a variety of forms, including bullion and coins. There is a relatively limited supply of these metals, which means that their values can rise over time. However, like with any type of investment, investors should think about the risks and costs of purchasing and managing them. Let’s take a closer look to see if gold or silver is right for you.
Gold and 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 are dependent 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.
All investments have risk, but risk isn’t simple to calculate.
Various factors cause the value of gold to change. For example, if a new mine opens up, that might slightly increase gold’s availability, driving the supply up incrementally and reducing its value by a small amount. However, there’s so much gold on the market that supply changes are less important than market sentiment. Economic instability and the activities of central banks often have a larger effect on gold prices.
Silver is more volatile than gold because it plays a much larger role in industrial operations. Basically, silver is far more important to consumer goods than gold is, which adds another factor to its market value.
The volatility of precious metals is not necessarily comparable to other investments, though. While they are volatile in their own rights, precious metals are often affected differently by market conditions than paper assets. This means that in times where inflation goes up 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 and silver affordability
Gold and silver values change all the time, but generally speaking, silver is more affordable than gold by weight. As noted above, many factors impact the value of gold, but there are usually more factors that impact the value of silver. Technological innovations, like batteries and microcircuits, have created more demand for silver and pushed its value up. Growing markets for appliances and medical products, which are often dependent on silver, also impact silver values. If this demand was to decrease, the value of silver would likely fall.
Both gold and silver prices also rely on market sentiment and their status as stores of value. One way to look at the affordability of gold and silver is to consider the state of the economy in relation to the precious metal. When economies begin to struggle, the value of gold tends to rise. That’s because demand increases as investors turn away from paper assets that may be seeing increased volatility.
Gold and silver storage
When considering which precious metal to invest in, it’s also important to think about storage and the cost of transporting these materials. If you purchase gold or silver, you should have a secure place to hold them. You also need to be able to move the metal to your desired storage location. This may sound easy enough, but the process (and costs) can be surprising.
What may be surprising to many is that silver requires more storage. At the time of publishing, the same monetary investment in silver and gold often yields more silver by weight. These extra ounces can drive up transportation costs. Likewise, because silver is less dense than gold, it takes up more space in storage and during shipment per ounce.
Pros and cons of gold
Let’s look at some pros and cons of gold to help you make an educated investment decision.
- Gold is often easier to buy
- Gold arguably has intrinsic value
- Gold is generally less volatile than silver
- It’s almost always more expensive than silver
- Liquidating gold can involve more fees
- Predicting value change is difficult
Pros and cons of silver
Like gold, silver has both good and bad characteristics for investors. Consider what works for your specific situation and preferences.
- Silver is less expensive to purchase
- Silver may become more valuable as industrial demand increases
- Silver is also a store of value
- Silver is more volatile than gold
- Industrial demand may shift with technological advances
- Silver is less liquid than gold
Bottom line: Is gold or silver better?
Whether it’s better to invest in gold or silver depends on your needs, your preferences and changes in the market. The current demand for and cost of each material should play a role in your decision. However, buyers who want to diversify away from paper assets like stocks and bonds might find investing in precious metals a helpful way to diversify their portfolios. It’s up to you to determine whether gold or silver is the right investment for your needs.
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