Gold or Silver: Which is a better investment?

Gold or Silver Investment

When we talk about investment, the first few options that come to people’s minds are shares, mutual funds, and real estate. Even a search on Google would list out these as the preferred investment options. Many people have invested money into these options and have made a great fortune. 

However, these days most intelligent investors are avoiding investing in these options. These investors are aware of the various challenges and risks involved in these investment modes, which is why most savvy investors look for safe-haven investment ideas. One such option is investing in metals like gold and silver.

Gold and silver as investment options

When it comes to investing in metals, the two most popular investment options are Gold and Silver. Since both these metals are found in smaller quantities and are pretty resistant to tarnish, they are precious and highly valued. So, investing in these metals is a great idea.

Benefits of investing in gold and silver

There are various reasons why compared to other options for investment, investing in gold and silver is better. To begin with, investing in these metals is simple and does not require studying too much. At the same time, it is very profitable and acts as a hedge against inflation. One can quickly learn how to buy these metals as physical wealth.

Suppose one were to compare investment in metals with investing in real estate and stocks. In that case, an investment in metals is better. This is because, unlike real estate, this does not block your money. Also, in case of any emergency, one can quickly sell gold or silver and convert it into cash. Furthermore, unlike shares, such an investment is not prone to frequent ups and downs of the market. Investing in gold and silver is a great way to hedge against market risks.

Investing in Gold or Silver, what’s better?

So, now that you are convinced about investing in metals, let’s move to the next level, to choose between two of the most popular investment options – gold or silver.

There are five significant factors to be considered before making the final choice. Let’s explore these factors and understand their implications on potential investors.

1. The prices of silver are more volatile compared to gold

According to the Silver Institute, the total global supply of new silver annually is about 1 billion ounces, way above the collection of new gold each year, which stands at around 120 million ounces. This means the market size of silver is eight times the market size for gold. 

However, the scenario changes completely when we talk about its valuation. Due to the enormous difference between the prices, the market value of gold is way more compared to silver. As estimated by www.goldsilver.com, at the current prices, the annual supply of gold is valued at $192.6 Billion, which is 12 times more than silver, which is valued at just $16 Billion.

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Compared to gold, the prices of silver are more volatile. The reason for that is while gold is primarily used for making jewelry, silver has several industrial and medical applications as well. Hence, even a minor fluctuation in this demand causes a significant impact on its price. So, on a bullish day, silver will rise more than gold, and on a bearish day, it will fall more than gold. Though there are exceptions to this rule, that’s what the usual trend is.

So, if you are planning to invest in silver, be emotionally prepared to face its market volatility. Don’t get into panic mode the moment you notice a significant fall. This fall will help you in the long run. When the market rises, the silver prices go up more compared to gold and give you handsome returns in the long run.

If you can handle the market volatility and buy just when the market is turning bullish, buying silver will help you make a good fortune.

2. Silver is more affordable than gold

Silver is more affordable is an obvious statement. Buying silver is much cheaper than gold. Suppose you buy silver in physical form (and not in paper or digital formats). In that case, you get the same benefits that buying gold offers. But the amount of investment to be made is much lower.

Physical silver is a tangible asset, something which cannot be hacked. And in a digital world, it cannot disappear in thin air just like that. This is a great relief. If you hold the silver in the physical form, you don’t require a third party or doing any paperwork. If you want to keep some of your investment confidential, physical silver allows you to keep the information discreet.

All these benefits are provided by gold as well. According to the data supplied by www.indiatimes.com, gold trades at 1400 dollars per ounce while silver trades at just 25 dollars per ounce, making your financial insurance much more affordable than gold. That’s the reason silver is known as ‘poor man’s gold.

Since silver price is much lower than gold, you can buy much more silver with a given amount. Silver is a good idea for gifting your loved ones something which is both precious and affordable.

Not just that, in case you have a small requirement of cash, you may sell a part of the silver and meet your needs. This would save you from the problem of liquidating your gold. This is the main reason why every investor should consider having some silver in their portfolio. 

While gold is more suited to meet your capital purchases, silver suits small financial needs. Hence, it’s a prudent choice to have some amount of silver in your portfolio. 

3. Silver requires much more storage space

While affordability is fine, buying silver has a catch attached to it. Buying physical silver requires you to have much more space to store silver as compared to gold. At prevailing market prices, an investment of about 1 lakh would fetch you only about 25 grams of gold, but almost 2 kg of silver. Not only that, the density of most silver is less than gold. Pure silver occupies 84% more volume than pure gold. This means silver takes up quite a lot of space for the same amount of investment. 

Now, this is a challenge, especially if you want to keep the investment confidential. It’s easy to hide gold coins in a drawer or almirah. One cannot do the same with silver.

Because of this, it’s most costly to store and transport silver compared to gold.

Finally, compared to gold, silver is more prone to oxidation. Pure silver will eventually tarnish; pure gold will not. So silver has to be stored in a dry place which is not a condition with gold. This is one more angle that a potential investor needs to look into.

4. Silver has more extraordinary industrial uses

Gold is mainly used in jewelry and has only 12% industrial uses. On the other hand, silver has some unique properties, making it an excellent metal for various industrial and medical applications. As per a rough estimate, about 56% of silver is used for such applications. In many cases, the silver is consumed and lost forever. Thereby putting a limit to the amount of silver that can be recycled.

         Due to this, any fluctuation in the global economy can have a massive impact on the demand for silver compared to gold. This makes silver more prone to economic booms and busts.

Unlike gold, a large amount of silver is lost every year to various industrial applications. Hence, there will always be a new demand for silver. 

5. While Silver Stockpiles are Falling, Gold sticks are Rising

While this factor may not affect an average investor directly, it does have an impact behind-the-scene. 

Earlier, most governments and other institutions used to hold extensive inventories of silver. One primary reason for that was silver was used for making coins. Now, in this age of digital currency, the use of cash is going down drastically. That’s the reason; most governments are liquidating their silver stocks and converting them into gold. Today, only India, the US, and Mexico are the three countries that stick silver. 

         On the other hand, the central banks continue to buy more gold every year. This is resulting in falling demand for silver and increasing demand for gold. 

According to www.goldsilver.com, the following graph shows the fall in silver inventories across the years.

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Source: https://goldsilver.com/blog/gold-vs-silver-the-5-differences-that-matter-most-to-investors/

However, there is a catch to this. Suppose new industrial applications of silver are found. If the supply chain is disturbed, or there is a monetary crisis, the governments, with this small stock, will not be in a position to meet this demand. This will significantly spike the silver demand, and the market price would touch the sky.

Conclusion

When comparing different investment options, investing in gold and silver is a better idea. However, selecting between gold and silver requires some amount of understanding. Also, it depends upon your individual preferences and capacity to store them.

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