Buying Gold vs. Silver

During times of economic uncertainty, it’s common for people to begin buying precious metals. Gold and silver are usually the top two choices as they’ve been valued for their rarity, beauty, and usefulness for thousands of years.

In the event of a market downturn, both gold and silver have been known to be suitable for portfolio diversification and inflation hedging. While they share many similarities, there are also some big differences you need to know between buying gold and buying silver.

What Are the Similarities Between Gold and Silver?

Both gold and silver have been historically valued for centuries as the first form of currency across the globe. People have used these precious metals to make jewelry and other decorative items for many years.

Both Are Precious Metals

Both gold and silver are precious metals commonly used for their durability. They’re highly resistant to corrosion, tarnishing, and oxidation, making them ideal for making jewelry, classic and modern rare coins, and other useful objects. Both of these metals are highly malleable and ductile, so they’re easily shaped into various forms without breaking.

In terms of value, gold and silver are both considered fair choices as safe-haven assets. They can diversify your portfolio since precious metals are not directly correlated with the economy, meaning they can retain or even gain value during an economic downturn.

Both Have Inherently Limited Quantity

Precious metals such as gold and silver are limited resources, which contributes to their value at times. Their scarcity can increase their value when market demand is high. They’re both non-renewable resources; there is only so much within the earth that can be mined.

These two metals are commonly bought and sold in the form of bullion, rare coins, and ingots. Unlike other financial instruments, you own an actual physical asset that needs to be stored properly. However, exchange-traded funds (ETFs) have become increasingly popular as a way for people to gain exposure to gold and silver without having to store a physical asset.

What Are the Differences Between Gold and Silver?

Now that we’ve discussed some of the similarities these two precious metals have, we’ll go over the key differences you should know if you want to buy gold and silver. Although they’re both limited resources, silver is more abundant than gold in the earth’s crust. Since silver is more widely available, the price of silver is typically more affordable than gold.

Gold Is Generally More Expensive Than Silver

The scarcity of gold combined with higher demand and historical use as a store of value generally drives the price of gold up. Only about 2,500 to 3,000 tons of gold is mined each year compared to roughly 26,000 metric tons of silver.

Gold has been valued all over the world for thousands of years and used for jewelry, currency, and more. The demand for gold is generally higher than the demand for silver, which is most often used in industrial applications.

Silver Has More Industrial Uses Than Gold

Silver has many useful properties that make it valuable for a wide range of industrial uses. It has the highest electrical conductivity of all precious metals, which makes it a valuable component in electronic devices such as circuit boards, batteries, and other solar panels.

Silver is also used in water purification systems to remove bacteria and other impurities. It’s also a catalyst in several industrial processes that are used to make plastics and other chemicals. Silver is also used to produce mirrors, photographic film, and medical applications such as surgical instruments and implants.

As a result, silver is much more sensitive to economic fluctuations than gold. However, that’s not to say that gold is devoid of purpose.

In fact, gold is a critical component of many technological devices; it’s in many cell phones, calculators, GPS units, and more. Each phone has about 50 cents worth of gold in it.

Gold has been part of dentistry since 700 BC. Gold is not part of fillings, bridges, etc., as much as it used to be. The soaring gold prices in the 1970s disrupted this practice. Gold is a favorite material of NASA, with bits of it in nearly every space shuttle and satellite.

Silver Tends To Be More Volatile in Price

When the economy is booming, the industrial demand for silver tends to grow. When the market slows down, demand for silver usually dips, which leads to higher volatility. Since silver is most widely used in industrial applications, it’s more affected by economic conditions and changes in technology.

Since silver prices can be more volatile, they can attract more speculative investors who may seek to profit from short-term price movements. This can lead to further price fluctuations and volatility in the silver market.

Gold Is Denser

The density of physical gold is around 19.3 grams per cubic centimeter (g/cm³), while the density of physical silver is around 10.5 g/cm³. This means that an ounce of gold will be almost half the size of a one-ounce silver bar.

This higher density of gold is one of the reasons it’s often used in jewelry and other decorative objects. It gives these items a sense of substance and heft.

What Are the Pros and Cons of Purchasing Precious Metals?

There are several benefits to purchasing physical precious metals like gold and silver. However, there are some disadvantages you should know about as well.

Consider the pros and cons before making investment decisions (and consult with a financial advisor if you’re unsure about how gold and silver fit into your overall investment strategy).

Get a Hedge Against Inflation

One of the biggest pros to purchasing precious metals is how well they hold their value against inflation. Precious metals (mostly gold) are inversely correlated to traditional asset classes so that they’re less affected by fluctuations in the stock market.

Precious metals have historically held their value during times of inflation when the purchasing power of traditional currencies declines. During these times, investors often turn to precious metals as a way to minimize risk and protect their portfolios.

Diversify Your Portfolio

Purchasing precious metals is a common portfolio diversifier because their price movements are typically not in the same direction as stocks, bonds, and commodities. Adding precious metals like silver and gold to your investment portfolio can help to reduce overall risk.

Silver is considered a good portfolio diversifier with a moderately weak positive correlation to the stock market. However, gold is used as a more powerful diversifier because, unlike silver, gold is less affected by economic declines since its industrial uses are fairly limited.

Before making any significant changes to your portfolio, speak to a trusted advisor or brokerage for financial advice.

Precious Metals Serve as a Store of Value

Many people purchase precious metals as a store of value in their wealth management strategy. In fact, the majority of governments in the global economy use precious metals as a store of value.

The practice of holding precious metals, such as gold, silver, and palladium, in government reserves dates back centuries and is still common today. Many central banks around the world hold significant amounts of gold in their reserves.

Additionally, some countries issue coins or gold and silver bullion. For example, the Canadian Maple Leaf (gold coins) and the American Eagle (silver coins) were issued by their respective governments.

Volatility: Prices Can Vary

One of the cons to purchasing precious metals is price volatility. Silver (more so than gold) can have significant swings in price occurring over short periods of time. This volatility can make it difficult to predict the future value of your asset.

The spot price is the worth of the current materials (like one gold bullion bar or a few ounces of silver) in the immediate, present-day market.

The gold market tends to be less volatile than silver because of its limited uses. It’s less affected by the ups and downs of the economy. To minimize volatility risk, it’s best to use a long-term approach when purchasing precious metals. The prices of gold and silver typically level out in the long run.

Conclusion

The bottom line is that the difference between gold vs. silver is what makes them attractive assets for different purposes.

Keep in mind that no matter how much research you do, the market is difficult to predict, and losses are possible. Speak to experts before adding to your portfolio.

Sources:

Inflation Hedge, Old School: Gold & Silver Stocks Perk Up | Forbes

A Historical Guide to the Gold-Silver Ratio | Investopedia

Spot Price: Definition, Spot Prices vs. Futures Prices, Examples | Investopedia

The Many Uses of Gold | Geology