Gold vs. Silver: What’s the Better Investment?

When it comes to investing in precious metals, the age-old debate of gold versus silver often arises. Both gold and silver have been used as forms of currency and stores of value for centuries, but they have distinct characteristics that appeal to different types of investors. Ultimately, the answer to the question, "Gold vs. silver: what's the better investment? comes down to individual investment goals and risk tolerance.

Some investors may prefer the stability and long-term value preservation of gold, while others may be drawn to the potential for higher returns offered by silver. Diversifying between both gold and silver can be a strategic approach to balancing risk and reward in a well-rounded investment portfolio.

Comparing Gold and Silver Investments

Both gold and silver can help investors hedge against economic instability. However, understanding how the two precious metals are used, their economic sensitivities and costs can help you decide which is best for your portfolio.

Cost and Volatility

While gold is more costly, that can be a point in its favor. Gold has long shown growth and stability regardless of market fluctuations. Its overall value can make it a strong hedge against a recession. Gold is also less volatile and has higher liquidity.

On the other hand, the price of silver is more volatile because of low liquidity, while gold is historically more expensive but less volatile. But for many investors, it's easier to invest in silver. For one, the price point is significantly lower. The cost of an ounce of silver, as of March 2024, is $24.42, while gold is $2,178.02 per ounce.

Silver's volatility can benefit investors who want to buy or sell in the short term. Volatility means a potential for greater gains and greater losses. In a long-term investment, you look at average returns over a 10-year period or longer. In the short term, you risk greater losses but could also profit from that volatility.

Utility

The utility of gold and silver as precious metals goes far beyond beauty and coins into commercial and industrial applications. However, there is significantly higher industrial use of silver compared to gold. Almost every computer, mobile phone, automobile and appliance contains silver. It offers a unique combination of high electrical conductivity and durability.

Silver is essential in many industries, from electrical switches and solar panels to chemical-producing catalysts. More intriguingly, painting silver on a non-metal surface provides an electrical pathway, eliminating the need for wires.

Silver ions also have strong antibacterial properties, making silver useful in medical and healthcare applications from wound dressings to medical devices and antimicrobial coatings for surfaces. Its value is sustained by unique properties that make it difficult to substitute in various applications.

Gold also has diverse industrial applications, from medicine to electronics, automotive, defense and aerospace industries. Gold has excellent biocompatibility and has been used in dental fillings since ancient Egypt times and is also commonly used to coat hearing aids and implants. It is also used as a catalyst in many industrial processes.

Investment Goals

Whether you should choose gold or silver also depends on your investment goals. Different types of investment goals, such as wealth preservation, capital growth, income generation, retirement planning and education funding can lead investors to choose either gold or silver. You will want to take into account your individual risk tolerance, time horizon and financial situation. For most investors, it's not a choice of gold vs. silver but a question of how much of your portfolio you should allocate to each.

Relationship to Broader Market

Gold and silver have different relationships to the broader market. Gold is considered a countercyclical investment, with its price moving inversely to the stock market. That's why it's considered an excellent hedge against market downturns. On the other hand, silver tends to move with the economy overall. You could capitalize on a bullish market or sell short in a bear market. Investors often hold gold for liquidity during a downturn.

On the other hand, a recession could negatively impact silver, but it has historically profited from economic recovery at the end of a recession. Silver has actual monetary and industrial value, so while an economic slowdown may temporarily reduce the demand, it typically recovers faster than other commodities.

Diversification

Diversification is a fundamental essential of any investment strategy. Diversification means spreading your assets across classes and investment types. For example, you could choose to invest in stocks, bonds, index funds, commodities, currencies, cryptocurrency, real estate or REITs, gold, silver and other precious metals.

Building a diversified investment portfolio includes combining assets that have low or negative correlations with each other, like gold and silver. Additionally, while silver is a moderately weak positive diversifier, gold is considered a more powerful diversifier because of its consistently uncorrelated nature to stocks and low correlations with other major asset classes.

Affordability

While the cost per ounce of silver is about one-ninth of gold, that's not really an advantage alone. Many stocks let you buy small fractions of gold or invest in gold funds. That levels the playing field of gold vs. silver. In addition, although ounce-for-ounce gold is more expensive, it's also better for diversifying your portfolio overall.

Storage

Have you ever seen blocks of gold in movies? There's a reason both heroes and villains choose gold blocks. Gold is a more convenient precious metal to store because of its high density. Not only is it more valuable by the ounce, but it also requires less space to store. Storing silver is more challenging because of its lower density, requiring larger storage space and, if you're storing it at a bank, more expensive bank deposit boxes.

Gold vs. Silver — Future Outlook

The future outlook for gold and silver is expected to be positive. Gold tends to perform inverse to the wider market, and silver is known for fast recoveries after a recession.

In the past 20 years, gold has increased in value by 506.28% while silver has increased by 355.06%. Both gold and silver have seen similar increases over the past five years and six months.

However, while silver historically tends to track the stock market and may be influenced by changes in manufacturing demand, gold tends to run counter to current economic trends. Gold is considered a countercyclical investment, tending to rise during economic downturns.

Consider Buying Gold and Silver in a Precious Metals IRA

A precious metals IRA is an individual retirement account in which you can have gold and other precious metals held in custody. A gold or precious metals IRA is similar to a regular IRA, but instead of holding stocks in a brokerage account, it holds physical metals. Find a step-by-step guide to investing in gold,

This type of investment allows you to buy gold and silver in a tax-advantaged retirement account to save for the long term.

To set up a precious metals IRA, you need to open a self-directed IRA. This type of IRA has the same limits and benefits as a traditional IRA but can hold a variety of physical assets including precious metals, real estate and cryptocurrency. To open this type of IRA, choose a self-directed IRA custodian specializing in gold and other metals. You can find self-directed IRA companies here.

Compare Gold and Silver Brokers

Find some of the best gold and silver brokers to start building your diversified portfolio today.

Should You Invest in Gold vs. Silver?

For most investors, the choice of gold vs. silver in an investment portfolio isn't the choice of one or the other. Gold and silver have a place in a diversified portfolio. You can speak with a financial adviser to determine the best investment ratio for your financial goals. Or, check out the best gold IRAs to get started.

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