Gold vs Silver: 4 Key Differences to Consider When Investing

At the time of this article the price of gold was £1918.70 per ounce, and the price of silver was £22.88 per ounce.

Gold and silver stand as favoured investment choices for individuals seeking assets capable of preserving value and hedging against inflation.

To different extents, both gold and silver can act as a safeguard during potential economic or market downturns, as well as in times of prolonged inflationary pressure.

Grasping the disparities in their usage, economic sensitivities, and technical attributes can aid in discerning which metal might enhance your portfolio.

Consider these four factors when deciding whether to invest in gold or silver as bullion products:

1) Silver’s Connection to the Global Economy

Approximately half of all silver is utilised in heavy industry and advanced technology, including smartphones, tablets, automotive electrical systems, solar panel cells, and various other products and applications, as outlined in the World Silver Survey.

During periods of economic growth, demand for silver typically rises

Consequently, silver is more closely linked to economic fluctuations than gold, which primarily serves jewellery and investment purposes.

2) Silver’s Higher Volatility compared to Gold

Silver prices tend to exhibit volatility two to three times greater than that of gold within a single day.

While this volatility may present opportunities for traders, it can pose challenges when managing portfolio risk.

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3) Gold’s Superior Diversification Potential over Silver

While silver can serve as a moderate portfolio diversifier with somewhat weak positive correlations to stocks, bonds, and commodities, gold is recognised as a more potent diversifier.

Gold consistently demonstrates little to no correlation with stocks and exhibits very low correlations with other major asset classes. This is largely due to gold’s limited industrial applications compared to silver and other base metals, which renders it less susceptible to economic downturns.

4) Silver’s Lower Price Relative to Gold

Historically, silver tends to be priced lower per ounce than gold bullion, making it more accessible to small retail investors seeking to own physical precious metals assets.

The scarcity of silver is a primary factor contributing to its lower market price compared to gold

The world’s supply of gold is far smaller than that of silver, and this discrepancy in price is mostly caused by an imbalance between supply and demand.

Gold vs Silver: Long Term Returns

Robert R. Johnson, PhD, CFA, CAIA, professor of finance, Heider College of Business, Creighton University gave some insights into the long term returns of both gold and silver. While gold has a notably higher price, silver has also seen a rise in its price which is suitable for long term investing.

“At the end of 1925, the price of an ounce of gold was $20.63. At the end of 2020, an ounce of gold sold for $1893.66. Over that 95-year period, the precious metal returned 4.87 percent compounded annually.”

“At the end of 1925, the price of an ounce of silver was $0.68. At the end of 2020, an ounce of silver sold for $17.14. Over that 95-year period, the precious metal returned 3.46 percent compounded annually.”

These figures do show that buying gold clearly has a better track record over time than silver. This is something to consider in an investment decision and an investment strategy when thinking about where you are putting your earnings.

The Bottom Line

While both silver and gold serve as safe haven assets, gold investments generally boasts a stronger long-term performance record. However, in the short term, the unique dynamics of each market and the timings of the market play a significant role in determining their respective returns.

Regardless of your choice between the two, it’s crucial to note that neither asset generates cash flow. Therefore, investors may find it advantageous in the long term to adopt a buy-and-hold strategy over a longer time period for the guarantee of future investment gains.