Investing In Gold Vs Silver: Key Differences

Investors gravitate towards gold as a haven asset during economic uncertainty and high inflation. Similarly, silver is also considered a haven investment, albeit with less attention. Both precious metals have been in demand for centuries, making them attractive when other investments, such as stocks and currencies, lose value.

In 2020, gold prices soared to an unprecedented high of over $2,000 per ounce, fueled by the COVID-19 pandemic and a weakening U.S. dollar. An increase in silver prices accompanied this surge in gold prices. As of August, silver sold for $28 per ounce, $14 higher than its lowest point in 2020. Precious metals like gold and silver remain attractive investments, even during prosperous times, with many investors allocating a portion of their portfolios to them.

Precious metals have been valued for centuries based on their scarcity and longevity. The longer a metal has been considered valuable, the less likely it is to be produced in large quantities. As a result, rare metals like gold are typically more coveted than more common metals like silver. Although silver is a precious metal, it is often traded in smaller quantities than gold or platinum. 

Silver has various uses, such as in the production of jewelry, flatware, and photographic film, and it also has industrial applications in electronics. As such, silver's future may depend more on its industrial applications than its role as an investment asset.

The price of silver is closely tied to the cost of gold and other commodities vital to the mining industry. Due to this correlation, the price of silver is often quoted as a ratio relative to the cost of gold. Historically, the two metals have had a strong correlation in price movements.

Factors to Consider When Investing in Gold or Silver

Throughout history, precious metals have carved out a unique market niche. In times of financial or economic crises, gold sees an uptick in demand as it is seen as a haven investment. During stock market downturns, gold prices tend to increase as investors seek refuge from the turmoil, resulting in a rise in value.

The recent economic downturn has sparked a fresh wave of interest in investing in precious metals. But when it comes to choosing between gold and silver, which one is the better option? Both metals have a long history of being considered wise investments and can be practical tools in combating inflation. It's important to note, however, that investing in precious metals is not immune to market fluctuations and should be approached with caution like any other type of asset.

When selecting a precious metal for your investment portfolio, it is crucial to understand its applications, susceptibility to market fluctuations, and technical characteristics. Consider some essential differences in determining which metal suits your portfolio.

Affordability

Gold is considered a better safe-haven investment than other assets due to its mathematical superiority over silver. While silver is cheaper than gold, it is also far less common. 

As a result, silver is cheaper to mine, produce, and purchase. Eight metals are rarer than silver. For every ounce of gold mined, only four ounces of another metal are required (in ascending order: lead, copper, nickel, and cadmium), despite gold being more expensive than over 20 other precious metals.

Silver may be the better choice if you are looking for a safe-haven investment rather than diversifying one. Because the price of gold is higher, it would require a proportionally more significant decrease in value to affect your investment. 

This protects a broader range of economic scenarios. If you are considering investing in gold, likely, you have already accumulated enough wealth to withstand an economic downturn.

Industrial Usage

While gold and silver prices typically move in the same direction, gold is a more reliable hedge against economic downturns. Silver's demand is driven mainly by its many industrial applications, which span various sectors, including electronics, vehicles, solar panels, medicine, and industry.

As a result, silver prices tend to be influenced by the state of the economy, with prices rising when manufacturing activity picks up and falling when trade slows down. On the other hand, gold prices tend to increase when the stock market experiences a downturn. For example, during the Great Recession (December 2007–May 2009), the S&P 500 plummeted by 37% while gold prices increased by 24%.

During economic downturns, gold's value typically increases due to investor demand, but its limited industrial uses may provide some protection against economic stagnation. However, over the long term, the S&P 500 has generally outperformed gold in terms of investment returns.

Volatility

The media often portrays gold as a volatile investment but it can be a safe long-term investment. Gold's annualized volatility over the 30 years from 1989 to 2019 was slightly higher than that of the S&P 500. 

However, compared to gold, the silver market is smaller and more volatile due to its smaller scale. Even though eight times as much silver is mined as gold, the entire silver market is only worth a fraction of the gold market, as gold is nearly 70 times more valuable than silver on a per-ounce basis.

The majority of the world's silver supply, over 70%, is produced as a byproduct of mining for other metals such as copper and gold. This makes the silver supply less responsive to changes in demand, resulting in increased volatility in the silver price.

Due to its volatility, silver is more appealing for short-term investments than gold if you want to speculate on price fluctuations. However, gold is a better choice for long-term hedging.

Liquidity

Gold is the preferred metal in the market due to its high liquidity compared to silver. This means that gold is easier to buy, sell and trade, with numerous gold exchanges available worldwide, making it a more attractive investment option.

The liquidity of metal can be measured in various ways, including the cost of buying or selling and the transaction size. Most of the world's gold is held in vaults under the New York Federal Reserve building.

Conversely, silver is a more volatile and less liquid market, despite being investable through ETFs, silver coins, and bullion. Investors typically prefer buying gold bullion because of its ease of trading, buying, and selling.

How to Invest in Gold and Silver

Investing in gold and silver is appealing as there are various forms in which you can invest in them. Here are some investment options for both precious metals.

Buying Physical Metals

Investors can invest in physical gold and silver, tangible assets stored in a brokerage or retirement account. American Eagle coins are one way to invest precious metals in a retirement account. 

However, it's important to note that hoarding bars and coins can come with some drawbacks. Buyers may have to pay production and distribution markups, storage costs, and insurance. Investing in these additional costs is essential in physical gold and silver.

Exchange-Traded Funds

Investors who want to invest in gold and silver but do not want to store physical assets can choose to invest in exchange-traded funds (ETFs). ETFs have become a popular way for investors to gain exposure to precious metals. When buying an ETF, the investor can open a stock brokerage account to store the shares. The fund manager will be responsible for the costs of keeping the actual gold or silver and will collect an expense ratio.

However, owning an ETF does not mean direct ownership of the metals it tracks. Moreover, some precious-metal ETFs are taxed as collectables, so the reduced long-term capital gains rates do not apply to them.

Mining Stocks

Investors typically look for optimistic earnings growth projections and rising demand from industries such as jewelry and electronics when considering buying gold stocks. Mining companies, which produce the purest forms of gold and silver, extract these metals through several stages cheaply. This makes gold stocks an attractive option for diversifying portfolios.

Gold and Silver Futures

A gold or silver futures contract allows an investor to buy or sell an asset at a predetermined price at a later date. Futures trading is available for most commodities, including precious metals. The contracts are settled in cash and don't involve the physical delivery of the asset being traded.

However, futures trading is riskier than owning physical gold and silver as the contracts are sensitive to inflation. Despite this, they often have a lower entry point than buying the metal directly, making them a more accessible option for some investors.

Since futures are derivative contracts, they have no inherent value, and if the contract is not fulfilled at the delivery date, the buyer loses the entire amount they paid upfront. Additionally, the interest rates associated with futures contracts are typically higher than traditional loans, making them less attractive economically.

Which Precious Metal Should You Consider Investing In?

Ultimately, the choice of investing in gold or silver depends on individual preferences in terms of investment horizon and risk tolerance. While some investors may concentrate solely on silver, others may allocate a more significant portion of their portfolio to gold due to its greater liquidity and ease of buying and selling, particularly as a hedge against inflation for retirement.

Generally, gold is considered a more appropriate investment for long-term retirement portfolios. At the same time, silver may be more suitable for investors looking to benefit from price fluctuations, particularly during market downturns.

Top Five Companies for Investing in Precious Metals

Here are the top five precious metal investment companies that have been thoroughly evaluated on criteria such as customer service, fees, security features, and the range of precious metals offered. This list can help you make an informed decision on where to invest your precious metals.

Goldco

Goldco is a reputable IRA provider that should be considered when searching for the best. Sinca a decade ago, Goldco has been a trusted name in gold investing and has received an A+ rating from both the Better Business Bureau and the Business Consumer Alliance. Numerous satisfied clients have also provided rave reviews of their services.

Goldco's expertise in facilitating the opening of a new Precious Metals IRA or transferring an existing retirement plan into an IRA has garnered significant popularity. With Goldco, clients can rest assured knowing they have made a sound choice that will serve them well for years. Those concerned about losing their wealth due to a stock market crash or an economic downturn may find solace in setting up a Precious Metals or Gold IRA with Goldco, which can help mitigate those risks.

To initiate the process of opening a Goldco IRA or transferring an existing account, individuals can complete a brief application form on the company's website. The state requires you to specify the funding method, and a Goldco representative will assist you in transferring your funds.

It is essential to note that not all gold or silver can be kept in an IRA due to IRS regulations. Gold coins and bars must be at least 99.5% pure, while silver coins and bars must be at least 99.9% pure to be eligible for circulation.

Augusta Precious Metals

It is among the best choices for U.S. investors, including New York, California, Texas, and Florida. With an A+ customer service rating and an A+ BBB rating, Augusta Precious Metals offers a range of gold coins, silver bars, and rounds.

Whether you're a new buyer or have previous experience, Augusta Precious Metals can help you purchase gold and silver. Focusing on excellent customer service and high-quality products, they offer a broad selection of precious metals, including gold coins, bullion bars, rounds, and silver coins.

Customers have rated their customer service experience with five stars in all categories, praising the friendly and knowledgeable representatives who are always available to answer any questions about the company's products. The team at Augusta Precious Metals is dedicated to finding the best prices for gold and silver. It can assist investors in selecting suitable precious metals to meet their investment goals and needs.

American Hartford Gold

American Hartford Gold is dedicated to providing an honest and fair approach to help Americans plan for a secure retirement. With a BBB rating of A+ and high customer satisfaction, the firm has established itself as a reputable player in the industry.

American Hartford Gold has been one of the leading gold and silver dealers in the United States for over six years. They offer a wide range of investment options, including gold sovereigns, kilo bars, and bars, with no minimum purchase requirement.

American Hartford Gold provides a convenient and hassle-free approach to investing in precious metals, allowing individuals to make a single purchase online, over the phone, or in person at their office. 

They offer a variety of gold coins and silver bars for customers to choose from. The company has received positive customer feedback and is well-regarded in the precious metals market.

Birch Gold Group

For those interested in precious metal investments, Birch Gold Group is a reputable option with an A+ rating from BBB and high customer satisfaction. Their product offerings include a variety of gold coins and bars.

With over 15 years of experience trading precious metals, Birch Gold Group has established a reputation for operating with honesty and integrity. They are committed to providing a seamless process for individuals who wish to open an IRA or transfer an existing account. 

The company offers various precious metals, including gold sovereigns, kilo bars, and gold coins, to suit any investment preferences. Their exceptional customer service sets them apart, with a dedicated team always ready to assist clients in their purchases.

Also Read:Opening an IRA Using Your ITIN: Is It Possible?

Noble Gold

Established in 2016 and situated in New York, Noble Gold is an organization with an A+ BBB rating, and its customers are pleased with the services they offer. They are dedicated to providing people with a precious metals IRA that offers high-quality service. This is an excellent option if you consider opening or transferring your current IRA account to precious metals.

The company provides a hassle-free approach to investing in gold or silver. They prioritize user-friendliness when purchasing precious metals, with clear communication from their staff and providing answers to any queries to ensure clients feel confident in their investment decisions.

In addition, the company offers a diverse range of precious metal products, including gold coins and silver bars. They have silver bullion available, as well as government-backed gold sovereign coins. Furthermore, investing in any amount is possible if the minimum requirements are met.

Conclusion

Gold and silver are highly stable and recession-resistant investment options. Gold is commonly used to protect wealth, while silver is a valuable way to diversify a portfolio.

If investing in precious metals caught your interest, like gold and silver, the first step is determining your preferred investment method. Numerous options are available, but we recommend purchasing physical gold bullion coins or bars and holding them yourself. Alternatively, you can invest in them through ETFs or by trading futures.