Silver vs Gold Investing

The simple answer to the question of whether it is best to invest in silver or gold is that there is no specific advantage or point that makes one metal a better investment than the other.

There are times when gold outperforms silver and can be considered a better investment and then there are conversely, points in time when the performance charts suggest that your money would be better in silver.

Percentage returns

As with so many charts and statistics, you can take a set of figures and create a persuasive argument for investing depending on how you view the numbers and when you are analysing them.

A good example would be that if you were to compare the performance of gold against silver for the two years between 2006 and 2008, when all bets were off and the global financial crisis took hold, you would have seen the value of your gold rise by 10% but if you had chosen silver during that same period, you would be nursing a 20% loss in its value.

Between 2008 and 2011 and in part probably due to market reactions and sentiment surrounding the financial crisis, silver managed to significantly outperform gold. From 2011 onwards until mid 2014, gold has managed to outperform silver, so there are points in time where both metals have their moment in the limelight, meaning that you probably can’t take past performance in isolation as a reason for choosing one over the other.

What you can garner from looking at the past performance of gold and silver is that silver has a volatility factor that can be as much as 70% higher than gold, so an adventurous investor looking for a risk and reward play might try to pick their moment in order to benefit from the volatility in silver prices, although that is a dangerous game and could prove expensive.

Currency status

One argument that you could put forward in favor of gold over silver, is that gold enjoys status as an alternative to fiat currencies, whereas you could not argue that was the case when it comes to silver.

Industrial applications

Silver is the more widely used metal in comparison to gold, when it comes to industrial applications.

This means that if global industrial output is on the rise there would likely be a strong demand for silver which could help push prices upwards. Conversely, if we enter a period of economic downturn, demand for silver industrial usage would likely curtail and have a potentially negative effect on prices.

The case for silver

You could firstly argue that silver may well be better value in comparison to gold. Taking the price position at the beginning of 2014, it could be viewed that an ounce of gold is 61.5 times more expensive than an ounce of silver.

Silver reserves outnumber gold reserves by a factor of just over ten, so the gold/silver price ratio should be closer than it actually is. It is this pressure on prices that means a number of mining companies who are focused solely on silver production, are finding it almost impossible to turn a profit at current rates.

The positive aspect of this scenario that silver production may well fall lower if miners can’t make a profit from their operations, which means that supply pressures could help to force the price of silver up.

The other point to consider when it comes to smaller investors, is that someone could buy about 40 ounces of silver for about $1,000 in coins, whereas you can’t buy an ounce of gold for the same money. This makes silver popular amongst more modest investors and helps to maintain popularity and prices as a result.

The case for gold

Gold is popular as an investment and one of the fundamental reasons for its popularity is that investors often buy gold as a way of diversifying risk.

Gold is a physical asset and although it can rise and fall in value, it cannot go bankrupt or default on its promises or obligations, which is why that gold bullion in particular does have a history of rising in value in times of crisis.

Diversification is a good strategy to keep to in your investment portfolio and when you look at the long term performance of gold, you can find reasons why holding a percentage of gold could pay dividends over a period of time.

Precious metals like gold and silver can often act as an insurance policy against adverse stock market conditions or periods of uncertainty in the world and central banks are continuing to buy gold, which could be viewed as a strategy to follow or at least indicates that demand for gold will potentially push prices up and silver may well follow suit.

As you can make a case for investing in both gold and silver, some investors choose to gain an exposure of between 3% and 5% of their total investment portfolio and how you split those percentages between gold and silver probably depends on your views on the stock market and industrial growth.