Investing in gold or silver is a topic that has been debated for decades. Some say that the gold markets are too small, while others argue that buying silver is the way to go. But one thing's for sure: if you're going to invest, you need to know what you're buying!
Both gold and silver have a long history and many benefits. They're both precious metals, which means they're rare, precious and have a high intrinsic value. Gold is the most widely used metal in the world, with over 6 billion ounces. Silver is second, with a slightly lower amount of 5,000 million ounces today.
With this in mind, the market for each would be similar. But that's not the case. Gold has historically been used as a store of wealth, while silver has typically been used as a currency. This makes the difference between gold and silver investing hard to understand.
This article will explain the differences in gold and silver markets, how to buy and what to look for when investing.
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What Is Gold?
Gold is a precious yellow metal that exists in many forms. Many people think of it as a pure metal that comes from the earth and is mined for its beauty and value. Others see it as an investment commodity with a value that does not appreciate over time.
Gold's value comes in many more forms than just its use. It has been used in jewelry and ornamentation for thousands of years and is still highly prized for those uses today.
Gold has also been widely sought after for its practical uses. In the past, it was widely used in coins and other currencies. When used as money, gold had many advantages. It was easily divisible into smaller units, making it easy to carry and use daily. Gold was also easily stolen, making it a difficult item to obtain.
Gold is available in many forms. It is mined or obtained through its use in jewelry or found in the ground as an underground deposit. Gold deposits are sources of this precious metal and can be used for many purposes, as well as being a source of income for miners.
In recent decades, gold has been used as an investment vehicle rather than a currency. This has made it a popular commodity for those looking for a safe place to invest their money.
Over time, the value of gold has risen substantially. It is responsible for the phrase "as good as gold" since investors and speculators alike have traditionally considered it a dependable investment over long periods. The price of gold fluctuates daily; however, historically, it has risen in value over the long term.
Gold is typically sold in three ways: gold bullion, gold coins and gold jewelry. Gold bullion is 99.5% pure gold. This form is usually bought and sold by investors interested in trading the metal. It's typically available in 1-ounce bars, very tiny 1-milligram bars, 12-ounce "Good Delivery" bars and 100-ounce "London Good Delivery Bars.
Gold coins are typically made of 90% or more pure gold. They are usually traded in 1-ounce, 10-ounce and 1-kilogram sizes. Gold coins aren't as popular for trading as gold bullion, but they are often given as gifts or used for investing purposes.
Gold jewelry contains a small amount of precious metal--typically less than 5%--but is not considered an investment. Jewelry is typically bought by consumers interested in fashion.
What Is Silver?
Silver is also a precious metal. It is often used in many of the same ways as gold, as well as being used on its own. Silver is one of the few metals in its natural state without other metal compounds, making it very rare. It was discovered by humans thousands of years ago and used by many ancient cultures to ornament themselves and their belongings.
Silver has many industrial uses as well. Many use it in electronic circuits as a conductor of electricity. It is also used in food processing, photography and photography equipment. Its high strength and conductivity are also used in pipes and plumbing systems to replace copper.
Silver is commonly found in nature as an ore or by itself. Minerals can also be formed by using human hands or other natural sources. Silver deposits are often mined for many uses, including use in coins and jewelry components.
Silver has a long history as well. The ancient Sumerians used silver to make jewelry and ornaments. Silver coins were widely used in many cultures, including the Roman Empire and the Inca Empire. Ancient Greek and Roman artifacts are laden with silver and the Greeks greatly valued this precious metal.
Silver is commonly traded in 1-ounce, 10-ounce and 1-kilogram sizes but is smaller than gold coins. Silver is more commonly bought and sold in the form of silver bullion.
Like gold, silver jewelry is not considered to be an investment. Many consumers buy it as a fashion accessory or because they want to make silver jewelry themselves. Silver has traditionally been used in many electronic and medical devices, including watches and X-ray machines. It's also used in the production of photographic film.
Silver prices have increased considerably over the past decades, both in price and availability. Discoveries brought on by technology and improved efficiency resulted in a larger supply.
Not only has the price of silver increased, but certain types of silver have become more popular as a store of value. For example, silver rounds are often preferred as they are hard to counterfeit and trade in smaller increments than coins. This is useful for transactions where value is expressed in hundreds or thousands of dollars.
Silver pricing also tends to fluctuate significantly. Due to the fluctuation in supply and demand, silver can often be a profitable investment strategy as it is an asset where both positive and negative margins are plentiful.
Investing in physical silver may be a smart choice when prices are low. For example, during the Great Depression of 1929-31 when the price of gold was low, silver was much higher.
Usually, however, it is worth investing in silver rather than gold when there is a large disparity between the two metals. For example, when gold was very low during the recession of 2009, silver prices were high. Investors who invested in silver made significant profits when the price of silver rebounded, while investors who bought gold could not profit from this economic climate.
Investing in silver is particularly useful when there is a significant move in the price of a related metal. For example, investing in silver instead of these metals may be more profitable if there is a large movement in palladium or platinum.
The Silver: Gold Ratio
One main difference between gold and silver is the silver-to-gold ratio. This compares the prices of both metals, typically expressed in ounces of gold equivalent to an ounce of silver. Currently, there are 46 ounces of silver for every ounce of gold, which means that an ounce of gold can be purchased with 46 ounces of silver. This ratio fluctuates over time as the price per ounce changes in both precious metals.
This fluctuation can be tracked through charts. For example, in 1998, the ratio was around 50.5, while in 2008, it was 39.7 and in mid-2015, it was 41.8. If the price per ounce of gold rises above this ratio, then an investor could make a profit by selling their silver and purchasing gold instead – and vice versa is true if the price per ounce of gold goes below this ratio.
Why Invest in Gold or Silver?
When deciding what to invest in, there are many options for investors and speculators alike. Many people decide to diversify their portfolios and add precious metals to diversify their money. But there are many more reasons to add gold and silver than just diversification.
The most common reason for investing in gold and silver is that you expect them to have a higher value than other assets. When you're buying an investment with a history of making a profit, it's easier to believe there will be future gains for your investment at the same rate. As an investor, your goal is always to return the original amount you invest plus any future gains.
Gold and silver are both precious metals with many uses. They have been mined for thousands of years, which will not likely change despite what some people say. As the dollar value continues to fall, more investors turn to gold and silver as inflation begins eroding the value of their other investments.
Another reason people invest in gold and silver is because they consider them a store of wealth. Gold and silver can be purchased in tiny fractions, making them easy to carry around your pocket, purse or wallet. This makes them easy to store and easily transport.
They have also been used throughout the world in currencies, so if the value of your currency falls, you won't have to worry about having invested in gold or silver.
Silver and gold are also considered to be safe investments. The federal government can debase the currency with paper money (dollars and other paper currency). Still, it cannot create gold or silver without creating just as much of a mess or creating inflation.
You also benefit from buying as much or as little as you want when buying precious metals. Unlike real estate and other assets, you can buy as much or as little gold or silver as it fits into your budget. Many investors choose to invest in small amounts, making it affordable to build up a sizeable investment in precious metals over time.
Buying Silver and Gold
If you've decided to invest in silver and gold, there are many options for how to do so. The most popular option is usually a variety of coins. It is adorable that silver coins often have historical significance, making them even more valuable than the weight of silver in the coin.
Other options for investing in gold and silver include gold bars and occasionally even gold jewelry. Gold also has various investment forms, such as gold notes and coins.
Because of the rarity of these metals, you'll often find that gold coins are more valuable than bullion when buying directly from a dealer. Gold coins can be discovered by appraisers and are sold at various auction houses, which makes them desirable to collectors.
If you want to invest in gold or silver bullion directly, you can buy bars at the wholesale market. This is also the best option when buying gold coins at a coin shop or online.
Most dealers will only buy your silver and gold in bullion and coins. You may be able to find a jeweler who wants to buy gold, but you'll find that it's more expensive than buying gold coins or bars. If you want to sell silver jewelry, most jewelers will only offer cash for your item rather than exchange it for bullion.
Other Ways to Invest in Gold or Silver
As an investor, you can also invest in gold and silver through the following methods.
Futures contracts are agreements to buy or sell a certain amount of a commodity at a predetermined price on a specified date in the future. Gold and silver futures allow investors to gain exposure to the metal without owning it, which can be much more cost-effective than buying physical gold or silver.
When investing in gold and silver futures, it is important to understand the basics of the market and its terminology. A futures contract is an agreement between two parties to buy or sell a set amount of gold or silver at a predetermined price on a specified date.
The contract specifies the quality and quantity of the metal purchased or sold, the delivery date and the settlement price.
Before investing in gold or silver futures, investors should research the types of contracts available, such as spot, forward and options. Spot contracts are agreements to buy or sell a certain amount of gold or silver at the current market price, while forward contracts lock in the current price for delivery at a future date.
Options contracts give buyers the right to purchase or sell a certain amount of gold or silver at a predetermined price for a certain period.
Exchange-Traded Funds (ETFs)
ETFs are index funds that are traded like stocks on an exchange. These funds allow investors to own shares of a wide array of commodities, including gold and silver. Investors can choose from various funds that offer them exposure to metals such as gold, silver, base metals, oil, corn and more.
An ETF represents a basket of assets; in the case of an ETF that owns gold or silver, the assets may include precious metal futures contracts and physical metals such as gold and silver bullion. However, ETFs are not the same as futures contracts; ETFs are bought and sold similarly to stocks, while investors buy futures contracts through a futures broker.
Investors can profit by selling their shares when the price of an ETF fluctuates. However, unlike a stock that pays dividends or interest, gold or silver ETFs do not pay dividends to investors; instead, profits must be realized through price appreciation of the precious metal held by the ETF.
Mining stocks are companies involved in the exploration, extraction and processing of gold or silver. When investors purchase shares of a mining company, they become partial owners of the company and are entitled to a portion of the profits generated by the company.
Mining stocks can be purchased through various methods, including stock exchanges, brokerages and over-the-counter markets. When investing in mining stocks, it is important to research the company thoroughly and understand its operations and financial performance.
It is also important to understand the risks associated with investing in gold or silver mining stocks such as fluctuations in the price of gold or silver or potential political and environmental risks.
When investing in mining stocks, it is important to diversify one's investments to spread out risk and take advantage of potential opportunities. Investors should also keep an eye on the news and the performance of other gold or silver mining stocks to assess the performance of their investments.
What to Consider When Deciding to Invest in Gold or Silver
While both precious metals can be used for many of the same purposes, there are also some notable differences between gold and silver. You should consider a few key factors when investing in gold or silver.
1. Gold Is More Valuable Than Silver
One of the most significant differences is that gold is more valuable than silver. While several factors affect the price of both metals, such as supply and demand, rarity, industrial uses and other factors, it comes down to one fact: there is much more physical silver in existence than gold. While there are about 1.4 million troy ounces of gold for every human on earth, there is an estimated 10 billion troy ounces of silver.
2. Gold Is Harder Than Silver
Another difference between the metals, which also affects their price, is that gold is harder than silver (at least 10 times harder according to the Mohs scale). This means that a piece of jewelry made with gold will be able to stand up to more wear and tear than one made with silver.
The Mohs scale of hardness was developed in 1822 by Friedrich Mohs, who discovered that one had to sharpen a diamond to a specific point on the scale before it would fracture.
All metals have a certain hardness rating on the Mohs scale, ranging from 1 (least hard) to 10 (hardest). While the scale has a slight margin of error, its measurements are extremely accurate.
3. Gold Is More Stable Than Silver
Another difference between the metals is that gold is much more stable than silver. Gold has a pale yellow color and a high value and has been highly valued throughout the centuries. Because of its relative stability, investors can use gold as a form of investment insurance when they feel like they need a safe-haven asset that they can rely on during market volatility.
4. Silver Is More Volatile Than Gold
Around 1 billion ounces of silver are added to the market annually. There is enough gold to produce about 120 million ounces yearly. This data shows silver's market appears to be eight times larger than gold's. However, the contrary holds because of the substantial price gap between them.
Because of its lesser worth relative to gold, silver's yearly supply has a substantially smaller dollar value. There is also a greater likelihood that, due to its larger supply, silver prices will be more volatile, meaning that the silver market may be subject to rapid fluctuations in price.
5. Silver Is More Affordable
While gold is more expensive than silver, investors can buy silver coins, which are more affordable than their gold counterparts. For example, in 2016, an ounce of gold was worth $1,256.55. The same year an ounce of silver was only worth $13.35 – a price difference of over 775% or about 8 times as much for the same amount of precious metal! This means that a smaller investment can be made to purchase any amount of silver instead of gold.
Silver's low price means it is accessible to more people than other metals, allowing them to use it for various purposes. The affordability of silver makes it an excellent choice for jewelry, as it can be crafted into stunning pieces without breaking the bank.
Silver can also reflect light, giving it a brilliant shine that resembles diamonds or other precious stones. Silver is a popular coin choice, as the lower price point makes it easier for governments and mints to produce currency.
6. Gold Requires Less Storage Space Than Silver
Gold may be the better option if you are concerned about the cost of storage and insurance. Today's prices would take up to 192 kilograms (420 pounds) of silver to equal the same value as one kilogram (2.2 pounds) of gold. This is because in addition to its lower price, silver is denser than gold (approximately 19 times more).
If an investor were to purchase 4 kilograms (8.8 pounds) of silver, it would take up 2.2 square meters (212 cubic feet) of space. By contrast, the same value of gold would take up 6 cubic feet – that's half of a small garage or the equivalent space in a large walk-in closet.
7. Silver Is More Useful Than Gold
Gold is prized for its beauty and value, so it is often used in jewelry, coins and other decorative items. It is also used in electronics, dentistry and medicine because it is non-toxic and highly conductive. On the other hand, silver is more abundant than gold and has a wide variety of industrial applications.
It is also very reflective and is used in mirrors, solar panels and other optics. Silver is also used in photography, electronics, batteries, water purification, jewelry and medical applications due to its antibacterial properties.
Silver has the highest electrical and thermal conductivity of any metal, making it ideal for use in electrical contacts and printed circuit boards. Silver is also used in producing coins, although gold is more commonly used.
8. Gold Is a More Powerful Diversifier Than Silver
Gold's long history and consistent use as a form of currency make it a more effective diversifier against market volatility. This is because gold prices tend to move independently of stocks, bonds and other financial assets. Therefore, when markets become bearish, gold prices usually remain stable or even rise, making it a great asset to hedge against downturns.
On the other hand, silver tends to move in line with other financial assets and can be heavily influenced by economic events, meaning it is less effective in reducing risk.
In terms of investment performance, gold has consistently outperformed silver over long periods. Gold prices have risen steadily since the early 2000s, while silver prices have been more volatile, going through several boom and bust cycles. As a result, gold has been the better performer over the long term, providing investors with greater returns and reducing risk.
9. Gold Is More Malleable Than Silver
Gold can be hammered or pressed into thin sheets without breaking. Gold is often used to make intricate jewelry designs because its malleability allows it to be shaped into delicate filigrees and other small details. Silver is harder and less malleable than gold and is better suited for simpler designs where strength and durability are needed.
Gold has a higher melting point than silver, so it is a better choice for items that need to withstand high temperatures. It is also less reactive than silver and does not rust easily, making it a popular choice for long-lasting jewelry and coins.
Gold is much rarer than silver, so it is often seen as more valuable. The rarity of gold also makes it more difficult to find and refine, which is reflected in its higher price tag.
The Takeaway: Should You Invest in Gold or Silver
Silver is a useful metal with a wide variety of applications in industry and technology. However, the silver market is much smaller than gold, making it susceptible to major price fluctuations.
Investors looking to diversify their portfolio would be better off investing in gold than silver. Investing in gold and silver can provide some diversification benefits, but it is unnecessary since they are both precious metals and tend to move together.
Silver can be a valuable addition to an investment portfolio, but it does not have the same stability as gold. If you are interested in diversifying your portfolio and investing in silver, look at gold bullion coins such as the Canadian Gold Maple Leaf or American Gold Eagle.
Gold is a more stable investment than silver, so it is the better choice for investors who want to diversify their portfolios. Some investors use gold and silver as a hedge against inflation, but silver has historically been ineffective because of its large price fluctuations.
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