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Gold vs Silver: 6 Differences Investors Should Consider

Gold vs Silver Investment
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When it comes to investing in precious metals, gold and silver are the most common types of investment. In this article we will compare gold vs silver as an investment. This article will help you understand several differences between the two, so that you can have a clear idea of how to structure your portfolio for the best investment opportunity.

Similarities

Stocks and cryptocurrency are, by their very nature, notoriously volatile. Bullion, on the other hand, is frequently regarded as a defensive strategy due to its long-term stability. Gold and silver not only are stores of value, but can also be utilized as an offensive wealth building straetgy tools. Long-term investments in gold and silver have a lot of potential for profit.

When the global economy is in chaos and the stock market is in turmoil, gold and silver benefit.  Any volatile, risky asset falls sharply when this happens, such as stocks and crypto, putting our economic, fiscal, and monetary institutions in jeopardy. When fear sweeps the market, investors seek refuge in gold and silver. The bigger the demand for safe-haven assets, the higher the price of gold and silver. In this regard, gold and silver should be viewed as a low-risk investment with the possibility for substantial returns.

Here is a summary of other similarities between gold vs silver:

  • Both gold and silver are hard assets. This means they are both tangible assets with utility that have intrinsic value. in a world of paper profits, stocks, and crypto, it’s good to have some tangible assets that store value and can’t be hacked.
  • Both silver and gold are money. Currencies and money are two different concepts. Currency represents money, but gold and silver are real forms of money. They can’t be created out of thin air.
  • Both gold and silver have never been defaulted on. if you own physical silver or physical gold, you have no default risk. This is not true for almost any other investment you make.
  • Both gold and silver can be private and confidential. While you must report any gain on your income tax returns, you can purchase silver and gold with privacy and confidentiality if you prefer.

The simple advantage investors may see in silver over gold is that you can capture all of these benefits, but at a much lower cost.

Differences

While gold and silver are the most widely recognized precious metals in the world, they also have their differences. Pure gold, which is very soft, is known as 24 karat gold, while pure silver, or fine silver, is also referred to as .999 silver. Silver can form minimal tarnishes if it is not well preserved, while gold does not tarnish.

According to the World Gold Council, about 198,000 metric tons of gold have been extracted over time, compared to nearly 1.74 million metric tons of silver. As a result, the amount of silver mined greatly outnumbers the amount of gold mined. 

What is the total amount of gold and silver that has yet to be mined? According to the World Gold Council, 54,000 metric tons of gold remain to be mined. In comparison, there are around 560,000 metric tons of silver still underground.

1. Silver Is More Affordable

You can get the same benefits as gold if you buy physical silver, instead of ETFs, certificates or futures contracts, which are all paper investments. These are advantages that essentially no other asset can match. 

Gold coins and bars are available in small denominations (from a half ounce to one-twentieth of an ounce in some situations), however premiums for products less than one ounce are higher.
 
This is because producing a tenth ounce coin, for example, costs the refiner the same as producing a one ounce coin.
 
Silver’s affordable price has additional benefits when you’re selling. You may not want to sell a full ounce of gold to meet a little financial need if you need to sell your precious metals one day in an emergency. Then there’s silver. You would use your gold profits to buy a car or any other significant purchase. However, if you only need supplies or a new phone, you can sell some silver to cover the cost of those products without having to sell your gold. For this reason, whether you prefer gold over silver, you should still keep allocate a part of your portfolio to owning silver.
 

Since silver is much more affordable than gold, you can also buy larger quantities, which may be beneficial when reselling and taking gains. 

Implications for Investors: Silver is much more affordable and accessible for the average investor.

2. Silver's Price is More Volatile

Every year, the entire supply of new silver is close to 1 billion ounces. Currently, the annual gold supply is roughly 120 million ounces. This gives the impression that the silver market is eight times larger than the gold market. However, due to the significant price difference, just the opposite is true. Because of its lower price, silver’s annual supply is substantially smaller than gold’s market cap.

Gold vs silver market cap

At current prices for gold vs silver, the annual gold supply is 12 times bigger than silver. This explains why silver is more volatile than gold. It takes only a relatively small amount of money to have a greater impact on its price.

As a result, on green days, silver’s price will rise more than gold, but also fall more than gold on down days. While there are exceptions to this, this is what generally happens.

This means that as an investor you must be emotionally prepared for silver’s volatility. If you panic on the first drop, investing in the metal won’t do you any good.

Instead, think of volatility as your friend. Silver has historically declined more than gold during bear markets while rising more than gold during bull markets.

Here are examples of how gold and silver have performed in some of the biggest bull markets and bear markets in recent history:

Gold vs Silver markets

Implication for Investors: Silver’s heightened volatility requires emotional preparation.

3. Silver Requires Much More Storage Space

While it’s great that silver is much more affordable than gold, consequently, it requires a lot more space to store silver vs gold.

Here are some concrete examples of the difference at current prices:

  • In one hand, you can hold $50,000 in gold, but you would need ten large shoe boxes to hold the same amount in silver.
  • Gold worth $50,000 weighs roughly 2.6 pounds, but a pound of silver for $50,000 weighs about 189 pounds!
  • In a tiny safe deposit box, you can store about $170,000 worth of gold, but only about $2,300 worth of silver.
 

Last but not least, silver tarnishes with time, whereas pure gold does not. As a result, silver coins and bars must be kept dry and protected from the elements, something that gold does not require. This can be done with protective cases and other protective measures.

Implication for Investors: Gold requires far less storage space than silver, is lighter and easier to move, and does not tarnish.

4. Silver Has A Higher Industrial Use

Approximately 12% of the gold supply is used for industrial purposes. However, due to silver’s special properties, an astounding 56% of its supply is used in industry. Silver has so many uses that, believe it or not, you don’t spend a day without using a silver-based product.

Silver is present in everything from electronics to medical uses to batteries and solar panels, whether you can see it or not. It’s the metal most conducive to electronics, heat conductivity, and reflection. Silver is the most indispensable metal and modern life as we know it would not exist.

Unlike gold, the vast majority of industrial silver is used and ultimately discarded (and in some cases destroyed during the fabrication process). It’s simply  too expensive to recover every single flake or grain of silver from products that have discarded. As a result, when the product is thrown away, the silver is lost forever. This reduces the amount of silver that can be recycled and returned to the market.

Implication for Investors: Unlike gold, millions of ounces of silver are lost per year. In order to meet demand, new supply must keep up. 

5. Historically, Silver Outperforms Gold During Crisis

In the event of a recession or other significant economic slowdown, won’t the price of silver plummet? That’s a good question. Let’s take a look at what happened during one of the worst economic crises in contemporary history…

It’s difficult to envision a more difficult economic climate than the 1970s, particularly the latter half of the decade: two recessions, 14% inflation, high unemployment, an oil crisis, the Russian invasion of Afghanistan, and continued cold war tensions. In terms of silver, industrial demand fell, while the global supply increased. Does this sound like a scenario in which the price of silver will rise? Not in the least. But that is actually what happened!

The reason silver’s price rose so dramatically was actually because of all of these issues. Silver was purchased by investors to help protect their portfolios from the turbulent times. On top of that, investors got a fantastic return on their investment.

A deflationary downturn is the one economic circumstance where silver may struggle, at least at first. Keep in mind, however, that in such terrible circumstances, governments and central bankers are likely to implement extremely inflationary policies to keep the economy afloat—exactly the measures that would serve as a launching pad for silver because of its safe haven status.

Implication for Investors: Historically, silver’s role as money has had a greater impact on its price than its role in industry during a monetary or financial crisis.

6. Silver Stockpiles Are Declining, While Gold Stockpiles Are Increasing

This distinction may not appear to be significant to an investor at first, but it is a behind-the-scenes development that could have significant implications in certain scenarios.

Silver was once held in significant quantities by governments and other institutions. The majority of governments, however, no longer have stockpiles of silver. The United States, India, and Mexico are the only countries that store silver.

Take a look at how their inventories have changed since 1970.

Silverstonks Silver Bullion Supply

The fact that silver is no longer used in creating currency is the main reason why governments stopped storing stockpiles of it. However, as previously mentioned, today silver is being used for industrial purposes to a considerably higher extent. As a result, if future industrial needs increase or the supply chain is disrupted, governments will be unprepared to meet such demands.

Central banks, on the other hand, have over 34,000 tonnes (1.09 billion ounces) of gold in their reserves. They continue to acquire every year on a net basis. These on-going purchases contribute to the metal’s overall demand.

For silver, this source of demand does not exist. The silver market, on the other hand, is now in a precarious position. If the demand for physical silver increases unexpectedly—due to a monetary crisis, a deficit in industrial supplies, or a surge in investment demand—governments will be unable to meet these demands with such small inventories. This makes owning physical silver all the more important and opportunistic.

Implication for Investors: If governments began to buy silver for whatever reason, demand would increase, and the price would skyrocket.

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Teresa D.

Teresa D.

Teresa is the co-founder and CFO to Silver Stonks. Her background is in wealth management and scaling startups.

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