Investing in Gold vs Silver: 8 Key Differences
Precious metals like gold and silver are attractive investments, particularly as an inflation hedge and as a store of value. An individual can consider investing in physical bullion (a metal coin, bars, or jewelry), mining stocks, or ETFs.
This article will discuss the differences between gold and silver and ways you can invest in these commodities. We’ll also offer an alternative long-term investment option – investing in shares of fine art through Masterworks.
Investing in Gold vs Silver: 8 Key Differences
Precious metals like gold and silver are historically considered “safe-haven” investment options, especially after the pandemic and high global inflation levels.
But what are the differences between gold and silver from the investment perspective?
Gold and silver are both considered to be liquid assets. You can sell physical gold and physical silver through online platforms and retailers. These physical gold and silver assets can include white gold and gold jewelry, silver jewelry, a gold coin, gold bar and other silver and gold bullion.
However gold tends to be more liquid than silver. Many investors hold onto physical gold to sell during an economic downturn. Gold also tends to have a greater global demand, while silver has a lower supply.
Today, pure gold is around 75 times more expensive than silver.
As per data from GoldAlliance in 2020, the gold price chart hit a record high at about $2,075. In December 2022 the gold price was about $1,785 per ounce.
Despite fluctuating prices, this precious metal has maintained its purchasing power without depreciating. This means it can maintain its value irrespective of economic conditions.
White gold jewelry — about 75% of gold and 25% of nickel and zinc — is slightly more expensive than yellow gold — 92% gold, 5% silver, 2% copper and 1% zinc — due to the manufacturing process.
Silver on the other hand is much more affordable. Towards the end of the 1970s, the silver price hit record highs of $48.70 per ounce. As of December 2022, the price of silver is $22.97 per ounce. (Sources: Macrotrends, InvestingNews)
Investors can find out if either precious metal is undervalued compared to the other through the gold silver ratio. The gold silver ratio can measure how many ounces of physical silver (silver jewelry, silver coins, and other silver bullion) you can purchase with one ounce of yellow gold.
3. Hedge Against Inflation
Gold has historically been the better hedge against inflation. It’s also considered a “safe haven” asset: when inflation rises, investors make larger gold investments to try to protect their wealth.
The gold price typically tends to increase when stocks are down. For example, during the Great Recession (December 2007 – May 2009), the S&P 500 dropped by 37%, while the price of gold rose by 24%.
Silver also has certain traits that keep its value steady during inflation. During high inflation, demand for silver drops, which is neutralized by investors increasing the demand for silver.
Investing in gold bullion (like gold bars or a gold coin) tends to yield higher returns than silver.
Let’s take a look at the gold and silver price charts from Macrotrends:
- Silver dropped from $29.95 per ounce to $23.74 per ounce between 2012 and 2022, a 20.7% decline.
- Gold rose from $1,664 to $1,798.42 between 2012 and 2022, an 8% increase.
Although both precious metals experienced short-term declines within this period, gold still fetched higher returns in the long run.
In fact over the past 20 years, gold has returned over 540%, while silver has returned about 365%.
5. Demand and Supply
Silver is thermally conductive and electrically conductive. As per data from goldsilver.com, 56% of its supply is used in the industry application of smartphones, solar panel cells, automobile electrical systems, and more. The demand for industrial silver will likely continue to grow.
In 2021, 822.6 million ounces of silver were produced.
However, this physical metal is mined as a by-product while mining other metals. Pure silver ore is actually quite rare.
This precious metal is also sourced through recycling. Many industries require silver, so they typically recycle the used silver and put it back into the world’s supply.
While silver is plentiful, its supply is restricted, thanks to its industrial application. 90% of all the silver ever mined has already been used.
On the other hand, gold is available in abundance, and it has always been used as a store of wealth, among other uses. Approximately 50% of gold goes towards jewelry manufacturing, about 33-35% gets invested, and around 15% gets bought by central banks.
Gold is less volatile than silver. According to goldsilver.com, in a bear market (prolonged price declines), silver will fall more than gold and rise more in a bull market (prices rise or are expected to rise). In fact silver could decline 2-3 times more than gold on any day.
This volatility can be problematic when managing portfolio risk. According to Morgan Stanley, the volatility can lead to bigger short-term gains but typically carries greater risk.
As a long-term investment, gold is generally more stable. However for short-term, speculative gains, silver may be more appealing.
A metal like gold tends to be a more robust portfolio diversifier. As mentioned, the gold market is not as affected by economic downturns because it has fewer industrial uses, unlike silver and base metal products like nickel.
So during economic uncertainty, investors can rely on yellow gold to act as a portfolio stabilizer. Gold is also an uncorrelated asset compared to traditional asset classes like bonds and stocks.
Silver needs a much bigger storage space than gold.
According to goldsilver.com, for the same dollar value, you get about 80 more ounces of silver than gold. $50,000 worth of gold bullion can be held in one hand (i.e, a gold bar or a bag of gold coins). But you’d need about 10 large shoe boxes to hold the same amount of silver.
This also means more fees for professional storage and transportation in the case of silver.
Besides, pure gold does not tarnish, while silver — particularly sterling silver — does. So your silver has to be stored in a dry place away from exposure to the elements.
How To Invest in Gold and Silver
Here are a few ways to invest in precious metals like gold and silver:
- Physical Metal: Purchase physical precious metals like silver coins, gold coins, gold bars, silver bars, and gold jewelry.
- Exchange Traded Funds (ETFs): A silver ETF or Gold ETF is a popular way to add silver or gold to your portfolio without storing these physical precious metals. You buy shares through a brokerage account.
- Mining Stocks: Some investors also buy gold or silver stocks at companies that mine gold and silver. They earn a quarterly or annual dividend.
But investing in gold and silver has its own risks.
Gold is susceptible to theft, needs a good storage system, and comes with high commissions and charges.
Meanwhile, silver provides a weaker return on investment and comes with high premiums making it a less attractive investment.
And most importantly, both gold and silver won’t serve as a passive income.
So what other options does an investor have?
If you want to explore an alternative, long-term investment, consider investing in fine art.
An Alternative Long-Term Investment: Fine Art
Contemporary art has shown steady performance over the years as an asset class.
During times of high inflation, the Masterworks All Art Index estimated that:
- Contemporary artwork prices rose, on average, 20% annually.
- Contemporary art prices appreciated more than the S&P 500, and inflation hedges like gold over the last 26 years.
So how do you invest in fine art?
Invest in Shares of Art through Masterworks
Here’s how Masterworks lets you add contemporary art to your portfolio:
- The research team finds artists whose artworks can increase in value.
- They purchase the artwork and file an offering with the Securities and Exchange Commission (SEC) to securitize the art.
- Investors can then invest in shares of this blue-chip artwork. Masterworks may hold onto it for 3-10 years.
- If the artwork is sold for a profit, you’ll receive pro rata returns minus fees.
- Alternatively, you can trade your shares on the secondary market.
If you want to learn more or sign up, visit the Masterworks website.
This article is sponsored by Masterworks. This material is provided for informational and educational purposes only. It is not intended to be investment advice and should not be relied on to form the basis of an investment decision.
See important Reg A disclosures: Masterworks.com/cd