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You've decided that you're interested in investing in gold, silver, or both. But now you're wondering which precious metal is the better choice, how much gold and silver cost, and if there is any difference between the two.
Even though they are both precious metals that are often regarded as some of the most expensive resources, there is a considerable difference in their prices, history, and relationships to the economy.
Gold is significantly more expensive than silver but stands strong against recessions, inflation, and uncertain times. On the other hand, silver has a more accessible price point but has higher volatility and fluctuates up and down in correlation with the economy.
Are you curious why that is, and which is the better option for you? Read on, we have it all covered in one handy guide.
Gold vs. Silver Investments: Key Differences
Gold and silver, both precious metals, are often seen as similar investment forms, but their price points have a more considerable difference than most investors expect.
For example, gold is typically between $1-3,000 per ounce, whereas silver is between $10-30 per ounce.
Even though silver and gold follow similar patterns throughout history, they keep a relatively consistent rate gap. Both tend to increase in value, slowly and steadily.
The Gold to Silver Ratio
The gold-to-silver ratio represents the number of silver ounces needed to equate a single ounce of gold. Right now, the ratio is 85.79 because you would need 85.79 ounces of silver to equal the value of one ounce of gold.
Paying attention to this ratio can benefit investors because it makes it easy to see when one metal is overvalued or undervalued and can allow investors to estimate when and where the ratio will narrow or widen. Being able to anticipate these changes means it's easier to make a profit, even when the prices of the metals fall or rise.
Now, we allow the ratio to swing freely due to the economy. In older times, though, governments set or fixed the ratio. In 1972, the US fixed the ratio to 15:1, meaning it took 15 bars of silver to make up one bar of gold. They later moved it to 16:1 in 1834. In 1862, it was set back to 15:1.
Not much silver was mined in the 1860s and early 1870s, so it became more scarce. The US government did not adjust the ratio, so miners quit selling it to the US government and sold it to private buyers and jewelers. In response to this, in 1873, the Grant administration demonetized silver, and the ratio was allowed to freely fluctuate based on the supply and demand.
The highest ratio the US has ever seen was in 2020, when it peaked at 114.77.
Historical Prices of Silver and Gold
Generally speaking, gold does better in recessions and crashes than silver (usually surging in price during uncertain times), while silver tends to suffer significant drops during economic crashes.
Let's dig into the nitty-gritty details now:
From these details, it's easy to see that silver tends to drop during times of uncertainty or hardship, while gold usually does better. Because of this, it is wise to buy silver during recessions and sell gold during the same times. Still, gold and silver seem to fluctuate and react to the economy similarly, with a somewhat consistent ratio of 30 to 70.
Volatility of Gold and Silver
Silver is more volatile than gold. Gold is consistently more expensive, making it less accessible to investors. The accessibility is excellent for new investors or those with less money, but that comes at the sacrifice of being highly volatile.
Low-cost assets are naturally more volatile than high-cost assets. Gold is a countercyclical investment that goes up when mainstream assets go down and down when mainstream assets go up. Silver, on the other hand, sticks closer to the general economy, rising and falling when the overall economy does.
Is Silver A Safer Investment Than Gold?
Silver and gold are equally safe but in different ways. Silver is the better option if you want an investment that moves with the same flow as the economy. Gold is the better option if you want an asset that will fall when the economy is good and rise when the economy struggles.
Silver and gold are inversely related to inflation, so they can be a good hedge against inflation that you can use to protect your investment portfolio when inflation starts to climb.
Gold is worth more than silver, and because of the difference between low-cost and high-cost assets, silver will be more volatile due to economic changes. For some, the higher cost of gold is worth the lower volatility. In contrast, for others, it makes more sense to invest in the more accessible and affordable asset, with the trade-off being higher volatility.
Day traders may prefer silver because its value rises and falls at wider margins, while gold may be seen as too consistent and slow to make short-term gains.
It all boils down to your personal preference and investment strategies.
Silver can be a better investment vehicle for day traders who want to capitalize on short-term gains. It's also a good investment for those who want an asset that will rise when the general economy rises and falls when the general economy falls.
Silver is more accessible and affordable than gold, but this comes at the expense of higher volatility. Since silver is cheaper, it can also be a bit more liquid and easy to sell than gold.
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Will Silver Be Worth More Than Gold?
Even though silver would have to rise in value by nearly 86 times to be worth more than gold today, there have been times in history when gold and silver were equal in value.
According to the United States Geological Survey, 1,740,000 metric tons of silver have been discovered so far, with over half of that being found in only four countries, Mexico, China, Peru, and Chile (the US is ranked as #9).
Conversely, only 244,000 metric tons of gold have been discovered worldwide, with most of it being found in China, Australia, and South Africa (the US ranks #4, in case you were wondering).
Because gold has such a wide lead on silver, and there is less gold in the world, it is unlikely (though not impossible) that silver will ever be worth more than gold.
Is Gold A Bad Investment?
Gold is not a bad investment. It has significant historical significance as a currency and commodity and continues to be in the wise investor's portfolio.
Gold is a strong hedge against recessions, problematic economies, geopolitical uncertainty, inflation, and even deflation in the economy. Even when the US dollar weakens, gold stands strong, usually rising, even doubling in value at times. For instance, gold doubled between 2008 and 2012, in just four years, thanks to the housing market bubble that popped and the recession that ensued.
The demand for gold is increasing right now too. Many households in China and India use gold as savings accounts. India also uses a lot of gold during the wedding season because of the use of gold jewelry for these celebrations.
As of 2019, SPDR Gold Trust became one of the biggest ETFs and one of the largest holders of gold bullion in the United States.
Gold vs. Silver: Which Is A Better Investment?
The bottom line is that gold is a better investment for some, while silver is a better investment for others. It all depends on investment goals, the person's investment style, and how much capital they have to invest.
Gold is better for long-term investors who want to stabilize their portfolio and see increases when the stock market and economy have a downturn. Gold is not as affordable as silver but benefits from stability and low volatility. Gold may be less liquid than silver since it does cost more (so it may be harder to find a buyer), but the payout is much higher than silver.
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