Gold vs. Silver: Is Either a Good Investment During Inflation?

gold vs silver investment

Commodities trading means you’re buying and selling raw materials rather than finished products (like a house) or financial assets (like stocks and bonds). Commodities are assets like corn, coffee, lumber and ore. One common form of commodities trading is investing in precious metals, namely gold and silver. As an investment asset, gold and silver have very different properties and uses in your portfolio.

For more help with investing in gold or silver, consider getting the help of a financial advisor.

Gold vs. Silver: Utility

The biggest thing that differentiates precious metal investing from other commodity investing is utility. For most other commodities, investors judge value based on supply and consumer demand. If you want to invest in coffee beans, for example, you can judge prices by how much coffee people are currently drinking, how tastes are changing, etc.

Precious metals are different in that they have relatively low commercial utility. Compared with other metals, here are relatively few consumer or industrial uses for assets like gold and silver.

However, silver does have much more industrial and commercial use than gold. Approximately half of all silver bought and sold on the market is used commercially, with applications ranging from dentistry to electronics. (This is still quite small compared to other metals, which are almost entirely used for production.) By contrast, gold has very few commercial applications aside from jewelry. This gives investors a basis on which to judge and predict price movements for silver, since you can make decisions based on factors such as industry need and how the global economy is moving.

Gold vs. Silver: Cost and Volatility

gold vs silver investment

At time of writing, silver traded at approximately $25.77 per ounce. Gold traded at $1,960 per ounce. While the details vary, the gap is consistent. Gold is historically much more expensive than silver. This is in part because silver deposits are nearly 20 times as common as gold. This leads to two outcomes for investors.

First, it’s much easier to invest in silver than gold. You can buy more of it for less money, meaning that less liquid investors can get into silver more easily. As with all financial assets this can also expose you to greater potential gains and losses, since you’re likely to see more change relative to the scope of your investment with a portfolio of silver.

However, that’s also the textbook definition of volatility. Low-cost assets tend to also be highly volatile specifically because small price changes have outsized effects on the underlying investment. For example, at current prices, silver only needs to change price by $2.57 per ounce to have a 10% price fluctuation. If the price of gold changed by $2.57, it would represent a change of 0.0013%.

Volatility isn’t necessarily a bad thing but it is something to watch out for, especially if you’re seeking a long-term investment.

Gold vs. Silver: Relationship to Broader Market

The price of gold tends to move inversely to the stock market.

Gold is what’s known as a “countercyclical investment.” This means that it tends to go up when mainstream assets go down and vice versa. Historically, the worse the stock market does the more investors flock to gold. By contrast, when times are good, investors tend to pull their money out of gold and put it into assets with greater links to the overall economy.

As a result, many investors hold gold in their portfolio specifically for if they need liquidity during a downturn. For example, a recession is the worst time to sell stocks but the best time to buy them. Having a pre-existing investment in gold can give you a valuable asset to sell during a recession so that you can buy other people’s undervalued assets without selling your own.

By contrast, silver tends to move with the economy overall, at least more so than gold. This is in significant part because of the same commercial applications that make silver a more predictable asset. When the economy slows down, industries need less silver for manufacturing, driving the price down.

Gold vs. Silver: Which Should You Buy?

gold vs silver investment

There’s no such thing as an objectively “better” investment.  It all depends on your market position and the state of your portfolio. A good rule of thumb is this: Buy silver if you’re investing for when times are good. This is a semi-predictable speculation asset that can make you some real money. Buy gold if you’re investing for when times are bad.

A good S&P 500 index fund will do you better than gold in the long run, but this can be a good countercyclical asset if you want to ensure liquidity in the event of a recession.

The Bottom Line

Gold and silver are especially popular commodity investments, in large part because of their historic relationship with money. Governments once used gold and silver to make their currency. While no major economy uses gold or silver as the basis for its currency any longer, investors still see these two metals as active stores of value. Silver is more volatile, cheaper and more tightly linked with the industrial economy. Gold is more expensive and better for diversifying your portfolio overall. Either or both may have a place in your portfolio.

Precious Metal Investing Tips

Arguably the best use for gold as an investment is to mitigate portfolio risk. This is a good asset for market downturns, since it can give you a source of value at a time when other investments are cratering.

A financial advisor can help you decide if gold or silver would be a good part of your portfolio. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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