Deciding Between Silver vs. Gold Investments: What’s Better?

People invest in precious metals for a variety of reasons: to diversify their portfolios, to hedge against inflation, or to have a safe haven for wealth in times of economic or political uncertainty. But when it comes to deciding between silver vs. gold investments, how do you know which one to choose?

Learn about the similarities and differences and why you might choose silver over gold for your investments.

Gold vs. Silver Historical Performance

Societies have prized both silver and gold since ancient times. Thanks to the durability and intrinsic value of these metals, many of the earliest coins used silver and gold. Since gold is more scarce than silver, however, it has historically enjoyed higher prices.

According to the US Geological Survey, known deposits of gold worldwide total around 244,000 metric tons compared to 1,740,000 metric tons of silver. That’s over seven times more silver than gold.

But that doesn’t mean gold is worth seven times more than silver. Let’s look at the 10-year spot prices of gold and silver over time to see the difference.

2013 Spot Price 2023 Spot Price
Gold $1,201.50 $2,053.44
Silver $19.50 $24.15

Over the past 10 years, gold has been about 60 to 85 times more expensive than silver. While its rarity is the key differentiating factor, gold also has higher prices due to its historical association with luxury, wealth, and international currency.

Although the two metals have very different price points, they tend to follow the same general fluctuation patterns over time. When gold prices shoot up, silver prices shoot up too. For example, silver and gold experienced a decline in value around 2016. Similarly, both experienced a price spike in 2020-2021 after the COVID-19 pandemic began.

Gold vs. Silver: Key Differences

chessboard with gold and silver chess pieces

When determining your portfolio’s gold and silver asset allocation, you’ll want to keep these key differences in mind.

Uses

While gold has uses in some modern industrial applications like electronics and aerospace, most of the world wants it for its intrinsic value. By contrast, silver does double duty. It certainly is an investment metal, but over half of the global supply of silver goes into industry.

Silver tops the list of the most conductive metals, making it useful for everything from solar panels to electric vehicles. This means its price may vary along with industrial demands and economic shifts.

Supply and Demand

There is significantly less gold in the world, which is why its price is always higher than that of silver. Gold typically also has a higher demand, thanks to its value, rarity, reputation, beauty, and durability.

Gold and silver prices often rise during economic uncertainty as people turn to more tangible forms of wealth. However, the price of gold tends to benefit most because its value doesn’t typically follow other market trends.

Cost and Volatility

While costs fluctuate for both precious metals, silver is always cheaper than gold. This can make it a better opportunity for investors looking to enter the precious metal market at a lower price point.

Silver also depends more on market fluctuations, which makes the price more volatile. This can make silver investing better for day traders looking to cash in on price swings, but gold tends to be a more stable option for long-term investors. If the dollar crashes, the price of silver may go up as consumers turn to a more stable currency.

Storage and Transport Ease

Because gold is denser than silver, you can store amounts of greater value in a significantly smaller space. This makes gold much easier, cheaper, safer, and more discreet to store and transport.

Inflation Hedge

Unlike fiat currencies that lose value as inflation climbs, gold and silver investments tend to retain their purchasing power over time.

In fact, the price of gold is usually inversely correlated with the stock market, meaning that as stock prices go down, gold prices go up. This makes investing in gold an excellent way to diversify your portfolio and protect against inflation in the long run.

Silver, on the other hand, typically moves alongside the economy, making it somewhat more susceptible to market fluctuations.

Tax Efficiency

The IRS treats gold and silver as “collectibles” for tax purposes. That means that no matter what form you have these precious metals in β€” bullion bars, bullion coins, rare coins, or even funds physically backed by them β€” you must pay capital gains tax when you sell them (provided you held them for more than one year). These investments have a maximum 28% tax rate, while many other asset classes have a 20% maximum tax rate.

In countries outside of the United States that have a Value Added Tax (VAT), there is a difference in silver vs. gold investments. Investment-grade gold benefits from a VAT exemption, while silver may not.

Long-Term Returns

When deciding between silver vs. gold investments, gold is typically more stable over the long haul. While you may be able to make a profit on short-term price changes with silver, you are likely to see better long-term returns with investment-grade gold.

The Gold-Silver Ratio

small rock out balance stack of big rock

The gold-to-silver ratio indicates the relationship between gold prices and silver prices. In other words, it tells you how many ounces of silver you need to get one ounce of gold. A high gold-to-silver ratio means gold prices are relatively high compared to silver, whereas a low ratio means gold prices are relatively low compared to silver.

Since 2000, the ratio has mostly stayed between 50:1 and 70:1. The record was 125:1 in 2020, and currently sits relatively high at 83:1. While the ratio doesn’t necessarily indicate which precious metal will perform better in the long run, it can help you decide the best time to buy silver or gold.

How To Invest in Gold or Silver

If you’re looking to start your silver and gold portfolio, there are several precious metal investing options to choose from.

1. Physical Gold and Silver

The traditional way to invest in precious metals is by purchasing them in their physical state. You may opt for gold or silver bars, silver or gold coins, or silver or gold jewelry. If you purchase metals this way, you will need to decide whether you want to store them at home or pay to store them at a third-party facility.

If you invest in a gold IRA, the IRS requires you to choose a third-party depository for storage.

2. Gold and Silver Mining Stocks

If you want to benefit from precious metals investing without worrying about storage or insurance costs, mining stocks offer a convenient option. As an investor, you can buy shares of publicly traded companies that mine, produce, or manage these precious metals.

3. Exchange-Traded Funds (ETFs)

Another way to give your portfolio the benefit of precious metals diversification is by purchasing ETFs. Like mining stocks, ETFs also enable you to invest in gold and silver without physically holding the metals.

ETFs are investment funds that you can keep in your brokerage account and trade on major exchanges. Similar to mutual funds, they allow you to invest in hundreds or thousands of individual securities, diversifying your risk. One distinct advantage of precious metals ETFs is that they are highly liquid, meaning you can cash them out just about whenever you want.

Best Gold and Silver Products To Buy

 

When planning your investment strategies for silver and gold, you may wonder about the best precious metal products to buy. You may choose from gold and silver bullion, collectible gold coins, gold and silver IRAs, gold and silver ETFs, and mining stocks. The truth is that the best products for you depend on a multitude of factors, such as the following:

  • Current spot prices
  • Your risk tolerance
  • How long you plan to hold the investment
  • How much space and money you have for storage
  • What the rest of your portfolio looks like
  • How much money you have to invest

It can also depend on personal preferences. For example, some people seek out the dependability of modern gold bars, which contain a standard amount of gold. Others enjoy collecting rare, historic, or beautiful coins that may have less gold but a much higher value β€” both in the eye of the beholder and in their pocketbook.

How Much Gold or Silver Should You Keep in Your IRA?

How much gold or silver you should keep in your precious metals IRA depends on your investment strategy, retirement goals, current age, and financial situation. It also depends on the type of IRA you have. For example, the following types of gold IRAs have different yearly contribution limits (for the tax year 2023):

  • Traditional: $6,500 or $7,500 for people aged 50 and older
  • Roth: $6,500 or $7,500 for people aged 50 and older
  • Simple Employee Pension (SEP): Up to 25% of your self-employment income or $66,000 (whichever is higher)

If you exceed the annual limit for IRA contributions, the IRS charges you a 6% penalty tax on the difference.

Have More Questions About Silver vs. Gold Investments?

If you have questions about gold IRAs, silver IRAs, or any other precious metal investment product, contact Oxford Gold Group.

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