Investing in gold and silver: A practical guide to gold vs. silver
Gold and silver, the world's two primary physical precious metals, have always enjoyed popularity among investors, particularly at times of market volatility or downturns. Often grouped together as safe-haven assets, they nonetheless feature significant differences. Gold is viewed as the ultimate safe haven, with far less volatility, deeper liquidity and more institutional uptake. On the other hand, silver is often a darling of investors who like to balance value protection with shorter-term growth potential.
When markets are souring or uncertainty is high, precious metals are among the most intensely analyzed assets for potential investment. Does it make a profound difference if you invest in either metal? What specific market conditions and goals suit each of them? And what are the most relevant differences between gold and silver for you as an investor? In this article, we look at the eternally crucial subject of gold vs. silver, and provide answers to these questions.
Key Takeaways:
Two of the world’s popular precious metals, gold and silver, are often grouped together, but have substantial differences with regard to volatility and investment focus.
Gold is highly effective as a safe-haven asset to use as a hedge against bear markets or uncertainty, while silver is more suitable for growth-oriented strategies, due to its higher volatility and susceptibility to industrial demand cycles.
Gold vs. silver: What’s the difference?
Gold overview
Gold has been viewed as an excellent store of value and safe-haven asset for centuries. In modern financial markets, the yellow metal is a strong contender for the title of safe-haven king. Gold typically features a high degree of price stability: it's generally viewed as a low-volatility asset compared to other popular investment instruments, such as stocks, crypto, forex or other commodities. It tends to perform particularly well when growth-focused asset classes decline or market uncertainty is high.
However, the precious metal's popularity isn't limited to periods of panic or downturns. Central banks around the world buy gold on a regular or structured basis to beef up their national resources, often irrespective of market cycles. This central bank demand helps support the price of gold — even when financial markets are optimistic — although a less positive market is the precise scenario under which gold shines the most.
Silver overview
Silver is gold's most recognized companion in the suite of precious physical metals. (Yes, there are others as well, such as platinum and palladium.) Similar to gold, silver is viewed as a store of value and potential hedge against bear markets, although to a notably lower degree.
Silver features higher volatility than gold, which makes it less attractive as the ultimate safe haven. However, the same higher volatility also means silver has higher growth potential than gold, making it a good choice for traders who would like to combine hedging with speculation.
In addition to being a precious metal, silver is also an important industrial commodity. Various industries and manufacturing niches — including the technology and green energy sectors — use silver extensively. This industrial demand is a significant contributor to the versatile metal's worldwide supply fluctuations.
Investing in gold and silver: Key market drivers
Safe-haven demand and economic uncertainty
Since gold is the market's primary safe-haven asset, widely used by central banks and institutional investors, major macroeconomic data has a key influence on its price. Inflation and interest rates in major economies, particularly in the US, impact gold’s price significantly. When inflation rates spike, many investors become worried about retaining the real purchasing power of their assets, causing a rush to gold.
Higher interest rates, on the other hand, may spell a dip or growth moderation for gold prices. As interest rates rise, other low-risk asset classes — such as cash and government treasuries — become more attractive to investors, creating a less favorable environment for gold.
Geopolitical issues, such as trade wars, major armed conflicts and other international political developments, can also have a big impact on gold prices. In general, the gloomier the outlook for the world economy and financial markets, the more attractive the yellow metal becomes for investors across the board.
Quite often, the price of silver also benefits from economic or financial downturns, though on a less reliable or pronounced scale than the price of gold. In fact, significant downturns or market panics may hammer silver's price if investors make particularly big moves toward the safest assets: gold, bonds and cash.
Industrial and technological demand
Just as gold's price is heavily influenced by macro data and global uncertainties, silver’s value is strongly affected by demand from various industries. The list of industrial niches impacting silver price is impressive, including electronics, solar panels, EVs, batteries, photography and water purification, to name just a few.
Booming industrial production leads to higher silver prices, while production downturns weaken silver’s position. This is hardly surprising, as it's estimated that industrial demand accounts for at least half of the precious metal's annual utilization.
Unlike silver, gold is far less affected by industrial cycles, with at most 10% of its supply going toward actual use in production. It's safe to say that industrial demand is an exceedingly modest — if not negligible — variable for gold’s price.
Gold vs. silver volatility and risk
Price stability: Gold vs. silver
As noted earlier, silver’s price is considerably more volatile than that of gold. Gold's famed price stability acts as its major advantage, drawing large numbers of risk-averse investors to it. In contrast, silver's susceptibility to industrial cycles, as well as its higher popularity among speculation-focused investors, results in significantly more pronounced ups and downs on the price chart.
It's been observed that silver’s price may exhibit two to three times higher volatility than gold’s. In fact, the large difference in volatility levels has often prompted some analysts to question whether silver should even have a seat at the table of safe-haven assets. Such analysis asserts that silver's value to investors is primarily limited to the metal's speculative potential.
Risk considerations for investors
Both gold and silver investing involve market risk, though the risk is higher for the latter due to its volatility. Silver’s price may also be strongly affected by industrial demand and supply mismatches or disruptions. Its price is also far less liquid than that of gold, although the markets for both metals enjoy high liquidity levels in general.
At the same time, the volatile nature of silver makes it more suitable for short-term, higher-risk growth strategies. Traders interested in short-term profits can leverage the asset's volatility, particularly at times when the precious metals market is characterized by strong uptrends (for long positions) or downtrends (for short positions).
In contrast, long-term strategies — particularly those aimed at lowering risk or preserving value — favor gold. The major risk in long-term gold investment is that of opportunity cost if markets turn positive, and other assets deliver greater returns while you keep your capital parked in the yellow metal.
Gold vs. silver: Which is better for your investment goals?
Gold for conservative investors
If you’re a long-term-oriented, conservative investor, gold might be an excellent addition to your portfolio. This is particularly the case if you believe that financial markets are likely to stay subdued over your investment's time horizon. Gold helps preserve capital like no other popular asset. It often keeps rising or moves sideways when growth-focused assets are being hammered.
During severe market crashes, gold’s price might also decline somewhat if investors decide to move their capital to short-term treasuries, fiat currency and cash equivalents. However, even in such a scenario, gold’s price is likely to drop much less dramatically than those of more risk-focused asset classes, such as stocks or other commodities.
Additionally, gold is a commonly used diversifier in a conservative portfolio, often along with mutual funds, stocks and bonds.
Silver for growth-oriented investors
For growth-oriented investors, silver might be the better choice. It features a higher upside potential, and can rise strongly in commodity upcycles. Unlike gold, silver is often used for more tactical, short-term strategies to profit from its volatile cycles.
Based on historical trends, silver often reacts more positively than gold during bull markets. That's why the two metals are often found in the same portfolio: gold for a declining market and silver for a buoyant one.
How to gain exposure to gold and silver
Physical ownership
Some investors prefer to directly own physical gold or silver. This is usually in the form of gold and silver bullion, e.g., bars and coins. Standardized gold bullion often comes in the form of 400-ounce bars, while similar silver bars range in weight from small retail sizes up to 1,000-ounce bars. If you buy physical gold or silver, you can store and handle it yourself or, alternatively, use the services of licensed and regulated companies that provide storage and, when requested, physical delivery of the assets to you.
The use of these storage providers is popular due to security considerations. Typically, reputable storage companies keep your physical assets in highly secure vaults, protected by insurance, surveillance cameras and armed personnel.
Paper and digital instruments
Instead of physical bullion, you can invest in a range of gold- and silver-linked regulated financial products. This is a much more common route of gold and silver investment than physical ownership. Among the popular products in this area are exchange-traded funds (ETFs), contracts for difference (CFDs) and futures contracts that track gold and silver prices.
Compared to physical ownership, these products offer much greater flexibility, versatility and liquidity. For example, CFDs and futures allow you to track the spot prices of these metals without having to buy them. However, the highly regulated nature of CFDs adds nontrivial barriers to entry for many retail investors. For example:
CFDs are generally inaccessible for retail investors in the US.
Futures have significant minimum capital requirements.
Both futures and ETFs in the US require residents of other countries to open an international brokerage account, which often involves several layers of fees.
At the same time, Bybit's TradFi platform provides a much more accessible and flexible alternative for gold and silver investment for retail traders worldwide. Bybit TradFi lets you trade traditional asset classes — such as precious metals, other commodities, stocks, market indices and forex pairs —using your Tether (USDT) funds as collateral. Both gold and silver are available on Bybit TradFi as CFDs, and are based on popular currencies like the US dollar and the Australian dollar.
Gold and silver in a diversified portfolio
When making your investment decision, you don't have to choose between gold and silver. The two metals have their own unique characteristics that complement each other well. Gold serves as an excellent hedge against bear markets, while silver can deliver great returns when a positive mood prevails. As such, instead of putting all your eggs in one basket by choosing one of the metals, it makes sense to diversify by investing in both.
A popular strategy is to use 70% of your precious metals allocation for gold as a core asset, and to keep 30% for silver as a satellite for growth potential.
These precious metals can provide a great value for portfolio diversification with other asset classes as well. For instance, equities and gold often have low or negative correlations. And in a high-inflation environment, when bonds typically experience a sell-off, gold and silver may do very well.
The relationship of the two precious metals with crypto is less clearly defined. Since crypto is a distinct high-growth asset, many investors use it together with gold to balance out their portfolio.
Common mistakes when investing in gold and silver
Before allocating your money to gold or silver, it's important to avoid some common mistakes. First, don't treat silver as "cheap gold." The history of financial markets clearly shows that silver is not just more volatile, but also might move quite differently from gold, especially when affected by industrial demand and supply cycles.
Silver's considerably higher volatility is also among key factors to consider. Some investors might overallocate to silver during hype cycles, only to experience a painful crash.
Closing thoughts
Gold and silver, the two historically popular precious metals, have significant differences. Gold is a classic safe-haven asset that can help you protect your wealth in times of uncertainty or downturns, while silver is more suitable for growth strategies. Which one you should focus more on in your portfolio eventually depends upon your individual investing goals and risk tolerance. As always, it's essential to conduct your own research, understand the risks involved and determine how silver can fit into your broader trading strategy.
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