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You’d like to buy some precious metals, but do you buy silver or gold? Is
there really much difference between them other than the price?
Both are “precious” metals, meaning their occurrence in the earth’s crust
is rare. But when it comes to investing in gold vs. silver, there
are 5 important distinctions to be aware of. These differences can
supercharge your portfolio—or make it a victim.
This article outlines the five differences to know about gold vs. silver,
with special emphasis on investment implications…
#1: The Silver Price is More Volatile
The total supply of new silver each year is close to 1 billion ounces.
Annual gold supply is around 120 million ounces.
This makes it seem like the silver market is 8 times bigger than gold. But
just the opposite is true, because of the huge difference in their price.
Silver’s lower price makes the value of annual supply much smaller than
gold’s.
![](http://www.24hgold.com/24hpmdata/articles/img/Jeff%20Clark-Gold%20vs%20Silver%20The%205%20Differences%20That%20Matter%20Most%20to%20Investors-2017-06-29-001.png) ![](../style/all/img/bouton/Zoom_in_6.png)
At current prices, annual gold supply is almost 9 times bigger than
silver.
Silver isn’t just smaller than gold. Look how it compares to the market
cap of some popular stocks.
![](http://www.24hgold.com/24hpmdata/articles/img/Jeff%20Clark-Gold%20vs%20Silver%20The%205%20Differences%20That%20Matter%20Most%20to%20Investors-2017-06-29-002.png) ![](../style/all/img/bouton/Zoom_in_6.png)
Each of these individual companies has a higher valuation than the entire
annual supply of silver! Disney is 10 times bigger. Apple is 42 times bigger.
This explains why silver is more volatile than gold: it takes only a
relatively small amount of money to have a greater impact on its price, more
than gold or most any other asset class.
As a result, silver will rise more than gold on up days, and fall more
than gold on down days. Investors refer to these price changes as volatility.
There are exceptions, of course, but that’s what happens most of the time.
This leads to our first…
Investor Implication: You must be emotionally prepared for
silver’s higher volatility.
It won’t do any good to buy the metal if you’ll panic and sell at the
first big drop.
In fact, as an investor, this volatility can be your friend. Historically,
silver has fallen more than gold in bear markets, but risen more than gold in
bull markets.
Here are some examples of how gold and silver performed during some of the
biggest bull and bear markets in modern history:
|
GAIN from 1970 low to 1980 high
|
FALL from 1980 high to 1985 low
|
GAIN from 2008 low to 2011 high
|
FALL from 2011 high to 2016 low
|
GOLD
|
2,328%
|
-66.5%
|
166%
|
-44.6%
|
SILVER
|
3,105%
|
-89.1%
|
448%
|
-71.8%
|
|
You can easily see that on a percentage basis, silver rises much more than
gold in bull markets, and falls much farther than gold in bear markets.
So as an investor, if you buy during a bull market, history says silver
will hand you a greater return than gold. Probably by a LOT. And if you
believe, like me, precious metals are beginning a new bull market…
Investor Implication: Silver’s greater volatility means it will
better perform than gold in the upcoming bull market.
The higher volatility also means that you’ll have to be more nimble when it
comes time to sell. Silver will selloff faster and farther than gold, so when
the bull market looks to be peaking, be sure to sell!
If you’re comfortable with the higher volatility, and buy near the
beginning of a bull market, purchasing silver is like adding an extra shot of
espresso to your portfolio.
#2: Silver is More Affordable
This seems like an obvious statement, but the reason it’s important is
because silver has many similarities with gold…
If you buy physical
silver—not ETFs, certificates or futures contracts, which are paper
investments—you can capture the same benefits that gold offers. Advantages
that virtually no other asset provides.
Like gold, physical silver…
• Is a hard asset. Of all the investments you own, how many can you hold in
your hand? In a world of paper profits, digital trading, and currency
creation, physical silver is a tangible asset that can’t be hacked (something
your stock broker constantly guards against).
• Is money, just like
gold. It can’t be created out of thin air (and thus depreciated) like
paper currency or digital entries. Look through monetary history and you’ll
find that silver has been used in coinage more often than gold.
• Has no counterparty risk. If you hold physical silver, you don’t need
another party to make good on a contract or promise.
• Has never been defaulted on. If you own physical silver, you have no
default risk. Not so for almost any other investment you make.
• Can be private and confidential. If you’d like some privacy or
confidentiality with a portion of your investments, physical silver can
provide it. But there is an IRS
reporting requirement that could have tax implications when you sell silver
(or gold) for a gain.
Silver’s advantage over gold is that you can capture all these same
benefits but at a much lower cost. Your financial insurance just got more
affordable. It’s why silver is called the “poor man’s gold.”
Investor Implication: Silver is much more affordable for the
average investor, and will help maintain your standard of living as well as
gold.
You can buy small denominations of gold coins and bars
(from half ounce all the way down to one-twentieth of an ounce in some
cases), but premiums spike for products less than one ounce. That’s because
it costs the refiner just as much to produce a tenth ounce coin, for
example, as a one ounce coin.
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There’s another advantage to silver’s lower price: Selling…
Maybe someday you don’t want to sell a full ounce of gold to meet a small
financial need. Enter silver. If you want to buy a car or any other large
purchase, you’d use your gold proceeds. But if you just want groceries or a
new cell phone, you can sell some silver to cover the cost of those items at
the time, without being forced to liquidate your gold.
I think every investor should have some silver around for this very reason.
Investor Implication: Silver will be more practical than gold
for everyday small purchases.
Last, silver’s greater affordability makes it more ideal for gifting. Want
to give some precious metals as a gift? Silver just made it more affordable to
do so.
So, silver is ideal for investors with small budgets, and also for any
small financial needs that may come up in the future. Gold is better suited
for larger purchases.
#3: Silver Requires Much More Storage Space
All those affordability advantages we just outlined come with a catch: it
takes a LOT more space to store silver than gold.
At current prices, the same dollar investment will get you roughly 70 more
ounces of silver than gold. On top of that, most silver is a lot less dense
than gold—pure silver is 84% larger in volume than pure gold. Add those two
facts together and it means that silver takes up as much as 128 times more
space than gold for the same dollar value!
Here are some practical examples of that difference. At current prices…
• You can hold $50,000 worth of gold in one hand—but it would take about 10
large shoe boxes to hold the same dollar amount of silver.
• $50,000 worth of gold weighs about 2.6 pounds—but the same value of
silver weighs about 189 pounds!
• You can store roughly $170,000 of gold in a small safe deposit box, but
that same space will only hold about $2,300 of silver.
It’s relatively easy to hide some gold coins in a sock drawer or cookie
jar, but those same hiding places are impractical for the same investment in
silver. Whether you buy coins or bars, you’ll need a lot more space to store
silver than gold.
And because it requires more space, the fees for professional storage are
usually a little higher. (The difference in rates isn’t unreasonable, though:
for amounts up to $100,000, for example, GoldSilver charges 0.385% for gold per
month, and 0.485% for silver.)
This difference applies to transporting physical silver as well: it may be
more difficult, expensive, and cumbersome.
Last, silver will eventually tarnish; pure gold does not. So silver coins
and bars must be stored in a dry place with no exposure to the elements, a
concern you don’t have with gold.
Investor Implication: Gold takes up much less storage space than
silver, is cheaper to store, is lighter and less cumbersome to transport, and
doesn’t tarnish.
It takes a little more strategizing on your part to store silver than gold.
But there are definitely ways to store silver
at home as this article shows.
#4 Silver Has Higher Industrial Use
About 12% of gold supply goes to industrial uses. But due to silver’s unique
characteristics, a whopping 56% of its supply is used in industry. Silver has
so many applications that believe it or not, you don’t go one day without
using a product that contains it.
From electronics and medical applications, to batteries and solar panels,
silver is everywhere, whether you see it or not.
As Mike Maloney says in
his book, “Of all the elements, silver is the indispensable metal. It is
the most electronically conducive, thermally conductive, and reflective.
Modern life, as we know it, would not exist without silver.”
Why is this important? Because the state of the global economy can have a
greater impact on silver demand than gold. Silver is thus more susceptible to
economic booms and busts.
Investor Implication: Demand for industrial uses of silver is high
in a strong economy, and weaker in a recession or deflation.
But that’s only part of the story… unlike gold, most industrial silver is
consumed and then thrown away (and in some cases destroyed during the
fabrication process). It’s just not economic to recover every tiny flake or
grain of silver from most products. As a result, when the product gets discarded,
that silver is gone for good. This limits the amount of silver that can return
to the market through recycling.
Investor Implication: Unlike gold, millions of ounces of silver are
lost every year. New supply must keep up in order to meet demand.
But won’t the silver price fall in a recession or any serious economic
slowdown?
Fair question. Let’s take a quick look at a one of the worst economic
periods in modern history and see what happened…
It’s hard to imagine a worse economic environment than the 1970s,
especially the second half of that decade: two recessions, a 14% inflation
rate, high unemployment, an energy crisis, the Russian invasion of
Afghanistan, and ongoing cold war tensions. As for silver itself, industrial
demand fell, and global supply rose. Does this sound like an environment where
the silver price would rise?
Not at all. But it did:
![](http://www.24hgold.com/24hpmdata/articles/img/Jeff%20Clark-Gold%20vs%20Silver%20The%205%20Differences%20That%20Matter%20Most%20to%20Investors-2017-06-29-003.png)
![](../style/all/img/bouton/Zoom_in_6.png)
The reason the silver price rose so much was actually because of
those issues. Investors bought silver to help shield their portfolios from all
the turmoil at the time. And on top of it they earned a stunning return on
their investment.
Investor Implication: During a monetary or financial crisis,
silver’s role as money has historically had more impact on its price than its
role in industry.
The one economic situation where silver may not do well, at least
initially, is a deflationary depression. Something like the Great Depression.
However, keep in mind that in dire circumstances such as that, governments and
central bankers are likely to institute highly inflationary policies to keep
the economy afloat—the very policies that would serve as a launching pad for
silver due to its safe haven status.
#5: Silver Stockpiles are Falling, Gold’s are Rising
This difference may not seem to have immediate importance to an investor,
but it’s a behind-the-scenes development that could potentially have big
consequences in certain circumstances.
Governments and other institutions used to hold large inventories of
silver. Today, however, most of them no longer have stockpiles of the metal.
In fact, the only countries that warehouse silver are the US, India, and
Mexico.
Look what’s happened to those inventories since 1996.
![](http://www.24hgold.com/24hpmdata/articles/img/Jeff%20Clark-Gold%20vs%20Silver%20The%205%20Differences%20That%20Matter%20Most%20to%20Investors-2017-06-29-004.png)
![](../style/all/img/bouton/Zoom_in_6.png)
The primary reason governments don’t hold a lot of silver is because it’s
no longer used in coinage. But as we outlined above, silver is used in
industry to a much greater degree now… so if future industrial needs rise, or
the supply chain were interrupted, governments will be ill-equipped to support
those needs.
In contrast, central banks hold almost 30,000 tonnes (96.4 million ounces)
of gold in official Reserves. And on a net basis, they continue buying every
year. These ongoing purchases contribute to the overall demand for the metal.
While this source of demand for gold isn’t present for silver, it does put
the silver market in a precarious position. If the need for physical silver
were to suddenly increase—a monetary crisis, a shortage in industrial supply,
a spike in investment demand—governments won’t be able to meet these needs
with such tiny stockpiles.
This scenario would have a great impact on the silver market—demand would
spike, and the price would skyrocket.
This scenario may or may not play out, but it’s a delicate position that
could have a deep and immediate impact on the silver market.
5 Major Distinctions Between
Gold and Silver
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Gold
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Silver
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Volatility
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Less volatile than silver. Will fall less than silver in bear markets and
rise less than silver in bull markets.
|
More volatile than gold. Will fall more than gold in bear markets and
rise more in bull markets. Selling after big run-ups will be critical to
investment success.
|
Affordability
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One ounce costs 70 times more than one ounce of silver (at current
prices). Can buy smaller denominations than one ounce but premiums are
higher.
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More affordable than gold, with similar benefits. Enables seller to meet
small financial needs in the future. Cheaper for gift-giving.
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Storage
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Takes up less space than silver, is cheaper to store, and doesn’t
tarnish.
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Requires up to 128 times more storage space than gold, is more expensive
to store, and will tarnish over time.
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Industry
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Only 12% of demand, and has little impact on price. A poor economy
typically pushes investors into gold.
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Comprises 56% of total supply. Health of economy can impact demand. Most
industrial silver cannot be recovered.
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Stockpiles
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Central banks buy and hold a lot of gold.
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Governments have only a very small stockpile of silver.
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