Gold vs Silver – Which Is The Best Investment For You?
07/03/2023Daniel Fisher
As investors turn to precious metals to protect their wealth, a common dilemma faced by many is whether to invest in gold or silver.
These two precious metals behave in different ways, and so research is important before deciding what to add to your portfolio
To make sure you aren’t exposed to an undesirable risk, let’s take a look at which could be right for you.
Gold vs Silver Comparison Table
Gold
Silver
Volatility
Gold is a less volatile, more dependable investment for long term investors.
Silver is more volatile, which means for short term investing better gains can be made.
Value
The spot price of gold is always considerably higher than silver and is less dependent on the markets. With Gold being a higher value however, the cost can be prohibitive, especially for new investors.
Silver is heavily linked to the markets and is more directly correlated to the economy. The lower cost of silver, does offer a good entry level investment opportunity into the precious metal market.
Industry
Gold is unaffected by industry and actually tends to perform better when the economy is in decline.
Over half of the world’s silver supply is used in industry and a boom in this area can have significant impacts on the value.
Storage
Due to the higher value of gold, it requires significantly less space than silver to store.
Silver can tarnish in a way pure Gold does not, and as such requires storage in a space free from exposure to the elements.
Premiums
As Gold is a deeper, more valuable market, the associated costs (such as production) are much lower (relatively).
Due to the lower cost of Silver, coupled with it’s higher (relatively ) production cost, you’ll pay higher premiums on Silver.
Gold vs Silver Key Takeaways
Investors are usually looking for a diverse profile, which can contain amounts of both gold and silver. With that being said, key points are:
- Gold is a more stable investment which is somewhat safe from the volatile movements of the silver market, perfect for those looking for long-term inflation safe investments.
- Silver can be an option for investors seeking to take more risk for the chance of receiving far greater returns.
- Though more valuable, storing your gold should be cheaper than silver, due to the significant less space it’ll require (assuming equal values bought in both).
All things being equal, we would recommend investment in Gold over Silver for a majority of investors. It’s simply a less risky investment, although many choose to own both. The portfolio can be further diversified between coins and bars, depending on an investor’s objectives.
Why People Invest In Precious Metals
As the global economy evolves (frequently for the worse) and the digital age brings increasing risks to our wealth, more investors are turning physical precious metals as a means to protect and diversify.The two most popular precious metals behave quite differently, so it’s important to understand the dynamics of investing in either, before deciding to add them to your portfolio. Striking the right balance is essential to extricate value from your investments. Far too many people invest money into these asset classes without understanding what they’re getting into. Unfortunately, this can result in undesirable exposure to risk or tax, further up the road. So, let’s take a close look at the right approach to combining your investments in both precious metals.
When thinking about the gold vs silver debate, the reasons people invest in either can often be based on personal preferences or market conditions. Global economic circumstances, combined with wild price swings, help investors make decisions.
Investors should read guides that cover the key considerations they need to know to become an ultimate insider within the precious metals investments industry. The gold market makes the global economy tick.
These precious metals have a safe haven status during economic downturns, and they offer investors access to long-term security for their wealth without worrying about the risk of rising inflation.
The growing cyber threats to electronic investments and risk of dramatic falls in value of paper assets like shares has led to increased demand for owning physical assets such as gold or silver coins and bars.
Why Gold Or Silver
Let’s bring our attention back to the gold vs silver debate. Now we know that gold and silver have a long and rich history, dating back to ancient times. However, due to scarcity, gold is more valuable than silver.
Silver prices have higher price volatility and can be considered speculative investments compared to gold. This is because silver is more abundant than gold, but it is still considered a valuable precious metal. Other financial difficulties in the global market can dictate worldwide prices.
How Do Gold And Silver Compare?
Gold v Silver - Volatility
Overview
Silver is significantly more volatile than Gold, especially when you look at it over the long-term.
Although in greater supply, due to gold being significantly more valuable,the silver market is tiny in comparison. This leads to greater swings in value on a daily basis, as it takes less money to affect the market.
Silver is more commonly used in industry due to its incomparable conductive qualities, leading to silver becoming a sector investment. Sector investments tend to be more volatile than other investments because they are dictated by industrial demand across many sectors and companies.
Gold on the other hand has shown to be non volatile when looking over a large period of time.
What That Means For Investors
If you decide to go with silver, then as an investor you have to be ready for the price to increase or decrease in far larger ways than Gold.
But it also presents an opportunity. Silver’s volatility will position it well to out-perform gold when markets go on a strong upward curve, but be sure to take financial advice as when the market peaks, you may want to sell.
Verdict
For a long term hedge, Gold will always be the superior choice, but diversifying your portfolio with a portion of silver too will allow you to capitalise on the potential upside.
Gold vs Silver - Value
Overview
A quick look at the gold:silver ratio tells you that this is probably an obvious statement, but it presents some interesting things to consider.
- Silver is more affordable than gold, and provides a cheaper route into precious metal investment.
- The gold:silver ratio currently sits around 85, which is significantly higher than a decade ago. The ratio is the gap between the value of both metals. In other words, it costs the same to buy one ounce of gold or eight five ounces of silver!
What That Means For Investors
Silver being more affordable offers investors, especially those just beginning or with smaller budgets, an entry point into precious metal investing.
You also get to lock in many of the benefits also found with gold for a far smaller outlay:
- Silver is a store of value, just like gold
- Silver has never been defaulted on, making it a very secure investment.
Verdict
Whilst gold is more valuable, it is hard to argue against smaller investors putting some of their money into great value silver coins and silver bars.
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Gold vs Silver - Industry
Overview
As a metal, silver has certain sterling properties. It is the most conductive metal known to man and also very ductile. Due to this, it is in demand across several industries like solar, electronics and electric vehicles. This coupled with supply shortages and an ever increasing demand within industry could mean silver is on the verge of a price increase.
Current estimates say that approximately 56% of the silver in supply today is used in industry, whilst only 12% of Gold is used in industry.
It’s also true that industry conditions have little to no negative impact on Gold, whereas its reliance on industry ties silver in with the economy much more.
What That Means For Investors
Investors should pay attention to industry when it comes to silver as if there was to become a significant increase in demand whilst supply drops, silver holders could be looking at tidy profits. Pay attention to the live silver and gold spot prices, and always pay attention to the gold:silver ratio.
As we progress through the current digital revolution, demand for electronics and new technologies is growing exponentially. Silver’s ability to conduct electricity means it’s the preferred choice in all these applications.
Verdict
Industry has little impact on gold, but silver’s popularity in this sphere could lead to price rises in the future.
Gold vs Silver - Storage Costs
Overview
When buying gold or silver, storage and delivery are something you have to consider.
Lower costs may sound attractive, but with there being such a gulf in value between silver and gold, if you bought both in equal monetary amounts, you are going to end up with significantly more silver.
To put it into perspective, if you invested £50,000 in gold, you would be able to fit that in a small safe at home. If you invested £50,000 in silver, you would need approximately 70-80 times more space.
Not only storage, but when considering delivery of product too, it is a lot less discreet and far more expensive to deliver £50,000 of silver, than it is gold. More product, but more problems.
What That Means For Investors
Investors in silver will have to carefully consider their storage and delivery costs if they are to invest in large quantities of silver. It’s likely that if you are investing at scale the delivery alone would be a difficult and expensive process. We’d recommend any significant silver investment be kept in secure professional storage vaults.
Gold is so valuable in comparison that you can hold in one hand what would take many boxes to store with silver.
Verdict
For ease of delivery and convenience of storage, Gold is a better option than silver.
Gold vs Silver - Premiums
When buying either gold or silver, investors can’t purchase at exactly the spot price of the underlying metal. They will always have to pay a premium above that price to cover costs such as production, transport and dealer’s fees.
The size of these premiums will depend on what type of coin or bar you buy, the quantity and also which metal. When selling your gold or silver, you’ll tend to receive slightly below the spot price.
Generally speaking premiums on physical silver are far higher than those on gold. This is due to the dynamics of each market including the depth of the markets and difference in relative production cost between gold and silver.
Therefore, when investing in silver, the underlying silver price has to move up far more to make a profit, than if you’d bought gold.
Buying larger silver bars instead of silver coins will shave off around 7-10% from this premium, but prices still remain relatively higher than gold.
Verdict
If you buy the right type of gold bars or coins, then premiums are far lower than the equivalent silver.
Need inspiration deciding which coins or bars to buy? Use our Portfolio Creator below to help decide
Gold vs Silver - Tax Efficiency
There are two taxes to consider when investing in gold or silver coins or bars. The possible tax when you purchase these precious metals and the potential tax when you decide to sell.
When purchasing investment grade gold, investors benefit from a VAT-exemption. So the price you see is the price you pay. Silver does not share the same exemption, so purchasing silver coins or bars will incur a 20% VAT charge upon purchase.
To qualify as investment grade, gold needs to be in the form of a coin or bar (so jewellery doesn’t count) and of purity of at least 22 carats or more. All the gold we sell on our website meets this requirement and is therefore VAT-free.
When selling gold or silver, the same Capital Gains Tax (CGT) rules apply as with any other asset disposals. In other words, if you sell at a profit, then just like with selling stocks or an investment property, that profit needs to be declared on your tax return.
However, there is a legal loophole which is regularly exploited by gold and silver investors, which provides a huge advantage over other types of investment. If UK residents sell certain UK coins, whether gold or silver, then no Capital Gains Tax applies. The tax-free qualification focuses on certain legal tender coins. In this way investors of these Gold and Silver coins can keep 100% of their profits.
Read our guide on Capital Gains Tax for Precious Metals or speak to a member of our team on 020 7060 9992 to ensure you buy the correct coins.
Verdict
Gold can be bought and sold completely tax-free so wins this category.
So Should I Buy Silver Or Gold?
Just like precious metals, not all investors are the same.
Gold is a more established safe-haven asset, so tends to gain more from market downturns and volatility. Silver can also perform well in these circumstances but also benefits when industrial demand for silver increases. While silver certainly has more opportunity for huge growth, gold is the steadier of the two.
We simplify the two investments by describing gold as a way to reduce risk, while silver is more about taking risk, in an attempt to gain enhanced returns.
Further Considerations
The Gold-Silver Ratio
Another factor that governs investments in gold or silver is their price ratio.
This is calculated by dividing the current gold price by the silver price. This provides their current ratio and describes how much silver your money could currently buy in comparison to gold.
This ratio is in constant flux despite the price of both metals being impacted by many similar factors such as the economy, value of currencies and inflation. However supply and demand and general sentiment means that the prices don’t always evolve at the same pace.
This ratio has widened considerably over the years. It used to be 47:1 but now stands at 85:1. So, silver presents an incredible opportunity for investors to access the precious metals market as it is 85 times cheaper than gold.
There is thought that in future the gap will narrow again due to a surge in silver prices.
Timing Of Investment
Many investors need to think carefully about the timing of their investment, the macro economy and their investment timeframe..
Avoid rushing into an investment before looking at data. Before investing any money, you should have an idea of both the gold and silver markets amongst other economic and political conditions.For example, during economic uncertainty or inflation, gold and silver prices both tend to rise, albeit gold benefits most, while in times of industrial boom, silver prices may surge the most.
With a 1oz silver coin costing around £30 while even much smaller gold coins can cost well over £100, silver can open up the opportunity to buy on a regular basis. This method of investing, known as ‘D
Investment Objectives
The best starting point when deciding between the two metals is to understand your own investment objectives. Specifically, appetite for risk is the most crucial factor when choosing between gold and silver.
There’s no doubt that silver is the riskier of the two metals due to increased volatility, VAT charge and higher premiums. Gold is steadier, more predictable and the market doesn’t have to increase as much to turn a profit.
But if your timeframe is mid to long-term and your appetite for risk is higher, then silver is the preferred choice due to its current undervalue. For those seeking long term gains, silver offers more potential, while gold offers less risk.
Silver can be considered a good portfolio diversifier with a moderately weak positive correlation to stocks, bonds, and commodities. Gold is regarded as a more powerful diversifier. That’s because its value is unrelated to stocks and has had very low correlations with other major asset classes in the past.
The value of precious metals investments such as gold may fluctuate and appreciate or decline, depending on market conditions. If sold in a declining market, the price you receive may be less than your original investment. Unlike bonds and stocks, precious metals do not make interest or dividend payments.
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Conclusion
The debate about investing in both these metals is long-standing, and there are valid reasons for investing in either metal. Both metals have advantages, such as their intrinsic value, safe-haven status during economic downturns, and potential as long-term investments. While gold is generally more valuable and stable than silver, silver can be a more volatile but potentially lucrative investment.
Why Buy From Physical Gold
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We are fully accredited and offer buy back guarantees on the products we sell, so you can be sure that buying from us is buying with confidence.
Get in touch with us by dialling (020) 7060 9992 or simply send us an email. We can assist you in making the right decision to balance your portfolio.
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