The precious metal market can be a great way to invest but trying to decide whether gold or silver is best for your investment portfolio can be a tough decision? Gold and silver are both two common precious metals in the investment world. Both are uncommonly found in the earths crust but despite their common beginnings silver and gold’s investment opportunities can vary greatly, here are some important distinctions to remember when looking into silver and gold.
Silver’s More Volatile Price
The supply of silver each year is much more than the supply of gold each year, nearly eight times the size that of gold. Around 1 billion ounces of silver are mined each year, while there are only about 120 million ounces of gold mined yearly. The higher amount of silver mined may make it seem as though the market for silver is much bigger but with the lower price of silver it makes the value of the annual supply much smaller than gold’s. Gold’s annual supply can often times be almost ten times or more than silver. The chart below shows how silver’s annual supply compares to the market cap of some common popular stocks.
All of these companies have a higher value than silvers entire annual supply. Many of them several times higher than that of silver showing how volatile silver can be compared to gold. It takes only small amounts of money to impact silvers price compared to gold and most of these other companies. Silver can rise greatly on a good trading day and drop significantly on a low day. This is what investors refer to as a volatile investment. In this category gold is a more stable investment and often attracts the interest of more investors, but if you are prepared for the ups and downs of silvers trading it can be a great market to trade in.
In its physical form silver has many similarities to that of gold in its physical form. Both can not be created but from the earth making their value less depreciable. It is also a tangible investment meaning it can be physically held and stored. Tangible investments such as gold and silver can be traded and held under some circumstances and in certain quantities without being reported. There is a requirement from the IRS that could however have tax implications for selling silver at a gain. Like gold, silver can also be used like money and in many situations can be treated as currency. Throughout history silver has actually been used more commonly for currency making than gold. With silvers low cost you get all of the tangible advantages of gold at a lower more efficient cost. An average individual can purchase silver much easier and at a lower cost than gold and still can trade and invest at the same level as gold.
Storage is one area where silver and gold vary extremely. Gold wins out heavily in this area. It takes a small amount of gold to add up to a large monetary value. It takes roughly 84% more volume of pure silver to equal that of pure gold depending on the markets current value. In order to equal the same dollar value you can end up needing over 100 times the amount of space to store your silver than you would to store gold. For example $50,000 worth of gold weighs about 2.6 pounds but $50,000 of silver weighs about 190 pounds.
You can store a large value amount of gold in small places like a home safe or sock drawer but the same amount of silver would never fit in the same locations. Regardless of the form, coins or bars, silver will take up more space to store than gold. Due to it requiring a larger amount to equal a higher value, silver may also require a higher cost to store professionally with the larger degree of space needed. The same can apply when transporting silver. Silver also requires specific conditions for storage in order to ensure it does not tarnish. Gold on the other hand does not face the same threat from the elements.
Silver’s Industrial Uses
Only a small percentage of the gold supply goes to the industrial sector, while well over 50% of the silver supply is used for industrial purposes. Silver is used in many applications from batteries, to solar panels, to medical equipment. Not a day goes by when the average American doesn’t come in contact with a product containing at least a small amount of silver. Due to the industries high demand, the global economy can have an extremely large effect on the silver demand. Silver is much more susceptible to economic highs and lows than its gold counterpart. Millions of ounces of silver are also lost each year in the industrial process, after products are used most are thrown away limiting the amount silver reentering the market through recycling. Gold on the other hand tends to stay on the market once it enters being recycled several times over if necessary.
Silver vs. Gold Stockpiles
It was once common practice for countries to hold stores of both silver and gold. This helped keep the prices of both metals up, as less were available to trade on the market, and insured the country had finances to turn to if needed. Over the past several decades countries have steered more towards the gold market and given up their stores of silver, as it is no longer used in the majority of currencies. The only countries left with a stockpile of silver are the United States, India, and Mexico and even their stores have shrunk greatly in previous years. As stores of silver shrink, countries turn their stocking goals towards gold to back their currency. Central banks buy and hold large stores of gold and continue to buy each year helping to grow the markets demand.
In terms of gold storage this is great news, but if a shortage of silver in the industrial sector ever occurs it can mean a large spike in the silver market. If the government has no stockpile of silver in which to support the shortage with the industrial sector will need to turn to the private sector for help meeting their needs. This scenario, could lead to skyrocketing silver prices and extremely high demand.
Gold and silver are two precious metals with some wonderful investment advantages. Both are highly sought after, portable, and tangible. Gold is highly sought after by both banks and countries and held in their large stores, it is less volatile than silver, can be stored easier, and does not tarnish. Silver is more affordable than gold, is used largely in the industrial factor, and has the potential to sky rocket in price with the governments small stores. Both have many advantages and disadvantages that tend to counteract one another. Deciding which is right for you will depend on your market taste and knowledge. At Tangible Investments Inc. we can help guide you to the right choice, whether gold or silver, and help you find the perfect buying options.