Gold Vs. Silver

Gold vs. silver? As investments, gold and silver have a lot in common: They are historically effective hedges against recession and times of economic collapse. They can help protect your portfolio against inflation and hyperinflation. And they are both physical, hard, tangible assets which – unlike paper securities such as stocks and bonds – can never be reduced to zero. 

Volatility

Of the two metals, silver is the more volatile, by far. Compared to gold investors, silver investors take it on the chin more when precious metal prices fall. But they also gain much more when markets favor precious metals in general. 

Of course, if you buy near the lows, volatility works in your favor. But it’s almost impossible to consistently call market tops and bottoms. Nevertheless, if you are a market timer, silver may be suitable for you. 

Nevertheless, because of its volatility, a small amount of silver (as a percentage of your overall portfolio) can provide a lot of diversification benefit, from an asset allocation perspective. 

But you need to be emotionally prepared for silver’s large price swings.

Related: 11 Gold & Silver IRA SCAMS to Avoid in 2022

Price Points

Gold vs. silver? Silver trades at a much lower price per Troy ounce than gold. 

This means it's much easier for small investors to buy and sell meaningful amounts of silver. If an economic crisis forces you to use coins, rounds, or bars as currency, you'd probably have an easier time trading silver for goods and services than gold. As of this writing, the spot price of gold is $1,910 per ounce, while the spot price for an ounce of silver is $24.87. 

In the event of economic collapse, both metals should retain their value much better than stocks, bonds, or cash in the bank. And gold coins and bars will still be useful for larger purchases. But silver will be much more practical for everyday living.

So if you need to buy a cart full of groceries and a box of ammo for your family, it's going to be much more practical to bring a few 1-ounce silver coins than try to make change for a $2,000 1-ounce Golden Eagle coin. And if they have to give you change in fiat currency, that might not be what you want. In a hyperinflationary environment, getting $1,800 in increasingly worthless currency for a $200 purchase with a 1-ounce gold coin is going to be the last thing you need.

Related: Learn How to Diversify Your Retirement with Physical Gold

The Gold/Silver Ratio

One investment technique is to try to exploit changes in the ratio of gold to silver prices, called the mint ratio. 

Over the past 20 years, the mint ratio has ranged from a low of just over 30:1 to over 90:1. As of this writing in late-2021, the ratio is about 78:1, still toward the high end of that range. That means that compared to gold, silver is historically cheap. 

 Image source: Macrotrends.com.

Industrial Applications

Silver is one of the best conductors of electricity there is. As a result, it's in significant demand in the manufacturing and electronics industries. Industrial demand consumes more than half of the new global supply of silver each year, compared to just 12% for gold. 

Silver is also an indirect green energy play: As industrial economies pivot to renewable energy sources, silver may benefit tremendously, since it's used to manufacture photovoltaic cells. According to a report from CRU Consulting, solar power generation is expected to double between 2019 and 2025. 

Silver is also an essential component in semiconductors. The adaptation of 5G technology may also help fuel industrial demand for silver.

The industrial element of silver demand contributes to its volatility, however. When global manufacturing declines, that can lead to lower silver demand, and hence lower silver prices. When the global economy recovers, that can lead to increased silver demand, and buyers may then bid up silver prices.

For this reason, silver prices may theoretically be tied more closely to the overall global economy than gold.

In practice, however, silver has historically been remarkably resilient, even during periods of economic slowdowns that lead to shuttered factories and reduced production.

During the 1970s, despite the substantial economic problems and high fuel costs that led to reduced production worldwide, silver generated a gain of 3,105%, handily outstripping gold’s return of 2,328% over the decade. 

Why did this happen? Because even as overall industrial activity slacked off, the semiconductor industry was just getting going. Furthermore, the climate of fear that characterized 1970s investors led millions to reduce inflation risk to their portfolios by buying hard, physical assets like silver and gold.

Silver also outperformed gold during the two most recent gold bull markets. From 1993-1996, silver rose 63% compared to 28% for gold. Moreover, during the sustained 2001-2011 gold bull market, silver prices outstripped gold, 904% to 636%.

Related: Little-Known IRS Loophole To Buy Physical Gold and Silver Tax & Penalty Free.

Gold vs. Silver: Storage Considerations

If you want to own physical gold and silver, you're going to have to store it somewhere. If you are holding it within an IRA or other retirement account, you must use an authorized custodian to hold the assets on your behalf. You cannot take direct possession of gold or silver held within an IRA. Anything you do take from a retirement account will constitute a distribution, which may generate taxes and penalties.

However, outside an IRA, you can hold either precious metal at home, in a home safe, safety deposit box, or even just a shoebox in a closet.

If you own a lot of precious metal, you should pay attention to security considerations to protect your assets from theft or loss.

Gold is easier to hide. But it’s also much easier for a thief, contractor, or a nephew supporting a drug habit to pocket tens of thousands of dollars in gold and walk out the door. A thief would need to abscond with a lot more metal to steal the same amount of money in silver compared to gold. 

If you do want to use a third-party custodian or depository, your fees for silver storage may be much larger than for a similar dollar value in gold. The reason? It just takes more space. 

If storage or transport costs are significant considerations for you, you may want to emphasize gold over silver holdings. 

Damage and Tarnishing

If you’re holding the metals yourself, you should protect your investment against damage and tarnishing. Gold bullion is non-reactive, and not subject to tarnishing.

However, silver is quite vulnerable to tarnishing, which can reduce the value of non-bullion forms of silver, including collector’s items and numismatics.

There's also a chance that non-bullion forms of gold may be alloyed with another metal and that other metal could tarnish. To avoid this, stick to bullion forms of gold with at least .999 percent purity.

Why Does Tarnishing Occur? 

The chief culprit in silver tarnishing is hydrogen sulfide, a compound that exists in small amounts in the air, but can exist in high concentrations in eggs, onions, rubber, fossil fuels, and wool. If it gets on your hands and you handle your silver coins, bars, or other metal forms, it can lead to tarnishing.

This shouldn't hurt the value of bullion holdings: By definition, bullion is valued according to its weight and purity. So a few scratches shouldn't hurt the value, and neither should tarnishing. But people can be irrational: If you had to sell some bullion coins or bars in the secondary market, you may well be able to command a higher price for bullion in mint condition than for well-tarnished coins and bars.

Silver Storage Dos and Don'ts.

You can also store the silver with a bit of charcoal or other carbon, which can help absorb and trap hydrogen sulfide from the air. You can buy these from aquarium stores. Silica gel can also help. If you’re storing large quantities of silver, you may consider investing in an air filter. 

• Don’t store them together, unprotected, in Ziploc bags.
• Don't store them in attics or garages.
• Don't store them where they are exposed to moisture.
• Don’t store them near any sources of heat or gasses. 
• Don't attempt to clean or polish tarnished silver coins, bars, and collectibles yourself. Traditional abrasives actually remove a layer of silver – potentially reducing weight and value.
• Keep silver away from oils, cleaners, hair sprays, bleach, paint, and soap.
• Handle with clean gloves or plastic-tipped tweezers.
• Wash your hands before handling them.

Related: Silver Storage Options: How  to Protect & Store Your Silver Investments

Liquidity

Gold vs. silver? If you need to raise cash fast, it’s probably better to hold gold than silver. Globally, the gold market is far larger and more liquid than the silver market. In 2019, the global gold market was valued at about $24.5 trillion, dwarfing the $4.4 trillion global market for silver. That means it’s much easier, faster, and cheaper to convert large amounts of gold into cash than it is for silver.

True, individual investors should have little difficulty trading reasonable amounts of gold or silver bullion. The markets can easily absorb trading at these levels. But the larger gold market and higher liquidity also mean it’s much more difficult for other market participants to manipulate the market against smaller players. 

If you're just getting started, or want to learn more about investing in physical gold and silver, request your free investor kit from Augusta Precious Metals below.