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Buying Silver vs. Gold as an Investment – What’s Better?

When most people think about investing, they likely think of buying pieces of companies on the stock market. Indeed, stock market investing has helped countless people build wealth over the years.

However, the most savvy investors know that the stock market is a battle between the bears and the bulls — one in which prices fluctuate significantly, resulting in risk. To balance that risk, most successful investors look to safe-haven investments as a reliable store of value.

One of the most common ways to hedge against stock market risk is investing in precious metals, the most popular investments of this type being silver and gold. But what’s the difference between gold and silver, and which represents the better addition to your investment portfolio?

The Gold-Silver Ratio

Investors often use ratios when predicting where the values of assets are likely headed. For example, equity investors look at the price-to-earnings, price-to-book, and price-to-sales ratios when determining whether a stock is undervalued, overvalued, or trading at a fair market valuation.

But silver and gold aren’t companies. They don’t generate profits and have no earnings, book, or sales to value.

Instead gold and silver investors have looked at the gold-silver ratio to help value these precious metals. This ratio compares the price of gold to the price of silver based on the idea that their historical valuations follow predictable patterns.

For example, if the gold-silver ratio is 10-to-1, it means that gold is currently trading at 10 times the value of silver. Before the 1900s, this ratio stayed generally flat at 16-to-1 through history, meaning that if an ounce of silver was worth $5, the price of gold would be $80 per ounce, according to Provident Metals.

Today this ratio suggests significant potential for growth in the price of silver. Over the past five years, the ratio has been as high as 120-to-1 and as low as 64-to-1, with the current ratio sitting closer to 68-to-1, according to BullionByPost. Many believe the incredibly high ratio suggests the price of silver has room to climb substantially to eventually return closer to the 16-to-1 level it held for more than a century.

Although the past performance of an asset isn’t always indicative of what you can expect to see in the future, there is a strong argument that silver is significantly undervalued compared to gold.


How to Invest In Silver and Gold

Regardless of whether you choose to invest in silver, gold, or a mix of the two, you’ll need to know how to go about making those investments. There are several ways you can gain exposure to these assets, with the most common being:

Buy Bullion (Physical Metals)

Bullion is, by definition, physical gold and silver bought and sold based on its value by weight rather than as a coin or collectible. These physical precious metals, often referred to as gold and silver bullion, often come in the form of bars and one-ounce bullion coins.

For example, if you want gold bullion, you can purchase gold bars or gold coins on an exchange that sells bullion, based on the current spot price of the metal plus a service fee. If you wanted physical silver, or silver bullion, you can purchase silver bars and silver coins on an exchange at the current spot price of silver. Some of the most popular exchanges include:

  • Vaulted
  • Money Metals
  • American Precious Metals Exchange (APMEX)
  • JM Bullion
  • Gold Eagle Coins

There are benefits and drawbacks to purchasing physical precious metals. First and foremost, physical valuables can be stolen or lost. You’ll need a safe place to store the metals, and a standard safe in your home or a safety deposit box may not be enough space. Many investors enlist services that safely store the metal for them — at an additional cost of course. And unless they are specifically insured through a private insurer, most standard homeowner’s or renters insurance policies don’t cover theft of gold and silver bars or coins.

On the other hand, when you purchase physical metals, you’re able to touch your investment and hold it in your possession, unlike when you buy paper or digital forms of these assets, which can give investors peace of mind.

Buy Gold and Silver ETFs

Exchange-traded funds, or ETFs, are a popular investment option for those looking to invest in a diversified group of stocks, but many don’t even think about them when investing in assets like silver and gold. The firms that manage these funds pool money from large groups of investors and buy large amounts of the assets they target, often giving them an edge in the market.

Although most ETFs are focused on assets like stocks and bonds, there are plenty of funds that make investments in precious metals. By investing in these funds, you’ll gain exposure to these safe-haven assets without having to handle the buying, selling, or storage of physical bullion.

However, there are cons to consider here. Investment-grade funds are managed by experts, which comes at a cost in the form of the fund’s expense ratio. Moreover, when investing in ETFs, you won’t have any physical metals in your possession, which is a factor many precious metal investors enjoy.

Many precious metal ETFs trade on major stock exchanges like the Nasdaq and New York Stock Exchange. Some of the most popular precious metals ETFs include SPDR Gold Trust (GLD), iShares Gold Trust (IAU), and iShares Silver Trust (SLV).

Buy Mining Stocks

If you’re interested in gaining exposure to the safe-haven features of silver and gold investments but you also want exposure to the growth the equities market provides, you’ll be able to find a nice blend by investing in mining companies.

Some mining companies are focused on gold, others on silver, and some focus on a mix of the two. Whether you want exposure to one or the other, a good mix of both, or to any of the many other valuable metals out there, you’ll be able to find quality mining stocks to invest in.

Investing in these stocks not only gives you exposure to the metals they mine, but access to the capital appreciation that equities have the potential to achieve. On the other hand, equities come with increased volatility risk compared to physical bullion or investments in highly-diversified ETFs focused on investing in these assets.

Pro tip: Earn a $30 bonus when you open and fund a new trading account from M1 Finance. With M1 Finance, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.


Key Features

Whether you plan to invest in silver or gold, there are a few factors you should give serious consideration. Although both investments are considered safe and relatively liquid, there are key differences between the two that will make one more appealing than the other to different investors.

Safety

As mentioned above, silver and gold are both generally good investments for safe-haven investors looking for a relatively liquid store of value. However, even among assets considered to be havens, levels of risk differ. Here’s how gold and silver stack up in terms of safety:

Silver Experiences More Volatility

Investors who look to the gold-silver ratio generally do so to get an idea of the relative valuation of silver, with gold recognized as the more stable asset. That means the silver market tends to experience higher levels of volatility.

This is a benefit to many who believe silver is highly undervalued and will make a comeback in relation to gold, but it does increase the risk associated with an investment in silver. After all, volatility is a measure of the pace at which growth or losses take place, meaning assets with higher levels of volatility generally experience losses or gains at a faster rate than more stable assets.

Gold Is the More Stable Asset

Investing in gold is a far more stable option and acts as a solid store of value. Gold prices tend to move at a slower rate. The stability in gold’s spot price adds a level of safety for investors.

When the price of gold falls, it tends to fall at a slower rate than silver. If you’re looking for the safer of the two options, gold is definitely the way to go.


Growth

If your ultimate goal in investing is to allow your money to work for you, you want growth. Granted, when investing in safer assets, growth is relatively slow compared to equities and other riskier assets, but the rate of movement in the upward direction is important nonetheless.

Silver Has More Potential For Growth Than Gold

If you’re looking for growth, silver may be the better way to go. As explained above, the gold-silver ratio suggests silver may be significantly undervalued at present. As any value investor will tell you, investing in undervalued assets provides the potential for significant returns as the price of the asset climbs back to a fair market valuation.

Although there’s no telling when the ratio between the two metals will fall back to 16-to-1, with it sitting above 60-to-1 at the moment, it’s clear that there’s plenty more room for growth in silver’s price relative to gold, at least from a historical value perspective.

With that being said, historical data is not always indicative of future performance. Although the potential for silver’s price to climb at a higher rate than gold’s, the market moves in mysterious ways, and growth isn’t ever guaranteed.

According to Statista, in 2020, silver gained around 20% while gold was up 25%, showing that gold can still grow faster than silver in some cases — especially when the industrial utility of silver experiences slowing demand.

Gold Experiences Slower Growth

On the other side of the coin, gold is a more stable investment, but that stability comes with a trade-off. The commodity is a slow-growth asset. Sure, there are times when gains in gold will outpace those in silver, but for the most part, the low-volatility, slow-moving nature of gold prices results in lower profitability.


Cost

Affordability is important. After all, a well-diversified portfolio will only have a relatively small portion of its assets tied up in either gold or silver. If you’re building a portfolio with $5,000, allocating 10% of your assets to these investments would only allow for $500 to invest in the precious metal of your choice. And there’s a huge difference between gold and silver prices and thus how much of each you can buy for that amount.

Lower Prices Make Silver More Accessible

The price of a troy ounce of silver was around $26 in late April 2021. That relatively low price makes the commodity far more accessible than other, more expensive investment options. At that price, 10-ounce silver bars cost about $260 each.

As a result, silver investments tend to be the choice among younger investors that are just starting out and don’t have thousands of dollars to invest in safe havens.

Gold Is Far More Expensive

If you want to get involved in buying gold, you need to have a meaningful amount of money to make your initial investment. In late April 2021, one ounce of gold was worth about $1,780.

Given the example above, with $500 to invest in precious metals, you wouldn’t have enough money to buy even a single ounce of gold, let alone 10-ounce bars. Sure, you can buy gold by the gram, or even by pennyweight, but buying smaller quantities increases your overall cost, making these investments less advantageous.


Causes of Price Fluctuations

Before making any investment, it’s important to get a detailed understanding of what makes the price of the asset you’re investing in move. This will help you make your decision as to when to buy what assets, and what to expect as a potential result of your investment.

Silver Catalysts

There are several catalysts that have the potential to move the price of silver either up or down. Some of the most significant fundamental signals to look for include:

  • Market Conditions. While silver is more volatile than gold, it is still a safe investment when compared to equities. As a result, when market conditions are poor, investors tend to sell their shares of stock and flock to these types of assets, tipping the scales of supply and demand and sending the price of silver upward. Conversely, when market conditions are positive, investors tend to ditch silver and other safer bets to free up funds for investments in the stock market. This leads the price of the commodity down as demand shrinks.
  • Economic Conditions. Silver is a great store of value, and it becomes a hot commodity when economic conditions are negative, often sending silver prices up. When investing in silver, it’s important to pay attention to economic reports like jobs and GDP reports, as well as statements from the United States Federal Reserve surrounding the state of the economy.
  • Industrial Demand. When you think of silver’s uses, you may instantly think of jewelry or silverware, but the versatile metal is used for far more than that. A significant portion of the demand for silver comes from industrial uses. Due to its lack of electrical resistance, silver is a key component of many solar panels. It’s also commonly found in contact lenses, fuses, switches, and other electrical devices. When demand is high for these types of products, demand for silver naturally increases, leading to gains in the price of the commodity.

Gold Catalysts

Gold has many significant catalysts that fall in line perfectly with those of silver. However, there are some unique differences. Here are the factors that tend to lead to movement in the price of gold:

  • Market and Economic Conditions. Like silver, gold is considered a safe-haven investment. As a result, when economic and market conditions are poor, investors tend to flock to gold, leading to an increased price.
  • Cultural Events. Gold is a significant metal in various cultures around the world, used in everything from architecture to art, and even in weddings. During the Indian wedding season in India, spanning from January through March, demand for gold for use in weddings often leads to a noticeable increase in global demand, which can drive up prices.
  • Inflation. The inflation rate also plays a role in the growth of gold’s price. When inflation is high or threatening to rise, investors often look to gold as a way to hedge against inflation. Gold investors hope to maintain the value of their investments by owning a commodity that’s known for holding its value while cash loses buying power to inflation.
  • Geopolitical Conditions. Sure, major currencies like the U.S. dollar and the euro can be traded for fair market value just about anywhere around the world. However, many developing countries’ currencies don’t enjoy the same flexibility. As a result, gold is increasingly important in the global economy and as a measure of any country’s wealth. When geopolitical conditions are unsettling, government demand for gold will generally increase, leading to gains in the price of the commodity.

The Verdict: Should You Invest In Silver or Gold?

As you can see, there are clear benefits and drawbacks to investing in both silver and gold. So, how do you make the decision? Which is better?

Consider your investment objectives, the amount of money you have to invest, and the amount of risk you’re willing to take on the safer side of your asset allocation.

You Should Invest In Silver If…

You might prefer silver if you’re the kind of investor who wants exposure to safe assets in your portfolio, but you also want the ability to realize larger gains on these assets and are willing to accept a slightly higher level of risk. The best candidates for silver investments:

  • Have a Total Portfolio Value of Under $35,000. Silver comes with a much lower price per once and is therefore more accessible than gold. Those just starting out with relatively small investment portfolios will likely be better served choosing silver over gold.
  • Want Larger Gains. Although there are times when gold will increase in value faster than silver, there’s a strong historical argument that silver’s value has room to run in the future. If you’re looking for stronger growth in your safer assets, silver is likely the way to go.
  • Are Risk Tolerant. Silver is a safer asset than equities, but there are risks involved. Silver is more volatile than other safe assets like gold, Treasury bills, and many bonds. This volatility increases risk.
  • Are Willing to Put Time In. Because price swings happen in silver faster than they do in gold, it’s important that you pay close attention to market movement, economic reports, Federal Reserve statements, and industrial demand for clues as to when to buy and sell.

You Should Invest In Gold If…

Gold may be right for you if you’re an investor with tens of thousands of dollars or more to invest in the asset class and you want to add stability to your portfolio or are looking for a store of value during tough economic times. Gold investments are better for investors who:

  • Have a Few Thousand Dollars to Invest. Gold is a highly valuable asset. Because commodities are cheaper in higher quantities and tend to make up less than 10% of a well-diversified investment portfolio, it’s important to have enough money in your portfolio to purchase a couple of ounces or more at a time. At today’s prices, a pair of one-ounce gold bars requires about $3,500.
  • Want to Hedge Against Inflation. Gold has historically grown in value at a rate faster than the U.S. dollar has lost value to inflation. As a result, the yellow metal makes a great hedge against inflation-related risks.
  • Want Stability in Your Portfolio. As an asset known for generating stable growth, gold is a great option for those looking to add stability to their portfolio in order to balance out the risks associated with other investments.

Both Are Great If…

Why choose one or the other when you can invest in both silver and gold? Exposure to both metals may be best if you’re an investor who has a reasonably sized investment portfolio and wants to diversify your safer holdings. This gives you the growth opportunity represented by silver and the higher level of stability that gold can provide. The perfect candidates for gold and silver investments:

  • Have a Portfolio Value of $40,000 or More. Because gold is relatively expensive and best purchased in quantities of multiple ounces or more, it’s important to have a sizable investment portfolio if you’re going to invest in physical gold. To mix silver in, your portfolio will need to be even larger in order to maintain the ratio of no more than 10% of your assets allocated to precious metals.
  • Want Both Growth and Stability. If you want access to the potential growth of silver but aren’t willing to give up the stability gold provides, a mix of the two investment options is likely your best bet.
  • Are in Tune With Movements in Commodities Markets. The best investments are made by investors who have taken the time to educate themselves about the assets they own. Keeping tabs on what’s going on with either gold or silver takes time and research. To invest in both, you’ll have to be willing to commit additional time and research to your investing process.

Final Word

Both gold and silver are great investment options for just about any diversified portfolio. These assets are known to be great stores of value, often experiencing price growth even in times of poor market conditions and economic uncertainty.

Whether you invest in gold, silver, or a mix of the two, it’s important to use safer assets to maintain balance in your investment portfolio and protect yourself from risk. Moreover, regardless of which direction you go, it’s important to do your research and get an understanding of the assets you’re investing in. After all, it’s never a good idea to blindly invest your money in any asset, even one that’s thought of as “safe.”

Joshua Rodriguez
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

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