If inflation is eating away at your portfolio, one investment you may have looked at is precious metals. Physical metals are known to be a good hedge against inflation and paper assets, but which precious metal should you invest in: gold or silver? In this article, we’ll cover the pros and cons of both to help you decide on your precious metal allocation. First, let’s look at this comparison table:
| Factor | Gold | Silver |
|---|---|---|
| Market Value | Higher price per ounce | Much lower price per ounce |
| Volatility | Lower volatility, more stable | Higher volatility, more prone to price swings up or down |
| Liquidity | Highly liquid, easier to buy and sell in large quantities | Liquid but may have less demand in large quantities |
| Industrial Use | Minimal industrial use | Significant industrial demand (electronics, EV, solar energy) |
| Supply and Demand | More stable due to its primary use as a store of value | Fluctuates based on industrial demand and economic cycles |
| Hedge Against Inflation | Strong hedge, typically rises during inflation | Also a hedge, but more sensitive to its industrial demand and economic conditions |
| Investment Popularity | Preferred by institutional investors and central banks | More popular among smaller retail investors |
| Portfolio Diversification | Considered a safer and more stable option for diversification | More speculative, can add risk but also potential for higher gains |
| Historical Performance | Steady long-term appreciation, especially in times of crisis | More cyclical, with stronger price movements in both directions |
| Storage Costs & Space Required | Requires less space due to higher value per ounce. One $80,000 gold bar can fit in your pocket. | Silver requires more physical space for equivalent value. $80,000 worth of silver would occupy the equivalent of 2 shoeboxes. |
For me, the highlight of this table is how easy it is to store gold. An $80k gold bar can fit in your pocket, which makes it very convenient, cheap and easy to store. This factor greatly contributes to the fact that gold is an amazing store of value. However, this also makes it very difficult to “spend”. In a scenario where the dollar is worth nothing and you want to use your precious metals as currency for everyday expenses, silver might be a better choice.
Gold: The Classic Choice
Gold investing goes back thousands of years. Virtually every holy book mentions it. Now, why should you consider gold? For the following reasons:
- Stability: Almost every known civilization has valued gold for thousands of years, and even now, people often see it as a safe haven during economic uncertainty. Its price tends to be more stable over time.
- Inflation Hedge: History has shown that when the cost of living rises, gold prices often increase too. This makes it a good option for preserving your purchasing power during high-inflation times.
- Global Acceptance: Gold is recognized and valued worldwide. If you ever need to sell, it’s generally easy to find a buyer, especially if you have recognized bullion coins and bars like American gold eagles or Canadian maple leafs.
- Less Volatility: Gold prices don’t fluctuate as wildly as some other investments, which can make it a calmer ride for investors.
Things to keep in mind:
- Higher Cost: Gold is more expensive per ounce than silver. This means you’ll need more money upfront to invest. Also, each gold investment company has different fees, with some charging very high premiums. We encourage you to shop around. Look for a company with competitive prices for their gold coins and bars.
- Slower Growth Potential: Because it’s more stable, you might see slower gains compared to more volatile investments.
Silver: The Dynamic Alternative
Silver is the most conductive metal on earth, which makes it needed in multiple industries, including Electric Vehicles, Electronics, Medicine and many more. Its various uses mean that its value goes beyond its investment potential. In a nutshell, you should consider investing in silver because:
- Affordability: Silver is much cheaper than gold. Why is that helpful? It allows you to start investing with a smaller amount of money.
- Industrial Demand: As we covered earlier, silver is used in many industries from electronics to EVs to solar panels. This can drive up demand and potentially its price.
- Growth Potential: Silver prices can rise quickly, offering the chance for significant gains if the market moves in your favor. If being the key word.
Things to keep in mind:
- Higher Volatility: Silver prices can swing more dramatically than gold. This means higher potential rewards but also higher risks.
- Storage Space: Because silver is less valuable per ounce, you’ll need more physical space to store it compared to gold.
- Market Liquidity: While silver is still easy to buy and sell, it might not be as readily accepted as gold in some markets. Especially in the east.
Making Your Decision
Before deciding on whether you should buy gold or silver as a hedge against inflation, consider your goals and comfort level:
- Are you looking for stability and a long-term store of value? Gold might be the better choice for you.
- Are you open to taking more risk for the chance of higher returns? Then silver could be more up your alley.
- Do you have a smaller budget to start investing? Silver allows you to enter the market without needing a large sum of money.
Now, how about both?
- Diversification: Investing in both gold and silver can help balance your portfolio. Really! Gold can provide stability. Silver offers growth potential.
- Hedging Bets: Holding both metals means you’re not putting all your eggs in one basket.
Final Thoughts
Ultimately, the choice between investing in gold vs silver depends on your individual financial situation, investment goals, and how much risk you’re comfortable taking on. It also depends on your understanding of the pros and cons of both metals. Do you believe the pros of one outweigh the pros of the other? There is no single right answer. Our final thoughts are:
- Do Your Research: Look into current market trends, historical price movements, and forecasts.
- Consult a Professional: It might be helpful to talk to a financial advisor who can offer personalized advice.
- Think Long-Term: Precious metals are generally considered long-term investments.
As always, we would like to remind you that investing always comes with risks, and there’s no guaranteed return. But with careful consideration and planning, you can make a choice that aligns with your financial goals. Always speak to your financial advisor before making any investment decision. Understand that past results don’t guarantee future returns. Invest wisely.
Also, given the inflation we had to endure in the last few years, make sure you analyze your financial situation fully to determine whether you should be investing in a new asset class like precious metals. You should NEVER use debt or credit to buy physical metals or invest in anything else. If you’re in high debt, we recommend looking at different debt relief options to see how you can alleviate your debt, before thinking about investing.
Amine is an entrepreneur, investor and financial writer that covers the US economy, inflation, alternative investments, cryptocurrencies and more. He has been involved in the space for over a decade.
