A major impact of the pandemic is that we have all changed the way we view things. Investors, in particular, see the future as uncertain. That is why many investors are looking toward precious metals as a solution, choosing to invest in silver or gold.
CNBC reports that as recently as April 2021, gold rose 4% in the previous year, and silver was up by over 70%. Both precious metals fluctuate a lot, so even with this statistic, it is still hard to decide whether you should invest in gold or invest in silver, given the current state of the economy. Which one is the better option beyond the pandemic?
In this article, we have done a comparison. Both gold and silver have pros and cons. We will tell you all about it right now and let you decide which is a better investment for your portfolio.
Is It Better to Invest in Gold or Silver?
Both gold and silver provide a hedge to varying degrees in times of market downturn and during times of rising inflation. So, when deciding if it is better to invest in gold or silver, you must compare:
- The differences in how they are used
- Their economic sensitivities
- Each metal’s technical characteristics
These factors will help you decide which precious metal will benefit your portfolio more.
Silver and the Global Economy
Globally, we use one-half of all silver for heavy industry and high technology. With high technology, this includes items like:
- Automobile electrical systems
- Solar-panel cells
This means that when you choose to invest in silver, you should know that it is highly sensitive to economic changes, more so than gold. The demand for silver will grow as economies take off.
Historically, both silver and gold have made reliable gains while U.S. inflation is on the rise. This is partly because of the rising costs of services and goods, which come alongside a weaker U.S. dollar.
Both metals hold value in U.S. dollars. Thus, when the U.S. dollar falls in value, silver and gold will usually rise. During these times, they are less expensive to purchase using currencies other than the U.S. dollar.
All that said, silver will rise with great industrial demand, and gold will rise during times of inflation and a falling U.S. dollar.
Silver is More Volatile
Traders can benefit from the fact that silver is more volatile than gold, as much as two to three times. However, when managing risk in a portfolio, such volatility is challenging.
If you are concerned about volatility, here is a great link to visit for the best gold coins to buy, which will offer you more stability in your portfolio.
Gold is More Powerful in Diversifying
While silver can be a good portfolio diversifier, it has a somewhat weak positive correlation with bonds, stocks, and commodities. Gold is a much more powerful diversifier than silver. Consistently, it is uncorrelated to stocks.
It has traditionally extremely low correlations with other major classes of assets. This is for a good reason.
Gold, unlike silver, is less affected by a decline in the economy. Its industrial uses are quite limited.
Gold is More Expensive Than Silver
For this reason, silver is more accessible to small retail investors. If you are building a portfolio, then invest in silver.
How to Invest in Silver or Gold
A big attractive feature of investing in precious metals is that you can invest in them using various forms. First, you can invest in gold or silver as a physical metal, or as a physical asset. You can purchase a bar or a coin, something that you can hold in your hand.
Second, other than the physical form, you can buy ETSs, Exchange-Traded Funds, or mining stocks and funds.
Benefits of a Physical Asset
There are few investments in the world that you can hold in your hand. Water, fire, or time can not destroy a physical metal. Unlike commodities, they do not require maintenance, feeding, or fertilizer.
While many advisors may tell you that claim stocks will outperform gold, that is not entirely accurate. According to LMBA and Yahoo Finance, from the year 2000 to the end of 2020, gold outperformed stock and bonds.
Many people think of precious metals as a defensive asset. However, you can earn a profit from gold and silver. Plus, you cannot hack gold and silver like so many digital forms of assets today.
Someone can purchase physical gold and silver privately and confidentially. Few investable assets can offer the same privacy.
Additionally, they are portable. You can take physical gold and silver anywhere in the world, literally.
Ideal for Heirs
Since gold and silver will hold value over time and because they are tangible, precious metals are perfect assets you can pass along to your heirs. Gold and silver do not require specialized knowledge to determine if they are real or not as you would need for a collectible comic book or a painting from a famous artist. Your heirs can hold and sell gold and silver without specialized training.
A Few Cons to Precious Metals
While there are many positives to owning gold or silver in a physical form, there are a few downsides. One is that an investor may have to pay a premium higher than the spot price because of markups from the distributor or manufacturer. Another is that storage can be tricky, and you may want to have insurance for it.
Invest in Silver or Gold
Now that you know more about how silver and gold are different in terms of how they relate to the economy, this gives you more insight to decide if you should invest in silver or gold. The positives of investing in silver or gold outweigh the negatives, so you can feel good about either choice you make.
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