Gold vs. silver: Deciding between the two can seem like an important choice when stepping into the world of precious metals. Is it better to buy gold or silver? Which is more affordable, and which has the better payoff? The truth is that both could be good choices depending on your financial needs and risk tolerance. Which one you choose to add to your portfolio first will depend on what you’re looking for in an alternative asset as well as your long-term goals.
Here are some of the major differences between buying silver and gold.
Is Silver Expensive?
Silver is a precious metal—a physical asset with intrinsic worth because silver is a finite element that’s mined and not manufactured. According to The Silver Institute, silver has been a precious metal for 6,000 years and was first used as currency in 700 B.C.
What is considered expensive by one person may not be considered expensive by others, so it’s better to understand silver as it relates to paper currency and as it relates to other precious metals. Compared to paper currency, which has no intrinsic worth, silver is more expensive, with a spot price hovering in the low $20s per troy ounce over the majority of 2022. Compared to other precious metals such as gold or palladium, silver is one of the more affordable options. This can make silver an easier entrance purchase for people interested in expanding their asset holdings to precious metals.
Is Silver More Expensive Than Gold?
In short, no. Ounce for ounce, silver costs less than gold. On July 29, 2022, for example, the spot price of silver was $19.96 per troy ounce, while the spot price of gold was $1,755.46 per troy ounce. Gold having a higher price than silver is true when compared to historic prices as well.
Sam Blanchard III, in his book SILVER BONANZA, documents the historic gold-silver ratio—the ratio of how much silver one troy ounce of gold can buy—for the last 5,000 years. The smallest ratio of 2.5 happened during the Menes/Egyptian empire in 3200 B.C. The highest ratio, 100, happened during the 20th century, first in the 1940s and again in 1991. The current ratio is around 80.
There are a number of reasons for silver prices being significantly less than gold prices.
Gold vs. Silver—A History
Throughout history, both gold and silver have been regularly used as currency. Dating back to the time of Ancient Greece, when traders needed a common standard for trade along the ever-expanding empirical routes, gold and silver were used.
Eventually, gold and silver became the standard-bearers for modern currency until 1971. In 1792, the bimetallic standard was put in place as the basis for all U.S. currency, with silver at a 15 to 1 ratio to gold.
As the ratio grew, governments began storing less and less silver in reserve, returning many countries to a de facto gold standard before abandoning the bimetallic standard altogether for the current fiat standard we know today.
Gold Supply vs. Silver Supply
One of the main reasons gold is more expensive than silver is basic supply and demand. There’s less gold than there is silver and an overall higher demand for gold. As we’ve written before, nearly 198,000 metric tons of gold have been mined over time compared to almost 1.74 million metric tons of silver. That’s about an 8 to 1 ratio of silver to gold in the world.
Key Differences Between Buying Gold vs. Silver
Silver Has Greater Industrial Uses.
Although gold does have some commercial uses, silver has more industrial applications. Nearly 50% of all silver demand comes from industrial uses, as opposed to 10% of industrial demand for gold. Now, with the rise of solar energy, silver is in even more demand for its usefulness in photovoltaic power.
On the one hand, industrial uses can help propel the demand for silver in new ways. However, this also can make the price of silver more volatile when compared with other precious metals.
The Silver Price Is More Volatile.
Since the price of silver is often much lower than gold, a $1 shift in price is a much higher percentage shift than for gold. This is one of the reasons silver can be more volatile than gold.
Another factor contributing to silver’s volatility is industrial demand. Because silver is used more in industrial applications than gold, its demand—and therefore its price—is more closely tied to the business cycle. In other words, silver demand is “cyclical.” What this means is that when the economy is strong, industrial demand for silver rises. When the economy is weak, industrial demand falls.
Demand for gold, on the other hand, tends to be “counter-cyclical.” That is, demand for gold rises when the economy is weak and falls when the economy is strong, with a few exceptions. Because from time immemorial gold has proven itself to be a reliable store of wealth, it tends to hold or rise in price when times get tough. Silver, which has a dual role as a store of wealth and an industrial metal, is a more complicated asset play, especially during transitions between good and bad times.
Silver Is Traded Less Than Gold.
Overall, gold and silver are both highly liquid assets. However, the gold market is known better than the silver market, and a higher market share of gold than silver is bought for its long-term liquidity.
Precious Metals as a Recession Hedge
Although silver is more volatile than gold, and the price of silver per ounce is less than gold, both precious metals can be used as hedges against recessions and inflation. As U.S. Money Reserve Chief Procurement Officer and Master Numismatist John Rothans has written previously, gold can offer returns when other assets can’t. When the market is volatile and currency is inflated, people turn to things with intrinsic worth, such as silver and gold, as a way of minimizing their exposure to risk.
Even with some market influence from industrial demand, silver and gold have both historically moved in the opposite direction from stocks and bonds. Because of this, analyst Joshua Rodriguez says, “These are great options for just about any diversified portfolio.”
Thinking About Buying Gold or Silver?
The decision to buy gold or silver always depends on your personal situation and long-term goals. To learn more about gold and silver, you can call your dedicated Account Executive at U.S. Money Reserve. You may also wish to speak a trusted financial advisor to discuss whether precious metals are right for your portfolio.
Along with buying gold and silver in the form of coins or bullion, you can also open a precious metals–backed IRA. Precious metals can help stabilize a portfolio against other riskier assets.
If you’re ready to buy gold or silver, you can request our free Gold Information Kit.