Last Updated on November 14, 2023 by Ben
Many investors are considering other types of investment due to the unrest in foreign affairs, inflation, and worries about an impending recession. It is hardly unexpected that many people use gold as a safe investment refuge.
Naturally, if you want to invest in precious metals, you don’t have to limit yourself to gold. A valuable store of value and a highly liquid commodity, silver serves both purposes.
Although silver and gold are precious metals, they are distinctly different from one another and have diverse applications for your holdings. It would help if you considered your goals and how these metals might fit into your overall investing strategy before deciding whether to invest in gold or silver.
Pros of Investing in gold
Gold has value outside its intrinsic use as money since it may be used for jewelry, electronics, medicine, and other things.
It’s simple to purchase gold; you can do it via trustworthy dealers, pawn shops, or private sellers.
The price of gold is inversely correlated to other assets because it is “countercyclical,” rising when traditional assets decline and falling the other way. For instance, according to GoldSilver research, the average price of gold increased 6.1% during the nine worst stock market falls since 1976, and the stock market experienced a 30.4% decline within the same time frame.
Cons of Investing in Gold
Gold can be pricey: Gold has a lesser supply than silver, so its price is more excellent. The cost of gold is approximately $1,800 per ounce as of December 2022, while the price of silver swings at $23 per ounce.
Although you can make money investing in gold, the stock market has the potential to beat gold over the long term; thus, it is not the optimal growth vehicle. In contrast to the S&P 500’s 484% gain during the same period, gold prices increased by about 360% between 1990 and 2020.
Costly storage can be possible: Commercial storage facilities charge monthly rates ranging from 0.5% to 2% of the value of your possessions.
Pros of Investing in Silver
Silver is less expensive than gold: Because silver is more abundant in supply, your money can buy more silver than gold.
Silver has numerous applications: Silver is more conductive than gold and is employed in manufacturing and commerce. It has extensive applications in solar energy and electric autos, two rapidly growing industries.
Silver is tangible: Many investors prefer tangible and intangible assets such as stocks because they have a physical shape and intrinsic worth.
Cons of Investing in Silver
According to Morgan Stanley, silver prices may be two to three times more volatile than gold prices. It can be beneficial for trading but is less desirable if you want your portfolio to stay stable.
Silver’s demand is more strongly linked to the economy because it has more industrial applications. It is advantageous in a healthy economy since industries require more silver for manufacturing. However, when the economy deteriorates and manufacturing declines, its value decreases.
Silver is more difficult to store: GoldSilver statistics show that silver volume is 84% greater than gold. As a result, silver may demand up to 128 times the space of gold for the same investment amount.
Gold vs. Silver. 4 Key Differences You Should Know
Both gold and silver, to differing degrees, may provide a hedge in the event of an economic or market slump, as well as during prolonged periods of rising inflation. Understanding the differences in how the two metals are utilized and their economic sensitivity and technical properties will assist you in determining which metal may benefit your portfolio.
When considering whether to invest in gold or silver, there are four aspects to consider:
- Silver Could Be More Dependent on the Global Economy
According to the World Silver Survey, half of all silver is utilized in heavy industry and high technology, including smartphones, tablets, automotive electrical systems, solar-panel cells, and various other products and uses. As a result, silver is more susceptible to economic fluctuations than gold, which has limited applications outside of jewelry and investment. When economies rise, so does the demand for silver.
- Silver Has a Higher Volatility than Gold
On any given day, the volatility of silver prices might be two to three times that of gold. While traders may gain from such fluctuations, it can be challenging to manage portfolio risk.
- Gold Is a More Effective Diversifier Than Silver: Silver is an excellent portfolio diversifier with a weak positive correlation to equities, bonds, and commodities. Gold, on the other hand, is seen as a more strong diversifier. It has consistently been uncorrelated with stocks and has very low correlations with other main asset classes. For a good reason: Gold, unlike silver and industrial base metals, is less affected by economic downturns since its industrial applications are relatively limited.
- Silver is now less expensive than gold per ounce, making it more accessible to small retail investors who want to acquire precious metals as physical assets.
How to Make Gold And Silver Investments
The availability of both gold and silver in a range of investment formats is one of their appeals:
Physical Metals: Unlike stocks and bonds, gold and silver can be bought as physical assets, either as American Eagle coins maintained in a retirement account or as bars and cash held in a Morgan Stanley brokerage account. Although investors can receive physical delivery if they store the metals themselves, they would be housed by a third-party depository rather than Morgan Stanley.
There are drawbacks to holding bars and coins, though. For starters, production and distribution markups on gold and silver coins frequently result in investors paying more than the metal’s spot price. Costs for storage and even insurance should be taken into account.
Exchange-Traded Funds (ETFs): Investing in gold and silver through ETFs has become a common way for investors without worrying about holding tangible assets. Shares can be purchased and kept in a conventional brokerage account. The fund’s operator handles the expense ratio and expenditures associated with maintaining a physical supply of gold or silver. However, buying an ETF prevents investors from accessing the underlying metals. Additionally, some precious metal ETFs are subject to collectibles taxation and are not eligible for the lower long-term capital gains rates.
Shares of firms that mine for gold and silver: as well as mutual funds that own portfolios of these miners are attractive investments to some investors.
To find out how including gold or silver in your portfolio could help you reach your long-term financial objectives, get in touch with your Morgan Stanley Financial Advisor.
The Last word
Which makes a better investment: silver or gold? There is only a partial answer because you are a unique investor. Your situation, objectives, and choice will determine which metal offers you the most benefits.
If you’re interested in investing in gold and silver, talk to a professional who can assist you in choosing the best investment for your goals.