Are you looking to make an investment in gold or silver? You’ve come to the right place. Here, you can learn more about the benefits and disadvantages of investing in precious metals like gold and silver.
An investment in gold or silver could be a great choice for you. While both precious metals are sought after in the commodities market, they have different advantages and disadvantages in a portfolio.
An investment in gold and silver both will protect you if one of the precious metals drops in value.
Gold vs. Silver Investment
Gold bullion is a popular long-term investment, as gold consistently gains value as time passes. Silver also increases in value, but not as steadily as gold.
Many investors buy silver before they invest in gold because silver has a lower starting price. Then, they often trade it for gold.
Investments
Investors have several options for gold and silver. You can buy bullion, futures, exchange-traded funds (ETFs), coins, and mining stocks.
If you own bullion, put it in a safe place to protect against theft. However, if you own ETFs, they will be securely held on the public exchange, making them safe from theft.
Utility
Utility describes the usefulness of a certain commodity. For example, if you invest in sugar, watch how people use it and how the price changes. Gold and silver do not have the same utilities as other commodities, but some industries do rely on them.
Most of the gold in the world ends up as gold jewelry, but silver has several uses in a variety of industries including:
- Health care
- Electronics
- Jewelry
- Automotive
- Solar energy
- Manufacturing
Liquidity
Precious metals like gold and silver are liquid assets. The prices are well-defined, and investors do not argue over them, making the metals easy to exchange at any time.
Physical bullion with consistent pricing trades easier than gold coins, which vary in price. If you are looking for an easy way to buy and sell gold and silver, consider exchange funds like gold ETFs.
These funds make purchases using investor money, like a mutual fund. They make money by charging trade commissions, but they are usually under one percent.
Precious metals ETFs can be liquidated through a stockbroker and the stock market. Mining stocks are also easy to liquidate.
Because they connect to gold and silver, the price of mining stocks follows the value of gold and silver. Most mining stocks help companies increase their productivity.
Mining stocks generally cover one metal, so you won’t often find stock in both silver and gold mines. Before you invest in a mine, watch the news around them.
If a mine has a workers’ strike, it will not be productive and the stock value will drop. Investing in companies includes unpredictable human behavior while investing in commodities is generally safer.
Cost and volatility
The price of a gold bar is significantly more expensive than silver, and this has been true for many years. The rationale for the pricing differences is that silver mines have more ore than gold mines.
Supply and demand affect the prices of precious metals. Because silver is more common, investors can buy more of it for less money.
Investing in silver is easier because it costs less than gold. However, volatile silver prices cause short-term fluctuations that can make investors nervous, and gold tends to remain consistent.
Investments with low prices tend to be more volatile because the lower prices fluctuate more frequently and at higher rates.
If an ounce of silver costs $5, a 1.00 drop in price is a 20% change. If an ounce of gold costs $1200, a $1 drop is only a 0.0008% change.
While volatility is not necessarily a bad thing, pay attention to it if you are looking for a long-term investment.
Inflation hedge
Protecting your investments against inflation keeps your assets valuable. Gold is a reliable investment hedge because it holds value over the years.
Silver can also be a strong inflation hedge because it has many uses. Both serve as a hedge against inflation.
While gold holds steady, silver has more volatility, so as manufacturing increases, so could the value of silver.
If you are looking for a strong inflation hedge or considering gold for retirement, talk to your financial advisor for the best recommendations.
Storage
Gold and silver bullion, bars, or coins need a safe and dry storage place. You can store them in a bank safety deposit box or purchase an at-home safe.
If you rent space at a bank, you will pay an annual fee. Home safes can be expensive and might cost more than the investment pay-off.
Before you purchase gold and silver, consider how you will store them. If storage is an issue, you might be better off silver or gold investing through exchange-traded funds that hold precious metals.
The funds are responsible for storing the metals, not you. Storing your physical gold and silver means you are responsible for insurance and care.
Gold needs very little attention, but silver can tarnish. Keep both metals in dry places, rather than in places with high humidity.
Store physical silver separately to avoid chemical reactions. If you have gold or silver jewelry, it is already a potential investment piece.
Proper storage and care can change the value of your jewelry and make it a fantastic addition to your financial portfolio.
Long-term returns
Gold and silver provide good long-term returns. Over the years, gold has had better long-term results when compared to silver.
Unfortunately, no one can predict the future. Investments are speculative, so you should talk to your financial advisor before committing to any investment.
Tips Before Investing in Gold or Silver
Before you try silver or gold investing, consider some of these points so you know how to invest in gold and silver:
- Silver is tied to the global economy as it is used in more industries than gold.
- Gold has fewer price swings than silver due to the changing demand for silver.
- Silver prices are less than gold prices, making silver an easier initial investment.
- Gold adds diversity to investment portfolios more than silver does.
- Gold and silver investments need proper storage as physical assets.
- Invest at the right time and pay attention to economic uncertainty, price fluctuations, and industrial demand.
When deciding between gold vs. silver, you should choose the option that makes the most sense.
- What are your finances like right now?
- What are your financial goals?
These questions and the characteristics of gold and silver investing will help you decide which is best.
Should You Invest in Gold or Silver?
If you are looking for a relatively safe investment, then you should consider investing in precious metals. Many people build their precious metal portfolio by purchasing silver.
After the silver increases in value, investors earn more money for purchasing gold. As countries no longer tie the value of their currencies to gold, metal ores are not the safe assets they once were.
However, investors still choose to add gold and silver to their financial portfolio because they are more precious and worth more than cash.
If you want to significantly diversify your portfolio, consider buying gold, which is more expensive than silver. Investors who want more volatility prefer silver over gold.
Choose to invest in gold or silver today, and your finances will thank you.
