Investors in a bear market are drawn to both gold and silver, but the two precious metals have different appeals.
Investors often swarm to gold during economic downturns and periods of rising inflation. Although it receives far less publicity, silver is likewise thought of as a safe-haven investment.
Due to their historical popularity, both precious metals are desirable when equities and currencies are depreciating.
Pandemic concerns and a declining U.S. dollar caused gold prices to soar to a record-breaking $2,000 per ounce in August. Likewise, silver has risen. In August, silver prices surged above $28 per ounce for the first time since 2013, a 140 percent rise from its 2020 low.
Many investors maintain a modest portion of their assets in gold or silver as a portfolio diversification technique, even in prosperous times.
Despite the fact that both gold and silver experience boom-and-bust cycles, there are a few significant variables to take into account when selecting which investment is preferable: gold or silver.
1. Because there is less gold available, it is more costly
If you wish to purchase gold as real metal, the cost may be exorbitant. Consider the gold-silver ratio, which indicates the quantity of silver you would need to buy in order to acquire one ounce of gold.
At market closure on September 9, the gold-to-silver ratio was around 72-to-1. In other words, gold was 70 times more valuable than silver, ounce for ounce.
Although the average for the 21st century is roughly 60-to-1, the gold-silver ratio was really far higher in March, breaking 120-to-1 for the first time in history.
There is a reason silver is referred to as “the poor man’s gold” even though it is pricey.
Due of its extreme rarity, gold is more costly. According to the U.S. Geological Survey, just 3,300 tons of gold were mined globally in 2019 compared to 27,000 tons of silver.
2. Gold is the preferred hedge due to the industrial applications of silver
Although the prices of gold and silver tend to move in the same direction, gold is a superior hedge against recessions.
There are innumerable industrial applications for silver, which account for more than half of the demand. It’s extensively employed in a variety of industries, including electronics, vehicles, solar panels, manufacturing, and health care.
The demand for silver often rises and falls with the state of the economy since it is so essential to industrial activities. Silver prices are expected to rise as output increases. Silver often tumbles as it slows down.
Gold often increases when equities are down. The S&P 500 plunged 37% during the Great Recession from December 2007 to May 2009, whereas the price of gold increased by 24%.
In a bear market, investors not only increase gold prices, but the yellow metal’s comparatively limited industrial applications also protect it against a downturn in economic activity. However, over the long run, S&P 500 returns have traditionally outperformed gold returns.
3. Compared to gold, silver is more erratic
Gold is a very steady long-term investment, despite the attention paid to short-term changes in gold prices. During the 30 years between 1989 and 2019, the annualized volatility of gold was only marginally greater than the annualized volatility of the S&P 500.
Due to the silver market’s tiny size in comparison to the gold market, it is prone to extreme price fluctuations.
Even though silver is produced at a pace eight times that of gold, keep in mind that the whole silver market is only worth a small portion of the gold market since gold is now almost 70 times more valuable than silver on an ounce-for-ounce basis.
The supply of silver is less sensitive to fluctuations in demand since it is created as a byproduct of mining for other metals, such as copper and gold, which contributes to the volatility.
If you want to bet on short-term changes, silver can be more enticing than gold because of its volatility. But gold is unquestionably more appealing as a long-term hedge.
A fantastic investment chance
Even though many investors prefer to purchase gold and silver in physical form, such as bullion or coins, buying mining stocks is often a superior choice. In addition to possibly earning dividends, you’ll eliminate the hassles associated with buying, trading, and keeping actual gold and silver. An alternative that offers more diversity is a gold or silver exchange-traded fund (ETF).
Just keep in mind that hazardous investments might include both gold and silver. They shouldn’t make up more than 10% of your whole portfolio, as a general rule.
Precious metals investments may be a good way to protect money against a downturn. But the S&P 500 shines far brighter than gold and silver in terms of long-term performance.
