How investors compare gold and silver investments
The precious metals sector is booming in 2022 due to the Russian war in Ukraine, skyrocketing crude oil prices, sinking stock market and 40-year high inflation.
As investors lean towards the precious metal as a portfolio risk diversifier, hedge against long-term value savings and crises – you might wonder – what is the difference between investing in gold and silver? Before we highlight the three differences, let’s take a look at the performance numbers. The precious metals sector rocketed higher in the first quarter, while the equity market fell into a recovery phase.
2022 Year-to-Date Performance
Palladium + 53%
Platinum + 15%
Silver + 12%
Gold + 9%
S&P 500 -11%
Data until March 9, 2022
Both gold and silver are rewarding investors with solid returns this year, including a moderate silver out-performance. Although gold and silver often trade in parallel, there are differences to consider.
Liquidity and size
The gold market is one of the deepest and most liquid markets in the world and it is bigger than silver. This simply means that it is easy to buy and sell gold at any moment. According to the consulting firm CPM Group, in 2019, the global gold market value is $ 24.5 trillion, larger than the $ 4.4 trillion silver market. The large size of the gold market means that big players can move to a bigger position (buying and selling) without moving prices. Anyone who trades in a small position (and this applies to most individual investors), liquidity is not a problem for gold or silver. But, Gold is advancing in this category as a whole.
In general, silver is considered a more volatile metal than gold. This simply means that it can move faster than gold, which we have already seen in 2022 with the out-performance of silver. Instability can be a double-edged sword – looking for quick returns for short-term investors – it can quickly realize value. But, on the contrary, it can erase those benefits more quickly.
Both gold and silver bullion offer investors a variety of features – especially since they are both “hard” assets, versus “paper” assets such as stocks, bonds or ETFs. However, gold again has a slight edge here compared to silver, as the latter is more closely linked to the business cycle. In addition to its value as a financial metal, silver is widely used in manufacturing, electronic and construction. When industrial demand slows down as economic growth weakens, it may reduce demand for silver.
Meanwhile, gold is a long-proven investment portfolio risk diversifier, as gold has almost zero correlation with stock market movements, according to a 2015 Journal of Managerial Finance research paper.
How to measure value
The gold / silver ratio is a time-honored method for investors to measure the relative value of these two precious metals. The ratio represents the number of ounces of silver needed to buy just one ounce of gold. A higher ratio is usually seen as an indication that silver is devalued compared to gold. This is what we are seeing now.
Current ratio: 76 oz silver = 1 ounce. Gold
Historically, readings above 65 indicate that silver has been devalued and that this is a strong buying signal for the metal. Silver continues to provide a great value for investors.
Gold recently reached the 2,000 level, reaching an all-time high of 0 2,051 an ounce. Silver trades above 26 26 an ounce. Both precious metals have a strong bull market cycle and give investors the opportunity to protect and preserve their assets. If you are looking to add more protection to your portfolio, consider working now before the price goes up further.
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