Gold or Silver as an Investment
Gold or Silver as an Investment?
The answer isn’t always straightforward when considering buying Gold or silver as an investment. Novice investors often find themselves confused about what to purchase with the overwhelming number of options available on the market. “Should I purchase a minted bar or stick with coins?” is one of many questions that arise when shopping for precious metals.
There’s another risk associated with these investments. Asking a gold or silver trader for advice is like going to insurance companies for financial information, leaving with an insurance product you didn’t want or need. Other dishonest dealers might trick you into buying collectibles with huge premiums and won’t retain its value.
Choosing gold or silver as an investment is easy if you list your requirements. Your needs differ from other investors; it’s sensible to have an idea about your requirements and needs, so you have the correct information to make the right investment decision. It’s essential to have a working knowledge of precious metals and their markets before stepping into unchartered territories.
Here in this article, we will cover enough information so you can decide if Gold or Silver is the best investment for you. Let’s go back to the very beginning.
A brief history of Gold & Silver
Looking at the history of gold or silver can sometimes clarify your decision. Gold is one of the first [of five] precious metals initially discovered by man, extracting Gold “nuggets” from the ground and streams. Its rarity became a symbol of royalty and adopted quickly as a commodity used for jewelry. Due to its physical properties Gold replaced the barter system during 700 B.C., simplifying transactions using currency.
Gold was mined by the Greeks, melted down by Egyptians, and technological strides perfected by the Romans, and became a bimetallic standard for minting money by the U.S. Congress in 1792. The discovery of Gold in the United States is known as the “California Gold Rush.”
Silver is another of the five metals initially discovered by man. Specific dates are unknown but trace back to the Sumerian city of Kish in 3000 B.C.; Greece and Anatolia, 4000 B.C. During the Greek and Roman civilizations, silver coins served as currency. After exhausting Mediterranean silver deposits, Central Europe became the leaders in silver production throughout the middle ages.
As the Spanish conquistadors plundered across Europe for precious metals, the United States emerged as the frontrunners in silver production creating a global exchange through commodities trading until the 18th century. Today there’s a balanced distribution of silver around the globe; Peru and Mexico the leaders in production.
Gold to Silver Ratio explained
The gold/silver ratio helps identify an opportune time for their trade, purchase, or sale. In short, “how much silver will I need to purchase an ounce of Gold?” For a 15:1 ratio, you would need 15 ounces of silver to purchase one ounce of Gold.
As the gap widens, silver becomes a favorable commodity and the purchase of precious metals shifts from Gold to silver.
The ratio has fluctuated over the years, so let’s consider the trends in Gold or Silver prices.
Gold prices. The price of Gold is a hedge against currency depreciation and inflation; making it relatively stable in the long run, although fickle at times.
Measuring dollar value against Gold caused prices to slump to $236 per ounce due to dollar devaluation in 1970. In 1980 its value rose to $1,762 per ounce. Investors moved towards Gold, seeking relief from high oil prices sparked by Afghanistan’s Soviet intervention and the Iranian revolution.
In 2001, the price of gold (per ounce) was $381; in 2011, $1,544.63 – A 305% increase in 10 years.
Silver is considered more volatile than Gold, seeing highs of $117 per ounce in 1980 and lows of $6.71 per ounce in 2001. Predicting the price of silver is a challenging feat. The ways silver is used vary greatly, creating a highly segmented market. Determining value among such differentiation is a task for the mathematician – maybe a magician.
Still, people realized silver’s value proposition. From 2001 to 2011, prices soared, resulting in a 547% total increase ($6.72 per ounce in 2001 and $43.48 per ounce in 2011) – a significant rise in 10 years.
Economic conditions have a considerable impact on investments, and the 2008 financial crisis influenced the movement from stock investment toward a stable alternative – precious metals. The crisis period gave way to increased prices of Gold or silver like never before.
Comparison of the last decade (May 2011 to May 2020)
When trying to compare gold or silver as an investment it is important to look at the relationship between Gold and silver (the ratio concept) in the last decade is apparent in the graphs.
Gold dictates the price of silver. As you follow the graph, you’ll notice silver prices decrease as Gold prices increase despite minor fluctuations, indicating Gold’s long-term stability; silver, on a steady decline.
Let’s compare the market trends from 2013 to present-day 2020. The value of Gold increased by 21.7% – $1308 in June 2013, and $1593 in March 2020. Silver’s value decreased by 34.2% in price per ounce – $21.37 in June 2013 and $14.06 in March 2020.
Modern uses of Gold & Silver
According to a Sunshine Profits report, physical Gold is estimated at 190,000 tons, nearly 6.1 billion ounces; a $7.3 trillion total market worth, calculated using 2018 market values.
In the last three years, gold prices have reached new highs pushing the total market worth well over reports previous.
Some modern-day uses for Gold or silver will help explain the high demand and low supply.
According to Statista, 52.44% of mined Gold went to jewelry production during 2018; 9.12% used in the manufacturing of Gold bars and coins; due to its conduction efficiency, another 9.12% utilized in electronic components like switches and connectors and 6.54% used in the aerospace industry.
Looking at silver, Sunshine Profits report an estimated 780,000 tons, approximately 25.1 billion ounces of physical silver for a total market worth of $3.5 Trillion, calculated using 2018 market values.
Silver prices remained steady in the last three years, sustaining minimal fluctuation, amounting to a $3.5 trillion market value worth. Below, a view of modern-day uses for silver.
According to Statista, in 2018 the majority of the silver produced (42%) was used for industrial electronics – an excellent thermal and electronic conductor; brazing alloys, batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, and photography. 16% of the supply is used in jewelry, 13% for the production of silver bars and coins, and 4% for silverware production.
Benefits and Challenges to owning physical Gold & Silver
Now that we’ve gone over the history, trends, and modern uses of precious metals, let’s get down to brass tax (pun intended) – the main advantages and disadvantages of Gold and silver.
Gold- Pros and Cons
Higher stability over silver
Risk-averse investors prefer less volatile Gold over silver. In 2019 the Gold supply amounted to 120 million ounces, with a total retail value of $192.6 billion. Silver, however, amassed 1 billion ounces with a lower retail value [in contrast] of $16 billion. Slight changes in silver prices disrupt the market, while Gold short in supply, is minimally reactive and steady.
Silver has the potential to be an ally for investors. In the bear market (decline), silver prices take a deeper dive than Gold. However, silver is a raging bull and reigns supreme over Gold, when the market rises.
Gold is one of the most widely recognized metals. Aside from its use in jewelry, Gold replaced the ancient barter system. It’s association to rarity and wealth in times past, it has slowly become mainstream making its way into consumer products, electronics, even human consumption.
Comes in different shapes and sizes
Gold is an excellent option for investors because it comes in different sizes, shapes, and forms. Too, variations in form such as pure yellow Gold, white, and rose Gold present style choices. It appeals to investors and collectors on the enthusiast spectrum, making it an ideal option for investment.
Easy to establish value
Gold is quantifiable and it’s monetary value is established easily – spot-price x weight. Use the current spot-price per ounce, and multiply by gold weight.
If the spot-price per ounce of Gold is $100, and you have two ounces of Gold, the total value is $200. Click now to view the spot price of Gold and see what yours is worth!
Buy and sell almost anywhere
Gold is considered a highly liquid asset. Due to its popularity, prestige, and recognition, it’s sold and purchased easily at jewelry stores, pawnshops, banks, and the online market.
Store of value in a small space
The price of Gold per ounce is considerably higher, but easier to store than silver.
Small pieces can be expensive
Not everyone has the means to invest in Gold. More rare than silver, one ounce comes at a hefty price tag; A one-tenth ounce American gold eagle is roughly $200.
It’s the most malleable of all metals, soft enough to change shape under pressure. Jewelry consisting of Pure Gold scratches easily and cannot withstand the stresses of everyday wear, affecting value. Often gold is mixed with alloys to add strength, compromising product quality.
Insurance and safe storage
Storing the commodity of gold or silver presents some challenges. You can keep it in a shoebox at home (we don’t recommend it), in a safety deposit box, or a third-party storage firm. Each poses advantages, and natural concerns.
Storing gold or silver at home keeps it within reach should you need it quickly; however, if you lose a Gold bar, it’s probably gone for good. They don’t come with certificates of replacement for a small administrative fee. Too, there’s the potential for reduced liquidity. Gold or silver bars need refining [increasing your expenses] before selling.
Many prefer to pay the annual fee for a deposit box. It’s secure, and access is strict and procedural. However, access is limited to bankers hours. In a situation demanding liquid cash, fast, make sure the immediate need occurs between the hours of 9 a.m and 5 p.m, Monday through Friday.
And, the contents of your box isn’t insured automatically. Your friendly neighborhood bank is not that friendly. Plan on purchasing insurance; it’s often pricey.
A depository is behind door number three. Investors get a healthy geographical and political diversification of assets. It provides great liquidity, sells quickly, with funds wired to your account the following day.
Trouble ensues should the private firm go bankrupt. “In a serious relationship” one day, to “it’s complicated” in the next. Like a social media status, but a much bigger deal.
Silver- Pros and Cons
A more affordable way to invest in precious metals
The price-per-ounce for silver is relatively inexpensive and more affordable than Gold or silver, making investments possible for those in every income bracket.
Just like Gold, silver has outperformed the broader commodities market and delivered substantial gains upwards of 16% from Q4 2018 through February 2020.
Many widely recognized coins and bars available at low premiums
Silver offers many options. Intricate, well-designed coins high in purity, have a higher premium compared to other silver products. Market availability for low premium coins allows you to make more money during price increases.
The same goes for silver bars. The bigger the bar, the smaller the premium. It costs the refiner just as much to produce a silver kilo bar as it does a 1-ounce bar.
Many places to buy and sell
Silver is widely accepted and favored. It’s purchased, sold, and traded easily online, through brokers, local pawn shops, or obtaining precious metals motifs (investing in a group of mining companies with a single purchase).
Silver is easily divided, perfect for the barter systems in many ancient civilizations. A silver dime has only 0.0715 ounces of silver, roughly about $1.10.
Requires a larger storage space than Gold
Storage becomes a concern for any investor purchasing silver.
Tarnishes/oxidizes without proper care
Over time, silver goes through a chemical reaction that leads to tarnishing. Consider your kitchen cutlery. Does it have a black film that won’t wash off? It needs polishing, then stored correctly, without high humidity and heat.
Maintenance and protection becomes time consuming (and a hassle for some) if you have flats of silver lying around.
Generally higher premiums
Purchasing more than $1,500 worth of gold or silver comes at a higher premium percentage than Gold of the same value. Based on spot-price, investments of $1,500 or less, are best suited in silver. If you plan on spending more than $1,500, you’re best suited to invest in Gold. Silver premiums increase in concert with amount spent.
Main points to pocket when considering Gold:
- Gold is less volatile than silver
- It’s widely recognized
- Value determined easily
- Stores well in small spaces
- Available in multiple sizes
- Many places to buy and sell.
- The commodity is expensive to purchase and insure
- Malleable, soft precious metal
Main points to pocket when considering silver:
- Silver is more affordable, can get at
- Lower premiums,
- Easily divided
- Bought and sold at many places
- Requires more storage space than Gold
- Tarnishes if not stored correctly
- Generally has a higher premium percentage than Gold
Some have a higher risk appetite and invest in one bullion type for more significant gains; it’s a matter of preference and financial ability. Most investors have some of both precious metals, creating a well-rounded and stable portfolio that stands up to enduring economic uncertainties and an ongoing pandemic.
There’s no time like the present to diversify your investment strategy with the secure purchase of premium, authentic precious metals.
If you’re an investor or collector trying to decide between gold or silver or a seasoned precious metals enthusiast, or just getting started, we can help.
Browse through our selection and take the first step towards future investments with the click of your mouse (or a tap on your mobile device).
We hope this article removes the confusion or hesitancy keeping you from exploring investor and collector’s grade, fine Gold or silver.
About The Author
Jake HaugenFollow @herobullion
Hero Bullion provides an environment that is informative and safe for those looking to own physical gold and silver bullion as an investment. We love helping folks at all stages throughout their bullion journey making progress towards acheiving their financial goals. Whether you are a seasoned bullion investor or brand new to the game of gold and silver bullion ownership, we're here to help and serve you in any way we can.