Gold vs. Silver: Which is the Best Investment?

Investors both in the U.S. and abroad are buying up all the gold and silver they can get their hands on.  Why is this? 

In summary, when governments like the U.S. are trying to stimulate their economies, they will often flood their markets with lots of newly-printed dollars in hopes that it generates economic activity.  Metal investors believe that a common side effect of adding extra money to the monetary system is inflation of hard assets and precious metals such as gold and silver.  In addition, there has been explosive worldwide demand for shiny metals, specifically in emerging markets like China and India, causing prices to rise even more.  Finally, there are growing numbers of people in the U.S. who believe that rougher times are coming socially.  Any unrest at home makes owning hard assets important as they provide an additional level of safety and security.  Basically, investors are buying gold and silver as a type of insurance to preserve their wealth.

Regardless of why you choose to buy precious metals, if you are a buyer, you need to move on to a key question: “Gold vs. silver: Which is the best investment?”

Each has its own advantages that make it a compelling investment.  For example:

Right now, gold is about 40 times more expensive than silver.  The reality is that $15,000 in silver weighs about 28 pounds and fits in a bag the size of a small basketball.  Alternatively, $15,000 in gold could pretty easily fit in your pocket and weighs a little more than a half pound.  This makes gold easier to hold, hide and transport.  Advantage: Gold.

In addition, gold tends to be less volatile than silver or other metals since it is less linked to the economic booms and busts.  It tends to be bought and held for long periods of time and the price does not swing as violently as the other precious metals.  Advantage: Gold.

On the other hand, investors who wish to buy in small blocks over time could easily pick up $500 in silver by buying about 15 one-ounce coins.   It is very hard to buy fractions of an ounce of gold and therefore is not practical to buy small amounts at a time.  Advantage: Silver.

Another reason silver may prove to be a better investment is that while gold is generally saved and preserved after purchase, much of the silver inventories around the world eventually get consumed and destroyed through industrial applications.  This reduces supply, driving up the price.  Combine this with a long-term shortage of silver mines and stockpiles over the past 20-30 years and silver becomes an even more attractive investment from a supply-and-demand perspective.  Advantage: Silver.

Finally, it is helpful to understand the gold/silver ratio.  This is a simple calculation, dividing the price of gold by the price of silver.  As mentioned above, it is currently at about 40.  Historically, it tends to range from 30 to 80.  When the ratio is falling, as it has been for several years now, silver is the better investment.  Until this trend reverses and silver becomes too expensive, this is still Advantage: Silver.

In conclusion, it appears silver may have a slight edge over gold, especially if you are looking to invest smaller amounts over time.  However,  you may consider buying a little of each to further diversify and help protect from the bigger swings of one or the other.  You can buy an ounce of gold for every fifty to one hundred ounces of silver you buy depending on your appetite for silver vs. gold. 

Of course, all investments have some level of risk, so we strongly suggest discussing your investment choices with a certified financial planner prior to making any investments. 

Good luck and enjoy owning your own precious metals.

Greg Ausley is the founder of LifeSpace.com, helping people manage their goals in all key areas of life, including personal finance and wealth building and providing information and tools to help people get control of their financial lives in an unbiased way.