Why someone would buy gold over silver

Gold and silver are both precious metals that have been used as money and store of value for thousands of years. They are also popular investments for those who want to hedge against inflation, currency devaluation, economic uncertainty, and geopolitical risks. But which one is better for you? Here are some reasons why someone would buy gold over silver

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Gold is more stable and less volatile than silver

One of the main advantages of gold over silver is that it is more stable and less volatile. Gold has a lower supply and demand elasticity than silver, meaning that its price is less affected by changes in production, consumption, and speculation. Gold also has a higher stock-to-flow ratio than silver, meaning that there is more existing gold above ground relative to its annual production. This makes gold less prone to sudden price shocks and supply disruptions.

Silver, on the other hand, is more volatile and unpredictable. Silver has a higher industrial demand than gold, accounting for about half of its total demand. This makes silver more sensitive to the economic cycle, as well as technological innovations and environmental regulations. Silver also has a lower stock-to-flow ratio than gold, meaning that there is less existing silver above ground relative to its annual production. This makes silver more susceptible to market manipulation and shortage scenarios.

According to Bankrate1, gold had an annualised volatility of 15.3% from 1971 to 2020, while silver had an annualised volatility of 34.2%. This means that silver’s price movements were more than twice as extreme as gold’s over this period.

Gold is more liquid and accessible than silver

Another advantage of gold over silver is that it is more liquid and accessible. Gold is widely traded and accepted around the world, with a large and diverse market of buyers and sellers. Gold can be easily bought and sold in various forms, such as bullion, coins, bars, jewelry, ETFs, futures, and mining stocks. Gold also has a lower transaction cost than silver, as it requires less storage space and transportation.

Silver, on the other hand, is less liquid and accessible. Silver is not as widely traded and accepted as gold, with a smaller and more concentrated market of buyers and sellers. Silver can be harder to buy and sell in large quantities, as it requires more storage space and transportation. Silver also has a higher transaction cost than gold, as it may incur higher premiums, commissions, taxes, and fees.

According to Money Crashers2, buying physical silver can cost up to 10% more than the spot price due to dealer markups, while buying physical gold can cost up to 5% more than the spot price. Selling physical silver can also result in a loss of up to 10% due to dealer discounts, while selling physical gold can result in a loss of up to 3%.

Gold is more suitable for long-term wealth preservation than silver

A third advantage of gold over silver is that it is more suitable for long-term wealth preservation. Gold has a proven track record of maintaining its purchasing power over time, especially during periods of inflation, currency devaluation, economic uncertainty, and geopolitical risks. Gold also has a lower correlation with other asset classes than silver, meaning that it can diversify your portfolio and reduce your overall risk.

Silver, on the other hand, is less suitable for long-term wealth preservation. Silver has a weaker track record of maintaining its purchasing power over time, especially during periods of deflation, currency appreciation, economic stability, and geopolitical calm. Silver also has a higher correlation with other asset classes than gold, meaning that it can increase your portfolio volatility and risk.

According to Freefincal3, gold had an annualised real return (adjusted for inflation) of 4.1% from 1979 to 2020 in India, while silver had an annualised real return of -0.4%. This means that gold increased its purchasing power by more than four times over this period, while silver lost its purchasing power by about 4%.

Gold and silver are both valuable assets in a diversified portfolio, but they offer different kinds of benefits and risks. Gold is more stable, liquid, and suitable for long-term wealth preservation than silver. Silver is more volatile, illiquid, and suitable for short-term speculation than gold. Investors should consider their own goals, preferences, risk tolerance, time horizon, and budget before choosing one over the other.

Disclaimer: This article is intended as an opinion piece and does not constitute financial advice. Investing in bullion carries risks, and individuals should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.

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