Investing in Silver vs Gold

While both silver and gold are precious metals which investors buy to protect their wealth against inflation, there really is a big difference in investing in silver vs gold. If you are not sure which to invest in, you will definitely want to read this article before going any further.

Silver vs Gold – Market Size

The primary difference between investing in gold and investing in silver is the size of the market. The gold market is many, many times larger than the silver market.

It is estimated that there is about 1 billion troy ounces of “investment-grade” silver (i.e. bullion), whereas there is 2 billion troy ounces of investment-grade gold. On top of that though you have to figure that over the last 100 years, the price of gold has been 22 to 97 times higher than the price of silver.

Even at silver’s highest value compared to that of gold, the gold market was 44 times larger than silver. At silver’s worst compared to gold, the gold market was nearly 200 times larger!

Silver vs Gold – Votality

Since the silver market is so much smaller than the gold market, it is much more volatile. For example, in the 1980 recession, silver and gold prices shot up rapidly, but in the next 10 years of economic boom, silver fell in value 4 times whereas gold only fell in value twice.

This seems to be the trend for the overall market; silver can bottom out at a very low price whereas gold always seems to retain some value. It also can grow the most in value; if you invested money in silver at the start of 2010, you would have doubled your money by mid-2011, whereas if you had invested in gold you would have received only a 15% return.

As a result, silver tends to be a much riskier investment option than gold.

Silver vs Gold – Investor Influence

A single investor or investment firm can strongly influence the price of silver. For example, in 1997, Warren Buffet’s company purchased 130 million troy ounces of silver (about 13% of all the investment silver if you recall from earlier).

The small price of silver can invite large scale of investors to cause the price to rise or fall very easily. The Hunt brothers infamously tried to take advantage of this by cornering the market on silver. They had successfully increased the value of silver many times before the government finally intervened.

Silver vs Gold – Supply

Another major difference between silver and gold is that there are a lot more silver deposits in the ground still than there are gold deposits (at least out of what has been discovered). In other words, a large portion of the earth’s supply of gold has already been mined, whereas much larger silver deposits still remain in the ground.

This leads to two effects on the market as a result of supply and demand. Silver has little chance of rising to the very high prices of gold, given that as silver prices increase, it becomes a lot more economical to simply mine for it.

Additionally, the silver market has a very real chance to “bottom out”, whereas gold prices are a bit more protected because its not like more gold is going to be flooding into the market.

I will reiterate that both gold and silver prices will both drop if market conditions improve and inflation is reigned in, but silver is the riskier investment of the two.

Silver vs Gold – Conclusion

The main difference in silver and gold is that the market for silver is much smaller. This makes the price of silver much more volatile than the price of gold. While you may earn more returns by investing in silver, you can also lose more.

Given its risky nature, in order to learn how to invest in silver effectively, more factors than just the state of the economy need to be considered. While gold will typically rise with inflation and poor market conditions, silver prices are dependent not only upon those factors but also investor interest, industrial usage, and mining production.