You’re thinking about buying precious metals. You’ve done your due diligence, spoken to your financial advisor, and decided that your portfolio potentially could benefit from the addition of physical gold and/or silver.
But which is it? The “and” or the “or”? Will you buy gold, silver…or both?
If you’ve been thinking in terms of buying precious metals more generally, you may not have given a whole lot of consideration just yet as to which of the metals you’ll purchase. On that note, it’s not unusual for discussions about buying portfolio gold and silver to be framed in terms of buying “precious metals,” as though buying gold is the same as buying silver and vice versa.
But is that really true? Are gold and silver so similar that differences between the two metals represent the proverbial “distinction without a difference”?
No. All precious metals are not the same. Gold and silver aren’t even related. That is, one does not exist in terms of – or as a function of – the other. Yes, they’ve been known to move in the same direction at the same time based on relevant economic and geopolitical influences. But they don’t do that all the time. And having a better understanding of each – and what distinguishes one from the other – is the key to also knowing if you should be looking to buy gold and silver…or gold or silver.
Gold and Silver’s Long History as Hard Money Belies Their Dissimilarities as Assets
The most prominent distinguishing characteristics of precious metals are considered to be those which define their suitability as hard money: scarcity, solidity, non-toxicity and durability. By these standards, gold, silver, platinum and palladium make the cut. Copper, for example, does not, in part because it doesn’t meet the scarcity test. According to the U.S. Geological Survey, the total amount of copper that’s been discovered to date is roughly 2.8 billion metric tons. By comparison, only 1.74 million metric tons of silver has been discovered, while an even paltrier 244,000 metric tons of gold has ever been found.
But the field narrows even further, and, as it does, the perception of some that gold and silver essentially are one and the same becomes even more understandable. Platinum and palladium technically meet the standard of precious metals, but their relatively recent discovery means they’ve not had the same benefit of time as gold and silver to be highly regarded as monetary metals. Both gold and silver have been around as monetary metals and perceived stores of value for millennia, while platinum and palladium were discovered only in 1735 and 1802, respectively.
So gold and silver may look as though they’re joined at the hip as physical assets. However, they can behave very differently as portfolio assets. And understanding those differences is important in order to make an informed decision about which to buy – or, for that matter, if you should own both.
Silver’s Small Market and QE Sensitivity Means It Can Be More Volatile Than Gold
One key difference is that the silver market is much smaller than the gold market, due to the fact that silver’s price is just a fraction of gold’s. This can result in significantly greater volatility throughout the silver market, particularly over shorter periods of time.
For example, when the COVID-19 outbreak was in the process of morphing into a full-blown pandemic during February and March of last year, a wave of panic-induced selling swept across practically all assets. During those two months, while gold struggled to keep its head above water and “appreciate” a measly .55%, silver tumbled roughly 20%. And then in the subsequent months, as a measure of calm returned to markets and the Federal Reserve announced a plan of unlimited metals-friendly quantitative easing (QE), that same volatility was evident in a sharp upside move by silver. From April to the first week of August, while gold grew about 27%, silver went on an epic run, surging roughly 100%over the same period.
If you consider, then, the performances of gold and silver in total from February through the first week of August, you’ll find gold grew by about 28% as silver grew by 53%. But within that period lasting just over six months, gold’s movement was considerably less frenetic than silver’s, even as the white metal posted the better overall number. The sometimes-significant volatility that can characterize silver – and the ability to tolerate it – is something prospective metals buyers should consider as they determine in what manner they might add precious metals to their asset base.
Another difference, which I’ve referenced before, is silver’s potential to respond even better than gold in the face of QE. As precious metals that are viewed broadly as hedges against potentially inflationary monetary policy moves, both gold and silver have the capacity to thrive when such moves are made. But because silver is also an indispensable raw material in the manufacture of a variety of products, demand for the metal can increase significantly when companies are confident QE will help accelerate economic recovery. I believe part of silver’s sharp rise from April to August is attributable to this “dual” effect.
Is One Metal “Better” Than Another?
If we look at the performance of gold and silver side-by-side over the last 20 years, we see that gold has appreciated roughly 580% while silver has appreciated about 480%. Given these numbers, it’s not unreasonable to conclude both metals have been solid performers since the beginning of the new millennium (although there is no way of knowing if these results will in any way continue).
What else you wish to conclude from this information is up to you. For example, a simplistic reading of these numbers might prompt one to think gold is “better” than silver as a long-term precious metals asset. But that in itself requires making a variety of assumptions about future performance and future economic influences that may not be accurate.
Rather than straining to decide if one metal is better than another, I choose to recognize that gold and silver each offers potential value in its own way. Gold’s much-larger market and greater worldwide cachet suggests the possibility it could be a steadier long-term asset, while silver’s smaller market and particular sensitivity to QE suggests it has the potential to be as sudden and strong a performer to the upside as it sometimes has been to the downside. Ultimately, retirement savers will have to refer to their own personal objectives and savings strategy to determine if, for them, it will be “gold and silver” or “gold or silver.”