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Should I Invest In Gold Or Silver?

People looking to invest in precious metals hardly attempt to diversify their investment portfolios beyond gold and silver. However, they often find it difficult to choose between the two. While all precious metals provide a decent hedge against inflation and eroding currencies, gold and silver are more appealing, given their abilities to survive tough economic crises.

Both of these metals offer relatively better wealth protection than currency-based investments. However, for practical purposes, they are deemed dead investments, as they do not yield any interests or impressive short-term returns. Each metal has its own characteristic benefits and drawbacks.

Why Invest in Silver?

  • silver coins & barsSilver is presently undervalued, given its increasing demand in industrial sectors. This could be one of the reasons why investors looking to actively trade in silver can make a decent profit by buying low and selling high when the prices are in their favor. Volatility of metal prices – when monetized in a timely manner – is profitable.
  • There has been a steady demand/supply gap for over a decade now, with total supply, including fresh supplies from the mines and recycled metal, failing to meet the requirements.
  • The central banks of the world have no real control over the silver prices, as they most often do not hold silver in their reserves. Supply and pricing, however, get influenced by private owners, who have stocked up their reserves in recent times. Warren Buffett and Bill Gates have reportedly invested in silver. While the value of investments may not be noticeable, the amount of silver that has disappeared from the markets may, in fact, make the metal scarcer. Buffett, however, is known to have sold silver soon after purchase, well before the price spike in 2004.
  • Interestingly, there are very few isolated deposits of silver. Silver mines are rare. The metal, in reality, is a by-product of other metal mines that primarily work on copper, zinc or gold deposits. When compared to gold, silver is a scarce commodity, with limited natural reserves.
  • The demand for silver may, in fact, be eternal because silver is consumed by the industry, and not all silver is recycled or recovered when compared to gold. In fact, US projections expect silver to be the first of periodic table elements to go extinct, based on the present consumption and availability patterns.
  • Statistics, as of August 2013, show that the retail sale of silver from the United States Mint was 55 times more than gold (in ounces). This is no real reason why one should invest in silver, but simply reveals the present trend.
  • Silver is definitely cheaper than gold, affordable to people from across income groups.

Why Invest in Gold?

  • gold bars & coinsGold has definitely stood the test of time, having served as source of wealth over time and a better hedge against inflation.
  • Silver is definitely more volatile than gold, with the demand/supply gap influencing sharp fluctuations in prices. Gold offers better security, especially when long-term investments are considered. This doesn’t mean that gold prices are not subject to any fluctuations, but variations do not result in major devaluations of investment.
  • Sentimental values associated with gold rule high, as gold has – in the past – served as a basis for several economic systems across the world. Central banks in different countries across the world carry huge reserves of gold to combat fluctuations in local economies.
  • Given the consistent failure of fiat currencies across the world, and the regularity of quantitative easing and bond-buying programs, investing in gold definitely seems a better way to preserve and maximize the value of hard-earned money on a long-term basis.

Gold vs Silver

There are definitely more reasons to go with silver than gold, but not often do investors make well-researched decisions while parking their funds in precious metals. The long-term gold/silver ratio is a tried and tested method to choose between gold and silver, especially for those looking to make a more well-informed decision.

  • Gold/Silver Ratio

This ratio is simply the number of ounces of silver that can be purchased using one ounce of gold. Going by present figures, gold is priced at $1400 an ounce while silver is priced at $22; the gold/silver ratio here is (1400/22) approximately 63.

The average gold/silver ratio for the last 30 years has reportedly been 50.

If the ratio falls below the average value of 50, it simply means that the value of silver is on the rise and currently not a wise buy. In other words, it is the right time to invest in gold.

If the ratio falls above the average value of 50, it indicates that an ounce of gold can buy more silver, making it the right time to buy silver.

Ratio analysis offers an easy method to compare these metals against each other on a relative basis. It is wise to invest in the undervalued metal after a ratio analysis.

gold/silver ratio

Having chosen to invest in precious metals, enthusiasts can make use of the ratio analysis method to meticulously build up their own collection of precious metals over time, before attempting to further maximize gains when it’s time to liquidate these assets.

Short-term rewards, of course, can be realized by tracking metal markets and responding promptly to capitalize on the trend. Not all retail investors can afford to buy or trade physical metals at spot prices to benefit from the price fluctuations. However, opting for the services of precious metals companies can help investors maximize their earnings, based on professional guidance and buyback facilities offered by these firms. It is, however, important to note that the condition of the products and exact metal content determine their value.

Silver continues to find use in different industries. Green energy initiatives, medical imaging, water purification, enhanced life of batteries, etc. – all draw upon different properties of the metal to achieve the targeted performance goals. Gold, on the other hand, anyway enjoys an eternal demand, primarily based on investor sentiments. Either way, investing judiciously in these metals will help avoid credit risks associated with currency-based investments, which can simply get wiped out without a trace.