Posted 3rd November 2022

Gold vs Silver as an Investment

gold vs silver investment

First and foremost, gold and silver should be viewed as wealth preservation assets rather than as “rate of return” investments.

Over the decades and centuries, precious metals have proved effective as a hedge against inflation and fiat currency devaluation. 

Gold vs silver: Price

Using measures such as the ratio of the S&P 500 and the 10-year U.S. Treasury bond price against the price of gold and silver, the two investment metals are currently undervalued relative to financial assets, like stocks, bonds or real estate. 

However, both metals do offer the potential for wealth preservation as well as outperforming other financial assets as investments.

Gold vs silver: Volatility

The price of silver is more volatile than the price of gold. This is a desirable attribute during precious metal bull cycles and a potential detriment when each value is in decline.  However, the gold-silver ratio can be useful as a guide when deciding to invest in one metal or the other. 

gold silver ration gsr

The chart above shows the gold-silver ratio (“GSR”) since the beginning of the current precious metals secular bull market (2001). The ratio shows the amount of silver ounces required to buy one ounce of gold.

When the GSR moves above the green horizontal line at 80, silver is statistically undervalued relative to gold, and thus it would be more rational to purchase silver than gold.

Gold vs silver: Utility

When the gold-silver ratio is at levels considerably lower than 80, the determination of which metal to purchase should be based on the relative utility of each as a core asset holding. For example, a 100 oz bar of gold “stores” a lot more wealth than its counterpart, a 1,000 oz bar of silver. 

On the other hand, over hundreds and thousands of years, silver has had the benefit of superior fungibility or use as an everyday currency.

Both gold and silver can be viewed as the “anchor” in any investment portfolio. Again, the percentage allocation to the metals is based on personal risk and time horizon preferences. 

However, because gold and silver have proved to be superior wealth preservation assets over hundreds of years, they should be regarded as a core long-term holding independent of the relative volatility of each over shorter periods of time.

How can you invest in gold and silver?

In terms of the physical gold and silver that I own, I have roughly a 50% allocation to each metal. This is the long-term wealth preservation portion of my portfolio that will quite possibly be passed on to my heirs. In addition, if I need to sell some, sovereign-minted coins are recognised pretty much anywhere in the world, offering better liquidation liquidity than other forms of physical gold and silver.

While it’s ideal to invest in both metals, when silver is undervalued relative to gold per the gold-silver ratio, it makes sense to buy silver instead of gold. Both gold and silver should be considered an integral part of any investment portfolio. In addition to reducing the volatility of an investment portfolio and providing a hedge for stock, bond and real estate investments, physical gold and silver ownership provide durable and reliable wealth preservation over the course of long market cycles. 

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.