While silver and gold are both precious metals that people have used as stores of value and investing in over centuries as well as being currencies, the price they change hands for is markedly different.
Whereas gold has traded for between $1,700 to $2,000 an ounce in recent years, the price of silver has been between $20 to $30 an ounce. So what are the reasons for such a big difference in price?
Difference between the price of gold and silver
The two metals do share similar properties such as both being excellent conductors of electricity for example. However, a key difference between the two is that gold is one of the least reactive chemical elements meaning it doesn’t corrode, unlike silver, and is, therefore, an excellent choice of metal to be used as a store of value over time.
These different qualities and applications as well as relative rarity ultimately have an impact on the two metals’ price and perceived value.
Why the difference in price? Liquidity, storage & markup
One of the key drivers in the switch away from the Silver Standard was the sheer weight of silver that needed to be carried around by people when using it as the trading currency. As gold is a much denser metal, people were able to carry fewer gold coins for the same weight while its higher intrinsic value also meant that the same weight in gold was worth more than in silver.
As well as being easier to carry, gold is also easier to store with less volume required to store the same weight of silver. This is an important consideration for banks and other institutions when designing vaults for their metal holdings as well as for shippers and other haulages responsible for transporting the assets.
Gold and silver are both extremely popular among investors given their historic roles as safe-haven assets at times of economic and political crisis, stores of value over time as well as offering diversification to any portfolio. As such the two metals are heavily traded on a daily basis but the size of the gold market dwarfs that of silver.
The sheer size of the gold market means it is typically less volatile than silver for which less volume is required to move the price. A recent example of this is the silver squeeze sparked by members of the Reddit community in early 2021. A similar attempt by retail investors to move the gold price would be highly unlikely to achieve the same result.
Silver is more popular with retail investors as it has a lower entry price point with an ounce costing around $20 to $30 rather than more than $1,700 for an ounce of gold. Silver’s other attraction to the retail community is that on smaller volume sizes, silver typically has a lower markup than gold, meaning buyers achieve a price closer to the actual spot price for silver than gold.
Gold and Silver Price Charts
The popularity of both gold and silver among the investment community as well as for jewellers and industries using the metals in their products results in a huge number of price charts being available to track the daily moves.
Often it will be the same factors that drive both metals, such as the relative strength of the US dollar, interest rate moves by central banks or risk aversion in markets. However, while gold and silver are closely correlated, the two metals do have independent drivers too with silver more exposed to the health of the global economy given its greater industrial exposure.
As a result, the ratio between the two metals, or the amount of silver that is needed to buy an ounce of gold, is closely monitored and used as an indicator of when one of them might be overpriced or undervalued. Over the last decade or so, that ratio has been steadily tracking higher with it now taking about 90 ounces of silver to buy an ounce of gold, compared with less than 60 ounces 15 years ago.
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.