Harris KhanPrecious metals like gold and silver have been considered to be the source of preserved wealth since a very early time. These metals are assets whose value varies little over time and place. Thus, they are the choice of most smart investors worldwide as a hedge against inflation.
Gold and silver are the two most popular and ultimate choices for investment among all other precious metals because of their availability. Even though gold might seem more profitable than silver, that’s not always the case.
Various factors must be considered in order to judge the potential of both gold and silver investment in the current market. Check out this article to get a detailed idea about these factors.
Why Invest in Gold or Silver?
Investing in gold or silver is the best decision one can take during an economic recession. This is due to the fact that, while the value of most stocks in the market drops massively, gold and silver rise. The best example can be the position of gold and silver investors in the COVID-19 pandemic.
Though between gold and silver, gold performs a lot better compared to silver during any crisis situation.
The COVID-19 pandemic also showcased the reason why you should opt for gold or silver rather than other precious metals, as the market value of most expensive metals dropped due to the closure of factories and demanding industries, except for gold and silver.
So, gold and silver are counted as more stable yet growing investments of all time compared to all other precious metals.
Gold and Silver as Investments
Gold and silver are two of the most profitable investments among precious metals. Both metals are the best performers during any economic crisis, but their modes of performance and utility are very different and distinct from each other.
They both have separate sets of advantages and shortcomings to consider. To invest in either of them, it is essential to know your priorities and ambitions. This will help you to make a decision considering the varying factors of gold and silver investment.
Factors to Consider and Compare
The factors that mainly differentiate gold and silver investment are listed below. It is important to compare these factors to make a decision.
1. Affordability
It is not a secret that the price of gold is way higher than silver. So, if you want to invest in gold, you will need a huge budget to start with. Whereas, silver being cheap requires a comparatively smaller investment.
Besides, it is much easier for small-time investors to purchase a limited amount of silver. But it is difficult to purchase expensive metals like gold in a small quantity. That is one of the main reasons why young and new investors generally tend to choose silver over gold.
2. Liquidity
Liquidity is the ability of an investment to raise money when it is required. Among those two metals, gold investment is more liquid than silver. And this is the reason why the investors with the aim to invest in large amounts of gold don’t need to move the price of commodities to do it.
Because of higher liquidity, most of the well-established and experienced investors opt for investing in gold instead of silver.
3. Volatility
Silver is more volatile than gold. That means silver disperses more or less returns for a specific security or market index. This is good as well as bad news for silver investors.
The good news is that more volatility is to larger price swings that can be exploited by the traders. But the bad news is higher prices for silver do not necessarily result in extra supply.
4. Safety
Both gold and silver are safe investments compared to other investment options. But the safety ratio and the amount of risk associated with an investment in gold and silver varies. And gold seems to be a safer choice than silver.
As silver is more volatile, the prices keep fluctuating within a short time. This calls for more risk. Whereas, gold investment is stable with fewer risks compared to silver.
5. Growth
Most investors look for growth in the investment before making any move. But in the case of precious metals like gold and silver, growth is very limited compared to other risky investments. But the rate of growth also varies between gold and silver.
Since the rate of growth is associated with risk, silver has better potential for growth than gold. Gold has lower growth rates. But it is possible to accelerate the growth of both industries with proper growth strategies.
6. Diversification
Diversification refers to the process by which a business is maximized with different ranges of products or fields of operation. Gold investment is more diversified than silver.
Investing in silver is more correlated to the factors of business that include stocks and bonds. But gold, on the other hand, is far from getting affected by such factors. With appropriate diversification strategies, it is possible to boost silver diversification as well.
7. Storage Costs
Before making any investment, it is important to research every detail related to the investment. Storage space and expenses are major factors to consider in the case of gold and silver investment.
Since these are precious metals, undoubtedly, they are valuable at every cost and are vulnerable to theft. That is why the storage of gold and silver requires extra attention and expense. In this regard, silver storage is costlier and requires more space than gold.
Causes of Silver Price Fluctuation
The price of silver fluctuates more often compared to gold. And the reasons behind the fluctuation of silver prices are quite similar to the fluctuation of other business equities.
Market Conditions
Silver as an investment is riskier than gold but safer than other equities. Hence, investors seem to sell their stocks and flock to assets like silver during poor market conditions.
Therefore the price of silver goes up. But, when the market conditions improve, investors switch from silver to other risky equities. And the price of silver falls.
Economic Conditions
Silver is the best asset by value after gold. During, economic recession, the price of silver increases as it does for gold. But the percentage is much less compared to gold.
Industrial Demand
While the demand for gold is more in the cultural aspects and occasions, silver has its value in other industries. Silver is an essential ingredient for different chemical industries.
Due to its low electric resistance, silver is widely used in solar panels, fuses, switches, and other electrical devices. When the demand for these goes up, the value of silver automatically rises.
Causes of Gold Price Fluctuation
As mentioned before, gold is comparatively a stable asset. So, there are fewer fluctuations in the price of gold. But some of the factors that might affect the fluctuation of the gold price are as follows.
Economic Conditions
Gold, being a valuable asset, becomes profitable during economic crises. Thus, gold is considered to be a safe investment. While prices of all other equities go down during poor economic conditions, the gold price rises dramatically.
Cultural Programs
Gold is a very important metal comprising a significant part of the culture of different countries around the world. Gold is used largely in different mediums like arts, architecture, and jewelry, traditionally manufactured in different cultures.
Hence, the price of gold gets high during certain seasons of or occasions.
Inflation
Gold investment is considered to be the solution to hedge inflation. So, when there is a threat of rising inflation, gold investors utilize this as a tool to hedge against it.
Geopolitical Conditions
The price and demand for gold get high in several developing countries due to the lack of flexibility in their economy. Thus, gold becomes a very important and integral part of the economy of such countries to increase the country’s gross wealth.
Final Verdict
By now, you may have received an adequate idea about the factors influencing the investment of gold and silver along with the pros and cons. But one thing is clear that gold investment is an option for investors with a large investment and full pocket.
Whereas, silver investment is the safest and best option for newcomers, small-time and young investors. Besides, if you’re an experienced investor with the aim of going for a safe yet risky option of precious metal for investing with growth, you can opt for silver investment as well.
Now, it’s up to your preference. Make your decision wisely.
