Investment into precious metals, notably Gold and Silver, skyrocketed following the 2008 global recession. Less than 10 years later, demand for precious metals has remained extremely elevated. During economic downturns, gold and silver are sought as safe havens. It’s natural that as currencies get devalued during downturns, people invest more into precious metals. If you are a savvy investor who wants only the most lucrative returns, you might be pondering about the following question:
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Which is more lucrative: Gold or Silver?
Gold Has Always Been More Popular
Gold wins the popularity contest. It has centuries old association with wealth while silver is dubbed the ‘poor man’s gold’. Gold is the preferred metal by central banks, especially in Asia. China, a country that holds trillions of U.S dollars worth of government bonds, has been aggressively reducing its exposure to dollar risk for increases in its gold holdings. Central banks don’t hold the same affinity for silver. As amusing as popular perceptions might be, they do not necessarily affect the business of investment. In the past, both gold and silver prices have gone up.
Historical Ratios Favour Silver
In the past, 1 oz of gold went for 15 – 22 oz of silver bars. In the past century or so, the gold to silver ratio has fluctuated dizzyingly.
1. During the 2008-9 financial crisis, the gold-silver ratio reached as high as 83 Price of silver was around $10 per ounce. By 2011, the gold-silver ratio has dropped to 33, the silver price reached $48.50. A 420% rise in value compared to gold rising only 165% over the same timescale. In comparison, gold rose only 165% over the same timescale.
2. And now in 2016, we again find ourselves with the same signal in the ratio flashing as we did in 2008. A peak in the ratio at the same time a significant bottom being established in the silver price…
There are investors who believe that popular and highly significant commodities like gold and silver, no matter how much they fluctuate, always return to the historical norm. If this is actually true, silver could potentially gain another 400%.
Silver Has More Demand
Gold is not used for much except as jewellery. Silver, on the other hand, has a widespread and growing industrial use. Silver, thanks to its low resistivity, is in a wide variety of electronic gadgets and appliances as well. Solar panels need large quantities of silver and demand for clean energy continues to grow each year. Touch screen technology works thanks to silver so has significant usage in mobile phones. If it’s the consumer demand that drives up a value of a commodity, then silver certainly has the advantage here.
Silver is Mined More But Actually Scarcer
Because there’s high industrial demand, silver is mined more. In 2014, 26,800 tons of silver was mined, while only 2,990 tons of gold was mined. This should eschew the gold-silver ratio, and suggest that gold is scarcer than silver. However, there’s an important factor to consider: silver is actually scarcer than gold. Most of the mined silver is quickly put to industrial use, so there’s less in circulation. Though gold is mined less, there’s more in circulation thanks to the lack of practical use. Also, silver mines are becoming depleted and peak production was announced last year, with production expected to decrease over the next few years.
It’s difficult to provide a definitive answer. Gold has always been valued more, and the historical pattern is likely to continue. However, there are instances, like 2008 to 2011, when silver performs better than gold. However, such periods are brief.
A good investor should consider all these facts and risks when it comes to choosing a precious metal to invest in. Gold is recommended for longer term investments while silver, now, may be the better choice for shorter term gains. A savvy investor would consider exposure to both.