Investing in raw materials, also known as commodities, has become more popular over recent years. The market of commodities consists of different categories of assets, including agriculture products, fossil fuels, foods, etc. In this review, we’ll discuss trading precious metals, namely gold and silver.
Precious metals are very popular investments in the commodity market. That’s the reason why you should understand the difference between silver trading and investing in gold. This review isn’t a financial advisor, it’s just a guide that explains all the properties of these financial assets.
How metals applied
Commodities from other categories might be characterized by a higher utility than silver and gold. The prices of fossil fuels are heavily affected by their supply and demand. If you decide to invest in natural gas, for instance, you will examine how much gas has been supplied and what is the demand for this commodity. In the case of natural fossil fuels, the demand rises during the winter seasons.
The prices of valuable metals are also affected by supply and demand but these factors are less influential. The reason for this is that neither gold nor silver has so many uses in so different industries as base metals, including copper or nickel. Precious metals are used in industries such as electronics and jewelry production.
If we compare the utility of gold and silver specifically, we have to specify that silver has more commercial use. Except for electronics and jewelry production, silver is also helpful in dentistry thanks to its antibacterial properties.
The more commercial and industrial uses the asset has, the higher the demand for it will be. This understanding is necessary to predict potential price fluctuations. So here one point goes to silver.
Price volatility
As of the date of writing, the gold price is around $1,813. Silver is traded at around $23.83 per ounce. As you can see, the difference is quite significant. If you take a look at the price history of both precious metals, you’ll see that the gap between these assets has always been in favor of gold. The reason is that there are more deposits of silver and it’s easier to produce this product. From this, investors can dwell on two points:
- It’s easier to buy silver than gold, meaning that less liquid investors can start investing in this product easier than if they would invest in gold. Plus, such investments require less capital.
- At the same time, this doesn’t mean that potential gains will be smaller since silver is a more volatile product. Bear in mind that the high volatility of silver can also lead to big financial losses. Since silver is cheap, even small price changes of $2 can amount to a 10% price fluctuation. High-volatile investments can be beneficial from the short-term perspective. But if you want to benefit in the long run, gold is better.
How gold and silver are related to other markets
Gold is often referred to as a countercyclical asset. This feature makes gold a good store of value during periods of economic uncertainty. Prices of shares and currencies go down, while gold value is increasing. Historically, gold has a close relationship with the stock market. As a rule, stock investors tend to put their funds in gold when the stock market is on a declining trend.
One more approach is to trade gold before periods of uncertainty come. This asset is a good store of value. Thus, you can use the funds invested in gold to buy shares during the recession, when their prices are on the downturn.
The high utility of silver makes this product more dependent on the overall economic conditions. Since it’s used in more industries, the demand for it will decrease because the companies are unable to buy it. That’s the reason why silver is considered a worse store of value than gold. Its price goes down together with the general economic downturn so investors aren’t likely to invest in silver for the sake of preventing losses caused by expected recessions.
The final thought
Historically, both gold and silver are related to money. They are still used by governments to produce money or to determine its value. That’s why both commodities are considered safe investments in any economic condition.
Besides, it’s impossible to say for sure that one asset is 100% better as an investment than the other one. Many factors determine whether it’s better to invest in gold or silver. Except for general market conditions and such aspects as supply, demand, and utility, you should also consider the peculiarities of your own investment portfolio. Gold might be a better investment during periods of crises, while silver tends to be more profitable in beneficial economic conditions.
Whatever your choice is, all your investment decisions should be based on deep analyses of the chosen assets.
