Silver vs Gold Investing

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The price of gold has been on a wild horse run for many years .Gold price varies between $270 to $450 per ounce during the period of Sep-1990 to Sep-2005 . What happened after Sep-2005 will be written in history in red letters . Gold price reached $1850 per oz in 2011 from $450 in 2005. Once upon a time , the price of gold was only followed by central bank , gold mining companies and insurance companies . However , during the last two decade it has become a mainstream news and prime focus of investors . gold ira investing 

But is it only about gold ? There are other precious metals , too. What about silver ? The price of silver has shown am impressive increase as well.

The Market Demand :

The run of silver, which was similar to that of gold , has been nothing short of spectacular. Between 2005 to 2011, its value went from approx $7 per ounce to $35 per ounce . The percentage chance has been even greater than that of gold. gold ira investing

Industrial demand vs consumer demand :

The demand for silver can be broken down into the following major components :

  • 54% is used in industries
  • 26% is used as Jewelry and Silverware
  • 15% is used in photograpy
  • 5% as Coins 

1081 million ounces per year . That was the total demand for silver in 2013 . 54% of it was for industrial applications.According to a report by CRU Consulting , the industrial demand of silver is expected to grow by 27% by 2018. Electrical and electronics sector will cater for more than half of this demand.

gold ira investment reviewsHistorically , silver was the key element used in camera. However ,silver is no longer used in today’s digital cameras. Cell phones and other technologies , on the other hand , make use of silver extensively . Since silver has low resistivity , virtually every electrical appliances in the world has some part of them made of silver . Silver is used in semiconductors and solar panels. Medical sector uses silver due to its antibacterial qualities . Silver is also used in refrigerators , vacuum cleaners , computers , washing machines , keyboards, water purifier etc . Silver is also used for wood preservation . 

On the contrary , the industrial use of  gold it very limited . Over two-third of annual gold demand is accounted for Jewelry particularly in the developing countries like India.  Medical and dental equipments account for 12% of demand . But you just wonder what price of gold will be deemed too expensive. If some day , gold price exceeds $2500 per ounce , will the consumers in developing countries continue buying jewelry at the same pace ?

The price of luxury items has a point that , if crossed, will avert people from buying those items. However , products like mobile phones , computer , tablet, solar panel  and other electronic goods that are used everyday will still have tremendous demand even if the price of silver increases. Silver is still quite reasonably priced . The price of silver is $15 per ounce now. Unlike gold, cost will not be a limiting factor for the use of silver for industrial usage .

Influence of central banks and panic from financial stress :

Gold is viewed as the only viable currency that have real intrinsic value. Investments on paper assets is not reliable . Historically it has been proven that having too many investments in one field is a recipe for disaster .  The worth of US dollar has decreased over the last decade while the value of gold has augmented. The main reason are as follows :

1)      US government has printed so much money into the economy that the worth of dollar has fallen.

2)     China and other countries that hold trillions of dollars in US Bonds are worried that they has too much money invested in dollars assets. So, in order to exchange some of the risks towards gold , they are buying gold like crazy .

The stress caused by the great financial crisis increased the worth of silver and other precious metals. Gold is still considered as the most reliable hedge against fear . However , silver is quickly turning into a safe heaven for investors. More and more people are realizing the potential of investing in silver and how it can play a vital role to safeguard their portfolio.

Gold – Silver Ratio:

There are no other trading assets whose prices are so highly correlated as that of gold and silver .The Gold/Silver ratio indicates how many ounces of silver can be exchanged with one ounce of gold. Investors look at this ratio closely to assess whether either of the metal is undervalued as compared to the other.Gold ira investing

The following price chart shows  that the price of silver closely follows that of gold . However , silver has outpaced gold two times – once in 1970s and then again in early 21st century’s bull market. gold ira rollover

Gold-Silver Chart

The gold /silver ratio , first introduced and analyzed by Franklin Sanders , is a prime indicator of the relative of gold and silver. Sanders analyzed the ratio from historical data going back to 1792 and found that the ratio was steadily at 16 over 130 years till 1913 when the Federal Reserve was formulated . After 1913 the ratio started to fluctuate more . Over the last 100 years , the ratio has been as high as 96 . This fluctuation caused the ratio to rise to 27.28 . Today the gold-silver ratio is around 72. precious metals ira 

There is a very interesting observation . Many experienced traders believe that financial ratios of historically important products such as gold and silver tend to return to their historical patterns gradually . So , if the ration were to return to 27.28 keeping current gold price steady ( $1160 /oz) , the price of silver will have to reach $ 42.5 / oz . Currently , the silver price is at $15/oz .  The price of silver will have to rise to $ 72.5 if the ratio were to go back to 16 .

Liquidity :

Both gold and silver are highly liquid assets. They are viewed by many as the actual currency and precious commodity . When the investors are ready , then can sell the metals to the actual merchants or any  jewelry or coin  shops , local individuals , eBay , Amazon or any other e-commerce sites .

Gold is the more liquid of the two metals since it’s demand and supply are higher than that of silver . gold bullion ira investing

Volatility :

Historically , silver has been a very volatile precious metal. The main factors that causes the volatility of silver are as follows : self directed gold ira

  • Up and down of industrial demand and storage demand
  • Geo-political uncertainties
  • Increasing prices of crude oil
  • Devaluation of dollar
  • Government strategy on key export-import destinations
  • Trading by central banks of China and other countries
  • Movement of gold price and other commodity prices

In a recently published article , Adrian Ash , an expert at BullionVault explains the volatility of silver as follows :

gold vs silver

In terms of investment , many consider silver as an upcoming revolution and a surrogate for gold . However , its volatility is a matter of  contemplation for bulk investors in future . best gold ira custodians

Storage and Transport :

Gold will get an upper head over silver in terms of storage and transport .  In the same storage space or package , you can fit in much more worth of gold than silver . Gold is also denser than silver making gold more valuable than silver occupying the same volume .

Trading cost comparison :

Let us now compare the trading and dealing costs . If you want to swap between gold and silver , you have to put up with two dealing costs of 0.5% maximum on each side plus the spread between buying  and selling prices. If you accept the best price , that’s ok . But if you set your own bid, there is a price risk involved in completing both sides of the trade.

Storage fees of silver are also higher. If you are a North American or an European investor, you have to take sales tax into consideration as well. Silver , contrasting to gold , is deemed an industrial metal whereas VAT charges are involved. You can escape 20% tax if you choose to  invest in silver bars and coins through licensed custodians who will keep the metals in their possession. You decision to keep the metal in your custody will immediately trigger not only a 20% tax provision but also a restriction in liquefying the metals in wholesale market .

Markup Price:

Finally let us discuss the retail markup price of gold and silver . As an investor, the ideal scenario would be to get the best out of your investment quickly . Your aim has to be to buy precious metals as close to the current spot price as you can so that the metal price don’t have to increase significantly to break even .

As an individual investor , you won’t be able to buy precious metals at current spot price because the companies that you are dealing with makes their money from buy/sell spread . They won’t be in the business if they do not charge that premium. However , by choosing the right product at the right quantity,  you might be able to avoid paying excess premium .

Taking markup price into consideration , investors who are willing to spend less than $1500 should invest in silver . For investments larger than $1500 , specially in the region of $2500 and above , buying gold is a much more viable option . This suggestion does not take personal preferences or investor’s future vision into account . 

This interesting video discusses the topic of gold investing vs silver investing . Ed Steer (GATA), Mike Maloney (GoldSilver.com) and Peter Spina (Goldseek.com) , three well reputed analysts cast light on their personal preferences on precious metals investing . 


Final Thought :

I would like to draw a conclusion similar to that mentioned by the analysts in the above video . Silver is the most common noble metal. Its resistivity to oxidation and corrosion along with its highest electrical and thermal conductivity and other features ensured the usage of silver in around 65% of all day-to-day productive applications. During 2008 financial collapse , the dollar price fell by 60% whereas gold price fell by 30% before rising sharply . But this rise or fall of gold has little impact on the industrial field because of very low usage of gold in that area. But silver performed the best before , during and after the 2008 crisis. During the six years before the financial crisis began ,  the price of silver rose 5 times . It rose another 5 times through the financial crisis till spring of 2011 when it reached $50 per ounce.

Long term investors of silver are quite happy today . The are backing their investment and awaiting the next surge in the price of silver in near future. It might arrive sooner if cold-cash continues to change hand in the derivatives market as it has been throughout 2014 and 2015 .

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