Over the years, precious metals have carved a niche in the financial market. Gold demand increases when volatility increases in the market or an economic crisis emerges. From an investment perspective, the price of the yellow metal soars whenever the stock market faces a bloodbath. For investors, gold is a safe haven to perk their investment during a crisis, increasing the gold price.
As the world is now facing another economic slowdown, the demand for precious metal investment is again rising. But between gold and silver, which is better?
Both precious metals are an excellent investment and hedging tools. They are also considered effective against inflation. But like for any asset class, there are periods of booms and busts in investing in precious metals. So, while investing in gold or silver, consider the following factors.
Historically, silver was more volatile than gold. It is primarily due to its demand as an industrial metal. It means demand for silver fluctuates with the economic cycle changes affecting industrial production.
Secondly, the price of silver is closely related to gold. Silver costs also get impacted whenever there is a slight change in the gold price. While silver price fluctuations generate good profit opportunities, these make silver quite a risky asset. Compared to silver, the gold price stays stable for the most part.
Liquidity of the asset
Liquidity measures the ease of trading an asset without impacting the market extensively. Gold and silver have estimated market sizes of Rs 24.5 and 4.4 trillion, respectively, meaning both metals are highly liquid, although the demand for gold is 6 times that of silver.
The yellow metal is significantly more liquid than silver, which allows it an edge in the market.
Demand of the metals
Both metals have extensive demand as precious and industrial metals. Gold is used in the conductor, electronics, and thermal industries, whereas silver is used in electronics, medicines, thermal and manufacturing sectors.
Metal storage space
Silver is denser than gold and requires more storage space, which becomes an issue while investing in silver. Storing silver also requires a specialised storing facility because silver oxidises rapidly in the presence of air.
The affordability factor
Silver is technically more affordable than gold. For that reason, gold has more value as a reserve asset. The government and banks also store gold, but silver is rarely stored.
Investing in gold vs silver
Gold is highly coveted in India. We are known for our love for gold. But besides its demand for making jewellery, gold has also emerged as a popular investment option. Our elders have always told us to invest in gold, but buying physical gold poses a few challenges. As an alternative, millennials have inclined towards gold investment variants like government gold bonds, digital gold, gold ETFs etc.
In gold vs silver, the yellow metal has a slight edge over the latter. In the past, gold has generated steady returns. But not many people know that silver has also earned excellent returns. In 2010, returns from gold were 25%, whereas the earnings from silver were 80-85%. Moreover, introducing silver exchanges and ETFs will further boost its demands.
Investing in gold or silver depends on one’s risk appetite, financial situation, and personal choice. But one must understand the merits of investing in gold vs silver and their use in hedging to reap the benefits. If you decide to invest in gold or silver, open a Demat account with Angel One and explore various investment options.