Step 2x: Gold vs. Silver

Our Choice: Some of Each

In Brief: Each of the two main precious metals has advantages and disadvantages when compared to the other. How to weight your portfolio of precious metals depends on your personal circumstances, portfolio size and outlook for the future, among other factors. In most cases, though, we believe that owning some of each metal is a wise choice.

The Advantages of Owning Gold

Lower Price Volatility
Gold prices have historically been far less volatile than silver prices. Small percentage swings in the price of gold generally mean larger price swings in the price of silver. For silverbugs, this is nice when prices are rising. However, when precious metal prices retreat, this can mean larger percentage losses for those holding large quantities of silver. A risk averse investor might therefore choose gold over silver for this reason.

 

Portability and Ease of Storage
Gold has some clear, practical, physical advantages when compared to silver, most notably portability and ease of storage. It is relatively easy to hide $20,000 worth of gold coins (currently about fifteen 1 oz coins) or to take them with you in a get-out-of-dodge-fast type of situation. $20,000 worth of silver coins, on the other hand (currently almost 1,100 1 oz coins), are certainly more difficult to hide, to fit in a safe or to grab quickly when running out of the house in an emergency situation. 1,100 troy ounces is roughly the weight of the average 5th grade boy.

 

The Bigger Picture
Those practical considerations are the key to another important reason why some investors choose gold over silver. Central banks and large institutional investors often use gold as a store of wealth and for financial diversification and stability. There are many who believe that in a serious financial crisis, similar to – or worse than – what we saw in 2008, gold could become the de facto monetary instrument. This is because for thousands of years, gold has proven to be a reliable store of value and, when held by its owner in physical form, is of the few monetary instruments which carries no counterparty risk. Under such a scenario, the stampede into gold would drive its price through the roof, leaving pretty much every other investment – including silver – in the dust.

For More On This Topic – In Depth: Gold vs. Silver