Gold vs. Silver: Where Should You Invest?

Key Highlights

• Gold is often seen as a safe haven for investment and a hedge against inflation and economic uncertainty. Whereas silver is more speculative and sensitive to industrial demand,
  
• Gold prices tend to be more stable compared to silver, which is more volatile. This is because the gold market is much bigger than the silver market.
  
• Gold has more uses as jewellery, investments, and reserves held by central banks and governments. Silver has more industrial applications; it is used in electronics, batteries, solar panels, etc.
  
• Gold is measured in troy ounces, while silver is measured in troy ounces and grammes. This can cause some pricing complexity with silver.
  

Why Gold & Silver?

Gold and silver have been considered precious metals for centuries. Investments in gold and silver can be risky, as both have their pros and cons. Each of these metals formed the basis for monetary systems across the world before fiat currencies. Today, they remain extremely important global commodities. Gold is often viewed as a safer investment in the world; it has retained its value during times of economic uncertainty and inflation.

With massive government stimulus in response to the COVID-19 pandemic, gold prices have reached record highs in recent years. Silver also saw price surges amid supply chain issues and its growing importance as an industrial metal used in solar panels, electronics, and electric vehicles.

While no longer the foundation of global currencies, central banks still hold substantial gold reserves to hedge against risks. Commodity investors often hold gold and silver in their portfolios because the metals tend to be countercyclical to stocks and bonds. They provide diversification, help manage portfolio volatility, and balance against currency devaluation. Gold and silver also offer opportunities for capital appreciation during commodity booms. Additionally, they can act as an inflation hedge over the long run. Their historical significance, continued demand, and investment properties keep gold and silver among the most widely traded and significant commodities worldwide.

Gold vs Silver: Which is Better?

Here’s a comparison of key differences between gold and silver

Market Volatility The market moves around due to different factors. For the price of gold vs silver, you can say that the gold market is much bigger than the silver market, with higher trading volumes and more stability. This leads to lower volatility in gold prices compared to greater fluctuations in silver. Still, depending on the stock market scenario, you cannot determine which instrument offers better returns on your investment.

Liquidity Factor Investors often prefer instruments with greater liquidity. Gold has significant uses in jewellery, investments, and reserves held by different financial institutions. And in the case of silver, it has more industrial applications, including electronics, solar panels, and batteries. Both of these metals have high demand in the market.

You can check the market volatility before considering the liquidity of each metal before investing in it.

Supply Factor Above-ground gold supplies are large and stable, while silver supplies are decreasing over time. Gold is scarcer overall. Each metal is scarce, and the demand for each metal is very high. There are different alternatives that are taking place with the advancement of science and technology.

Performance of Gold vs Silver Gold tends to outperform when inflation is low and markets are stable. Silver sees bigger gains when industrial activity rises. Gold is an effective conductor and ideal for making jewellery. The presence of gold in India is also high at events such as weddings or festivals.

Silver is an extensively used raw material for the automobile, electronics, medicine, and thermal manufacturing industries.

Accessibility of Gold & Silver Silver is cheaper per ounce, making it more affordable for retail investors with less capital. Whereas gold is a costly metal, it is expensive for retail investors. To check the measure of gold, you can use troy ounce pricing, while silver metal uses ounces and grams, causing some complexity for measuring both elements. Because of the differences, each difference in measure affects the price of.

Storage for each Commodity A higher per ounce value of gold leads to lower storage costs for gold metals and insurance costs compared to silver.

Key Differences Between Gold and Silver

Apart from the price of gold vs silver, there are differences between these two commodities, which are mentioned in the table below:

Factors to Consider When Investing in Gold or Silver

When choosing between silver vs gold investments, consider the following:

Resale Options You need to assess how easily you can convert your gold or silver investment into cash when required. Coins and smaller bars are generally more liquid than large bars because they are affordable for a wider range of buyers. Silver, due to its lower price, may require you to sell in larger quantities to get meaningful returns. If you invest through ETFs or digital platforms, selling is usually faster, but you must check transaction fees and settlement times.

Premiums and Purchase Costs When you buy physical gold or silver, you pay more than the market spot price. This difference is known as the premium, and it includes manufacturing, distribution, and dealer margins. Premiums vary depending on the product type, weight, and demand levels. Gold coins generally carry higher premiums than gold bars, and silver often has higher percentage premiums than gold due to production costs. Comparing dealers and buying during periods of lower demand can help you reduce costs.

Central Bank Policies Central banks across the world hold large reserves of gold, which they sometimes buy or sell to adjust their foreign currency reserves. Large-scale purchases can drive prices upward, while significant sales may push them down. Silver is not commonly held by central banks, so their policies have less influence on it.

Purity Ensuring the authenticity and purity of the gold or silver you buy is critical to avoid losses. Only purchase from reputable dealers who provide certification and proper hallmarking. In India, for example, BIS hallmarking guarantees the purity of gold. For silver, purity is usually expressed as a percentage or in fineness terms.

Diversification Even if you decide to invest solely in precious metals, diversifying within gold and silver can help reduce risk. This can mean holding both metals in different proportions, or mixing physical assets with ETFs and mining company shares. Silver’s volatility may balance gold’s stability, while gold’s long-term reliability can offset silver’s industrial fluctuations.

How Can You Invest in Gold or Silver?

If you want to invest in gold, you have the following options:

Physical Gold You can purchase physical gold in the form of bars, coins, or jewellery from authorised dealers, banks, or jewellers. Each option has a different cost structure and resale value. Gold bars and coins generally carry lower making charges than jewellery, making them more suitable for investment.

Sovereign Gold Bonds (SGBs) Sovereign Gold Bonds are government-issued securities that represent a certain quantity of gold. You can invest in them during issuance windows announced by the RBI. SGBs are denominated in grams of gold and have an eight-year maturity period, with an exit option after the fifth year. In addition to capital appreciation based on gold prices, you also receive an annual interest of 2.5% on your investment.

Gold ETFs Gold ETFs let you invest in the yellow metal without owning it physically. These are listed on exchanges and can be transacted through a demat account and a trading account. Each unit of a gold ETF generally represents one gram of gold, and the price moves in line with domestic gold prices.

Digital Gold Digital gold enables you to purchase gold online from platforms partnered with authorised bullion suppliers such as MMTC-PAMP, SafeGold, or Augmont. You can buy gold in small amounts starting from as little as ₹1 and accumulate it over time. The gold is stored securely in insured vaults on your behalf, and you have the option to take physical delivery whenever you choose.

Gold Futures Gold futures are derivative contracts traded on commodity exchanges like the Multi-Commodity Exchange (MCX) that allow you to speculate on gold prices for a future date. You acknowledge buying or selling a specified gold quantity at a predetermined price on a set date.

If you want to invest in silver, you have the following options:

Silver Coins Silver coins are available from government mints and private dealers, often in standard weights like 10g, 50g, or 100g. They carry official markings of purity and weight, ensuring authenticity.

Silver Jewellery Investing in silver jewellery allows you to combine personal use with asset growth. While making charges increase the initial cost, they offer resale value based on silver weight and purity. This method requires buying from trusted jewellers to ensure hallmark certification.

Silver ETFs Silver ETFs allow you to invest in silver without physically holding it. These are traded on stock exchanges and reflect the price movements of silver in real time. You can buy and sell them easily through your demat account. They remove storage and security concerns while offering high liquidity.

Silver Futures Contracts Through commodity exchanges, you can trade silver futures contracts, agreeing to buy or sell silver at a future date for a fixed price. This method allows you to benefit from price movements without owning physical silver. Futures require margin deposits and carry higher risk due to market volatility.

Silver Mutual Funds Some mutual funds invest primarily in silver or companies involved in silver mining and production. By purchasing these funds, you indirectly invest in silver while benefiting from professional fund management. Returns depend not only on silver prices but also on the performance of related industries.

Where Should You Invest Gold vs Silver?

Gold has historically been viewed as a superior store of value and hedge against inflation.

Gold prices tend to be more stable, with higher liquidity in trading markets. The higher liquidity also leads to lower bid-ask spreads and costs when buying and selling. Gold also has far less industrial usage compared to silver - meaning gold prices are less susceptible to fluctuations in industrial demand. Additionally, gold is considered a better asset and tends to see increased investment demand during times of economic uncertainty, while silver is more sensitive to the economic cycle.

But do note that silver may offer more upside potential. Silver has more industrial applications, especially in electronics and solar panels, so that demand could rise with new technologies. Silver also has the potential for higher volatility, which can be attractive to short-term traders. Depending on your investment goals, you can easily understand and invest in any of these securities.

Conclusion

Whether one should choose gold or silver entirely depends on the risk appetite, financial position, and personal choices of that investor. Prices of gold vs silver have ups and downs, but it is essential to understand how these metals trade and their use in hedging to maximise their benefits. Check the live prices of gold and silver commodities on the Kotak Securities website or the Kotak Securities App.