Owning Gold vs. Silver – Ask The Expert
In this article, precious metals expert Mark Yaxley, General Manager for Strategic Wealth Preservation in the Cayman Islands, addresses a common question asked by investors who are thinking of buying precious metals; “Should I buy gold or silver? Which is better to own?”
It’s a question we hear often, especially from investors who are entering the precious metals market for the first time, or from seasoned investors who are looking to invest a significant amount of money into the PMs. It may appear to be a simple question at the surface, but it has a surprisingly complex and diverse answer. To get started, lets take a closer look at each metal.
Gold on one hand has fewer and fewer industrial applications, whereas silver on the other hand has a growing number of applications, including medicinal, solar panel technology and electronics. Even those Lulu Lemon pants that people love to wear to their yoga classes contain a small amount of silver, due to the element’s robust antibacterial properties.
Gold’s primary use has become investment bullion to satisfy purchases from central banks, ETFs and private investors. A strong demand from the jewellery sector does remain, however the overall number of industrial uses for gold are on the decline.
Diversity Amongst the Metals
The fact that gold and silver each have their own uses means that each metal can perform differently from the other depending on their respective market conditions. For example, during a period of economic uncertainty, when investors are seeking a safe haven investment, they will tend to favor gold because of its proven track record to perform well during times of crisis. Gold has a strong negative correlation to other asset classes such as stocks, especially during volatile periods. Silver on the other hand, due to its ties to consumer products, should see strength during periods of sustained economic growth and prolonged consumer buying.
That being said, both metals did perform well during the last economic crisis (2008 – 2011), each posting triple digit returns. The most important lesson to retain here is that gold and silver can and do perform diffidently at times, therefore diversifying into both metals is a wise move. Remember, one of the fundamental reasons for owning precious metals in the first place is to properly diversify your portfolio, therefore it stands to reason that further diversification amongst the metals themselves is also logical.
Insider Tip – my dear friend Bob Moriarty of 321gold.com recently reminded me, that the gold to silver ratio remains near record highs. It stands at 86:1 at the time of publishing. The ratio measures the value of gold relative to the value of silver. At 86:1, you can buy 86 ounces of silver for every one ounce of gold. Based on the ratio’s historical mean, which is closer to 50:1, it indicates that silver is undervalued relative to gold at the moment.
Cost to Purchase
Another consideration when looking at gold versus silver is the cost to buy these commodities in physical form. Traditionally there are two general rules that apply with regards to the costs associated with purchasing bullion products;
If you’re not familiar with the term ‘premium’ and how it applies to precious metals, the premium is the difference between the retail price of a precious metal bar or coin minus the international spot price of the commodity. For example:
You can buy a 1 Oz gold coin for $1450 USD today. The spot price of gold is $1420 USD. The premium for that 1 Oz coin is therefor $30.
So, coming back to my original point here, when buying gold and silver, know that premiums for gold are generally lower than silver. That doesn’t mean you shouldn’t own silver; it only means you should know that you will pay a little bit more in percentage terms over the spot price when you’re buying it.
Another line item relating to cost that you need to be aware of is the cost to ship or store silver versus gold. If you are planning to ship silver internationally, or store it in a private vault, due to silver’s larger volume relative to gold in terms of value (i.e. one kilo of gold is worth $45,000 USD today, whereas one kilo of silver is worth only $550 USD), the cost to ship and store silver will be higher.
What is the preferable mix?
Based on the above information, the question becomes, what is the preferable mix?
Traditionally, most financial advisors will lean their clients strictly towards gold. Now, I won’t argue with that; it’s better to own gold than no precious metals at all, and a core holding of gold is advisable. However, my personal advice would be to diversify amongst the metals and own gold, silver and some platinum group metals (platinum, palladium or rhodium).
A classic metals portfolio might consist of 50% physical gold and 50% physical silver, however, many of our clients tend to hold a greater percentage of gold, say 60-70%, and the balance in silver. Again, I would suggest sprinkling in some platinum, palladium or rhodium, say 10%. Palladium and rhodium have performed particularly well the last two years due to their own unique set of circumstances (relatively low supply and increased demand).
If you plan to only ever make one purchase of precious metals in your lifetime, I would advise that the purchase consist of gold, silver and a platinum group metal. However, if you decide to enter the market on reoccurring occasions, then it may be wise to make your first purchase strictly in gold (or only one metal type), adding the other metals with your future purchases. This way, you can buy one metal ‘in bulk’, lowering your premiums in the process.
I hope that this article has been helpful. If you have any questions, please feel free to contact me, I’d be glad to help.
Mark Yaxley is the General Manager for Strategic Wealth Preservation. Following the completion of his studies at McGill University, Mark joined world-renowned Kitco Metals in 2006, serving as their Product Development Manager and Product Marketing Manager until 2013. Mark joined Strategic Wealth Preservation in 2014 and now serves as the General Manager, focusing on the diverse needs of SWP’s high-net-worth and commercial clients. He has become an advisor on the education of investors as to how they can most easily invest in precious metals and manage their portfolios. As the how-to guru, Mark’s writings offer practical solutions to the questions asked by those seeking to own and store precious metals.