…It’s not unreasonable that gold and silver (along with platinum) are often lumped together in the precious metal basket…but it’s important to distinguish between silver and gold rather than assume that the two metals are interchangeable. Words: 385
So writes Russ Koesterich (www.BlackRockBlog.com) in edited excerpts from his original article* entitled Three Reasons Silver is Not The Same as Gold.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Koesterich goes on to say in further edited, and in some instances paraphrased, excerpts:
While silver shares many characteristics with gold, here are three important differences between the metals.
1. Silver tends to be more sensitive to economic variables, while gold is often more sensitive to monetary variables
Industrial uses make up…40% of silver demand…[while,] in contrast, gold demand is driven almost exclusively by investment and jewelry demand. [Given the aforementioned]…silver tends to be far more sensitive to economic variables, such as industrial production and manufacturing demand, than gold is. At the same time, gold tends to have a higher correlation with monetary variables such as real interest rates, inflation and changes in the value of the dollar. For example, based on annual data over the past fifty years, gold prices have had a 0.5 correlation with inflation, while the correlation between silver and inflation is around 0.35. [In addition,] there is a high correlation between gold’s returns and real interest rates. While the same relationship holds for silver, it is less strong.
2. Silver and gold come from different production sources, which can have an important bearing on their prices.
The majority of silver is produced as a by-product of lead, zinc, copper and gold production. As such, there is not as tight a relationship between silver production and silver prices as there is between gold prices and gold production.
3. Silver prices can be more volatile than gold prices, partly owing to silver’s lower ounce value and smaller market size. This volatility can make silver less attractive than gold to some investors from a portfolio construction perspective.
So where does understanding these differences leave investors?
Whether investors should consider exposure to silver or gold, or both, partly depends on why they are allocating to precious metals in the first place.
- Those investors that view their position in precious metals primarily as an inflation hedge may want to consider gold, which, at least historically, has done a better job of hedging portfolios against rising prices.
- Those investors that are looking to play a cyclical rebound in the global economy may want to consider silver because silver prices are likely to benefit more from an uptick in manufacturing.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.blackrockblog.com/2013/07/31/3-reasons-silver-gold/ (©2010-2013 BlackRock. All rights reserved.)
1. 6 Rules for Buying & Selling Gold & Silver the Right Way
Here are 6 rules for buying and selling gold, silver and gold palladium the right way. [You’ll] not only get the best-possible prices but also [know] how to feel good about the quality of your purchase! Read More »
2. There’s a Dirty Little Secret to Cleaning Bullion Coins – Here’s How
Improper cleaning results in the loss of a small amount of metal from the surface of the coin. Repeated cleaning can actually lower the grade of a coin by removing too much metal. To learn the answer as to what is the best way to go about storing and cleaning your gold and silver coins read on. Words: 417 Read More »
3. How To Avoid Getting Ripped Off When Buying Gold
If you’re trying to invest in precious metals, then stick to bullion coins or bars. Don’t be distracted by numismatics, rare coins, collector’s items, or fancy packaging or grading schemes…Even though I have long warned of the dangers of the industry, it is hard for retail investors not to be led astray by high-pressure salesmen [but] reading this guide is a step in the right direction. Words: 1000
4. Gold:Silver Ratio Suggests Much Higher Future Price for Silver – MUCH Higher!
The majority of analysts maintain that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 – 95% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold and it is realistic to expect that silver will eventually escalate dramatically in price. How much? This article applies the historical gold:silver ratios to come up with a range of prices based on specific price levels for gold being reached. Words: 691 Read More »
5. What’s the Difference Between 1 Gold Karat, 1 Diamond Carat and 1 Troy Ounce?
You have no doubt read countless articles on the price of gold costing “x dollars per ounce”, own a gold ring or some other piece of gold jewellery and/or wear or have bought/plan to buy a diamond ring but do you really understand exactly what you are buying? What’s the difference between 1 troy ounce of gold and 1 (regular) ounce? What’s the difference between 18 and 10 karat gold? What’s the difference between a .75 and a 1.0 carat diamond? Let me explain. Words: 1102 Read More »
Our review of the best places to buy gold online…[are] dependent on what your goal with the gold is — amassing physical bullion for financial security or to speculate on gold prices. Below are strategies and recommended dealers for each approach: Words: 532 Read More »
7. The Pros & Cons of Buying Gold Bars vs. Ingots vs. Coins
It is during difficult times [such as these when] quantitative easing and currency wars have highlighted the volatility and vulnerability of currencies…that the true, safe value of gold really stands out. It is now easier for you to convert your savings into gold than ever before and this article outlines the reason for buying physical gold and the advantages and disadvantages of buying gold bars, ingots and/or coins. Read on! Words: 853 Read More »
8. Buying Physical Gold? Follow These 5 Rules
If you’re interested in physical gold, I recommend you buy small gold bars which are available in a wide range of weights and can be bought for as little as 1 percent over the price of gold. [That being said, this article outlines five rules to follow before, during and after the purchase process.] Words: 8133.
9. Finally! Gold & Silver “Bars” You Can Carry In Your Wallet!
10. A Direct Comparison Between Gold, Silver, Platinum and Copper
Why do viewers still read news papers when everything exists on the net?
Some other differences to consider:
1. Silver takes up much more space (should you decide to take possession of your PM’s) than Gold.
2. Selling silver attracts less attention than Gold, since Gold is worth about 65X more.
3. Silver is a better PM to barter with for everyday items that are not very expensive.
4. Silver MAY fly below the Gov’t. radar if Gold ownership is made illegal again in the future.
5. Silver is used in industry much more than Gold.
6. There is large amounts of Gold in seawater which could be tapped in the future.
7. Silver is a superior conductor of electricity, whereas Gold is almost too expensive to use!
8. Silver is used in jewelry and it can be worn without attracting too much attention, unlike Gold
9. Silver is the poor man’s Gold, so its value vs Gold, may increase should new investors add PM’s.