Get in while you still can

Dear Rich Lifer,

When the economy is good and the stock market is strong, investors tend to keep only a small amount of gold or silver in their portfolios.

Both are considered “precious” metals, because of their rarity. But you might be wondering what exactly is the difference between investing in gold and silver?

In August, pandemic worries paired with a weakening U.S. dollar sent gold prices soaring to over $2,000 an ounce for the first time in history.

Silver also rallied to $28 an ounce, a 140% increase from its 2020 low.

While these metals have similar boom-and-bust cycles, there are a few key differences you should know before deciding which one to invest in.

1. Silver is cheaper due to its larger supply

Often called the “poor man’s gold,” silver is significantly more affordable due to its abundant supply. Last year, 27,000 tons of silver were mined, compared to 3,300 tons of gold worldwide.

If you look at the gold-silver ratio, which tells you how many ounces of silver you need to buy one ounce of gold, you’ll see this supply difference in price.

For example, the gold-silver ratio was around 75-to-1 at market close Dec. 15. Which means ounce for ounce, gold was 75 times more valuable than silver.

Back in March, the gold-silver ratio was even higher, breaking 120-to-1 for the first time in history. For context, the 21st century average is about 60-to-1.

You may be wondering why buy silver if gold is clearly the more scarce metal?

The main reason why you should consider buying silver is that you get almost all the same benefits of owning gold at a discount. For instance, physical silver and gold are both…

  • Hard assets. In a world of digital trading, paper profits, and currency creation, physical gold and silver are tangible assets that can’t be hacked.
  • Money. Unlike paper currency which can be created out of thin air, and thus depreciated, silver and gold are reliable forms of money that have been used all throughout history.
  • Have never been defaulted on. Owning gold or silver, exposes you to no default risk. Something you can’t say for most other investments.
  • Have no counterparty risk. If you own gold or silver, you’re not relying on a third party to hit their quarterly target or make good on a contract.
  • Can provide privacy. Any gain on your income tax return must be reported, but if you want some privacy with a portion of your investments, physical gold or silver can deliver that.

As you can see, the clear advantage to buying physical silver is you get most of the same benefits as gold at a much lower cost. Hence why silver is called the “poor man’s gold.”

2. Silver has more industrial use than gold

From electronics, to batteries and solar panels, silver is everywhere. You don’t go a day without using something that contains this precious metal.

More than half of the demand for silver is driven by its industrial use, so when the economy is booming, silver prices tend to rise.

But if the economy starts to falter, silver prices fall. For this reason, gold has been the hedge of choice.

When the S&P 500 fell 37% during the Great Recession, the price of gold rose by 24%. Because gold’s industrial uses are limited, it’s relatively insulated from economic downturns.

But there are exceptions to this rule. Sometimes when there’s a financial or economic crisis, silver prices increase. Like from the mid 1970s-1980, silver went from $10 per ounce to $36 because investors were trying to protect their portfolios from the chaos.

Generally speaking, silver’s role as money has impacted its price more than its role in industry, so during financial or monetary crises, investing in silver is still a safe bet.

3. Gold is less volatile than silver

Due to the silver market’s small size relative to the gold market, silver is quite susceptible to wild price swings.

This might seem counterintuitive since silver is mined at eight times the rate of gold. But remember gold is currently 75 times more valuable than silver on an ounce-for-ounce basis, so the overall silver market is worth only a fraction of the gold market.

In addition, more than 70% of the silver supply is produced as a byproduct of mining other metals, like gold and copper, which makes the silver supply less responsive to changes in demand.

As a result, silver tends to rise more on up days and fall more on down days compared to gold. If you’re the type of investor that panic sells when you experience the first big drop, then silver might not be right for you.

Historically, gold has proven to be a relatively stable long-term investment. When comparing the annualized volatility of gold vs. the S&P 500 over the last 30 years, gold is only slightly higher.

So, depending on your appetite for risk, silver might appeal more to you if you’re seeking short-term gains. But if you’re looking for a long-term hedge, gold is still king.


4. Silver requires more storage space

Remember how we said silver is more affordable than gold? Well, it comes with a caveat.
Pure silver is a lot less dense than gold. We’re talking 84% larger in volume, which means silver takes up roughly 128 times more space than gold for the same volume.
To put that into context, you can store roughly $170,000 of gold in a small safe deposit box, but that same space will only hold about $2,300 of silver.
$50,000 worth of gold today is approximately 1.6 pounds — but the same value of silver weighs about 124 pounds!

While it’s easy to hide gold in your house, silver is a bit less practical. Because it takes up so much space, you’re likely going to need to store it in a depository.

And since most depositories recognize that silver requires more storage space, they’ll charge you extra fees. But don’t let that scare you away, some depositories will offer the same rate for both metals.

You can also safely store silver at home, but it requires some ingenuity. If you do decide to store silver at home, make sure it’s stored in a cool dry place so that it doesn’t get exposed to moisture, otherwise it will tarnish.

Investing in precious metals requires planning and forethought but it’s still one of your best bets at safeguarding your money against a shaky economy. Keep these four differences in mind when you invest.

To a richer life,
The Rich Life Roadmap Team

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