How Gold and Silver Compare with Each Other

When most people hear the phrase “precious metals,” their minds usually turn to gold and silver. Although platinum and palladium are both lovely investment-grade metals, the reality is that most laypeople and, frankly, investors are most interested in gold and silver.

However, what is less clear is exactly which of the two primary precious metals is the better investment. In fact, you may not know how to consider how one stacks up against the other.

The short answer is that there are plenty of reasons to buy either metal. In fact, there are clear situations where purchasing one over the other makes sense. So, let’s look at some of the ways that gold and silver compare with each other.

The Spot Price Trends for Gold and Silver

The spot prices for gold and silver are quite volatile. They are determined, in no small part, by the futures contracts active on the commodity exchanges in the US and around the world. Those, in turn, are subject to elements like supply issues, geopolitical concerns, and the fear or confidence levels of commodities traders.

However, in general, the prices move in relative concert with one another. When gold spikes, silver tends to spike. When silver goes up, so does gold. To illustrate, here are two charts depicting the historical performances of both metals’ spot prices:

The correlation between the two makes sense, as both precious metals are common investment refuges for people when the economy is poor. So, the spikes in the prices roughly coincide with periods of great turmoil and worry about the state of the economy and/or the country at large.

However, as you can see, there is a clear divergence in the price points of the two metals. Gold has consistently sold for a higher price than silver on a per-ounce basis. On its face, this discrepancy is a bit confounding, as gold’s price difference does not reflect the relative rarity of the two metals in terms of their mined output.

Generally, about eight times as much silver is mined every year compared to gold (in terms of total weight). However, gold currently trades for roughly 79 times the amount that silver does, so the price is not a question of how difficult it is to find gold.

At the end of the day, gold wins the day because of a couple of reasons. For one thing, gold has a much stronger historical connection as a means of currency. Most countries have some sort of interaction with gold as money, but silver is much less commonly used or revered in this regard.

Gold is also used more often in luxury items like jewelry than silver. It is vaunted for its flashiness and signature hue. Even though silver is arguably the more useful metal – it has industrial and medical indications – gold remains the top precious metal and is likely to continue to be the top metal for the foreseeable future.

The Gold/Silver Ratio

With some of the numbers described above, it is easy to see how some ratios and proportions might come into play. The gold/silver ratio is a measure of how the two metals’ spot prices compare to each other at any given moment.

As you may have guessed, gold has – at least in modern times – always been the more expensive metal per ounce. In fact, the lowest gold/silver ratio in the past decade has been around 59:1.

In other words, gold has never been less than 59 times more expensive than silver. At present, the ratio is more than 79:1.

The value of the gold/silver ratio is to serve as an indicator about whether or not one of the metals is undervalued or overvalued in comparison to the other. However, in a vacuum, simply knowing the gold/silver ratio itself doesn’t tell us anything. After all, it says nothing about the rarity and/or demand surrounding each metal.

The gold/silver ratio needs to be compared in proportion to the amount of each metal mined and the overall amount of demand. We’ve already covered the fact that silver is mined at roughly 8 times the amount of gold each year. In terms of demand, there is 17 times more demand for silver than demand for gold.

However, gold remains more valuable due to its reputation and the fact that it is never destroyed in its usage. Essentially, all gold ever mined in history remains in service, while silver is often used up or otherwise spent due to its industrial applications.

Gold and Silver Liquidity

Part of the decision about an investment surrounds its liquidity. In other words, it is important to understand how easily you can convert a non-cash object or investment vehicle back into fiat currency. Without reservation, we can say that gold and silver are both extremely liquid investments.

For one thing, both gold and silver have been valued commodities of trade for thousands of years. At times, they have both stood in as actual currency, making them the very definition of liquid.

As it stands, you can buy and sell gold and silver at any time. Pawn shops, coin shops, and jewelry stores are always willing to make a deal. Beyond that, online precious metals dealers like us at JM Bullion are available around the clock, and we never take any holidays.

If we had to pick, we would probably say that gold is slightly more liquid than silver. Its historical and current status as a currency in the US and around the world makes it nearly indistinguishable from actual money. However, unless you are dealing in extremely large amounts of metal, it is exceptionally unlikely that you’ll ever be “stuck” with silver or gold.

Storage and Transport Ease for Gold and Silver

When you are investing in a physical commodity, you must plan for both the storage and transport of that commodity to and from your property and possession. In this case, gold is the superior of the two metals for both storage and transport.

The reason for gold’s superiority in this regard is the disparity in per-ounce value between the two metals. If you only have the space and transport capacity for a limited amount of metal, you are going to be able to store your value much easier with the yellow stuff. After all, we already know that an ounce of gold is worth roughly 79 times an ounce of silver, and it’s quite possible that the discrepancy will increase in the future.

The Markups for Gold and Silver

No matter which metal you choose to buy or which vendor you decide to use, you must be aware that you are not going to be able to purchase the metal for the spot price. Each retail and online dealer, including JM Bullion, is going to charge a premium on top of the spot price in order to cover its costs and earn a profit.

However, within the markup schemes for gold and silver, there is an interesting inflection point. Due to the differences in per-ounce value for each metal, you can count on reaching a break-even point between the two metals’ markups if your total purchase price is around $1,500.

Prior to reaching $1,500, you can generally count on finding smaller markups with silver. After the $1,500 mark, the markup on gold is typically going to be the best deal.

So, if buying as close to spot price as possible is a major criterion for you (which it probably should be), you should partially assess which metal to buy based on your budget. If you cannot afford to buy more than $1,500 worth of metal, it’s probably a better idea to stick to silver.

However, if you anticipate appreciation or decline in the prices of either metal due to your own research and hunch, then you should buy whatever metal you want. You need only bear in mind that you may be increasing the hurdle for your investment to appreciate into profitability.

The Bottom Line

There are plenty of quantitative ways to consider the prices of gold and silver. However, the mere price points of the two and their comparison to one another is likely inadequate as your sole decision point for an investment.

After all, there are legitimate qualitative concerns to address. Your storage and transport capabilities, for instance, should not fall by the wayside.

It’s also worth bearing in mind that the very price of these metals is not an objective measure by any means. So, there’s nothing wrong with making your investment decision a combination of both what your brain and your heart are telling you.