Silver vs. Gold

The biggest thing that separates gold from silver as far as their uses for investment purposes go is just how much bigger the gold market is compared to all other precious metal markets, including silver.

Gold is Far More Popular than Silver

The gold market is much bigger than the silver market, and while big isn’t necessarily better, it generally is when it comes to markets. All the silver in the world has been calculated to be worth about $17 billion, and in the world of investments, that’s really not a lot, especially compared to the about $8 trillion there is floating around in gold.

Silver vs. GoldThere are some cryptocurrencies that have even well surpassed silver in terms of market value, with Bitcoin quickly growing to several times the size of the silver market for instance. The smaller size of the silver market has tempted several people to take very large positions in it, most notably the Hunt Brothers, and there are a number of people whose personal wealth well exceeds the value of the entire silver market and have been tempted to invest billions in it.

When we compare this to the fact that the world’s largest governments take much bigger positions in gold and really don’t have anywhere near the effect on it that some of these silver plays have had, which can really drive the price of silver up, this gives us an idea of some of the practical consequences of smaller market sizes such as silver has.

If people flocked to silver the way that they do to gold in times of lesser performance in other investments such as the stock market or with the U.S. dollar, we at least potentially could be looking at far more volatility, but there are some real risks involved here and this does not generally happen.

Silver’s Volatility Tends to be Overstated

It’s not that silver isn’t more volatile, but the risks involved in acquiring huge positions in it proportional to the market serves to temper this interest quite a bit, but the biggest reason why this doesn’t really happen much is the fact that gold is the go to investment during these times, and people just don’t throw the billions of dollars at silver like they can do with gold at various points in time.

Silver’s reputation as far as volatility goes tends to be quite overstated though, perhaps from memories of its massive run up in 1980, during the time that the Hunt Brothers were looking to corner the market, which ended up in disaster and bankrupted the investors. Unlike cybercurrencies, which have no theoretical limits due to their having no intrinsic value, the price of silver is indeed tied to its value as an industrial input, and more so than gold is.

Investors could simply overwhelm this industrial demand though without any trouble, but the fact is, once prices start to rise enough, people start using this primary demand as a benchmark of sorts, as well as silver’s history of sharp declines after big run ups, and this ends up bringing the price of silver crashing down every time.

Silver is even more famous for its drops than it is its rises, and can give back a lot of its value over a relatively short period of time. As an example from recent times, it gave back almost 80% of its value between 2011 and 2015, and hasn’t recovered much at all since.

We therefore need to be more suspect of silver going up than we do with stocks and even with gold, although gold’s moves don’t tend to be quite as dramatic. Silver is more of a trader’s market than gold is, where one must be at the ready to exit positions when things turn the other way, although gold is much more of a trader’s market than most people realize and operates under at least similar conditions.

The two metals are actually quite similar in this regard, as investments with both tend to be driven by inflows and outflows based upon their relative desirability compared to other investments, with the current bull market in stocks being a good example of this.

As people saw the price of both gold and silver start to decline off their recent highs, with the stock market rising nicely, this precipitated a move out of these metals and back in the stock market, particularly with investors who fled the stock market during its dramatic fall a few years earlier.

Money in precious metals tends to be a little more on the conservative side, and while many investors were quicker to jump in or to add to their stock positions after the reversal back to the upside, some investors needed to see more and these are particularly the ones that move more toward precious metals such as gold and silver, but once the price starts dropping, this will usually be sufficient enough to motivate them.

Both of these precious metals can be plenty volatile, and even though we often think of gold as a more solid and stable investment, and people speak of silver as being quite a bit more volatile, both are pretty volatile and neither are anything close to being stable generally.

We need to take this potential for volatility well into account when we are investing in either silver or gold, something that a lot of investors don’t account for enough. This does require more of a trading mentality than with other investments, where one needs to monitor the performance of the exit and look to ensure that we aren’t exposing ourselves to excessive risk or book excessive losses due to our reluctance to exit our positions when we should.

Changes in Price Over Time With Silver and Gold

There is a floor for the silver market though, or at least influences that stabilize its price when it declines a lot, and that’s tied into the intrinsic value of silver. A much higher percentage of silver is used for non investment purposes compared to gold and at some point its price becomes a value to these users and this will stimulate demand even when investors are running for the exits.

The actual floor for silver is in the $5-$6 per ounce range, adjusted for inflation, and it’s actually important to look at precious metals and other investments as well on charts that adjust for inflation, to be able to see the actual performance of the investment more clearly.

When we do this with silver, we can see that, curiously, the price of silver has not really increased over the long term and is sitting at the same price that it did 100 years ago, in the range of about $16 an ounce. Prices have moved up and down over this time, and quite a bit in fact, but we really see the reversion to the mean effect in operation with silver, and perhaps more so than any other investment.

What this means is that with silver, and with gold as well to a similar extent, when the price goes up, we may expect with reasonable certainty that the price will end up going back down. Contrast this with stocks where the expectation is that the price will go up over time, and when it goes down we expect it to go back up and continue its path in that direction over the longer term.

We need to be more suspect with upward movements in the price of both gold and silver, and this works in the other direction as well, as when the price goes down a lot we can be on the lookout more for it rising.

Gold’s moves tend to be more sustained than silver’s though, and this means that gold on this count would be more suitable for investors, and those investing or trading in silver must be more attentive to their positions.

Silver’s overall moves can be fairly sustained though, and we’ve seen 4 major movements with it over the past 50 years, where it dropped below $10, rose above $50, dropped below $10, rose again over $50, and has now dropped to its current floor of about $16.

There are both moves of shorter and longer duration, but even if someone is trading shorter time frames, we do benefit by paying attention to these longer term trends, more so than with other investments generally.

It’s not that there aren’t opportunities on the long side during a longer term pullback, but the opportunities are of shorter duration and are limited in magnitude as well, for example with the move up from about $15 to about $20 that we saw between February and July 2016. This might seem to be a significant move on paper but it’s hard to trade something like this when the prices move the way silver’s does, unless you are a nimble trader, and investors are nothing of this sort generally.

When the price is going down, you really don’t know when the decline will stop until after it has stopped, and gone up a fair bit, and you also don’t know when the rise will reverse until it has already reversed.

Silver does produce moves quite a bit larger than this at times though, ones that can give up the necessary amount on entries and exits like this and still capture some pretty big moves, and also manifest themselves over time frames more suitable to investors and not just shorter term traders.

Compared with gold, silver’s moves on charts tend to be more discernible and don’t suffer from the more significant ups and downs that gold does. There’s a lot more going on with gold as far as what influences its price, where with silver, pure speculation drives it a lot more, and this is the sort of thing you want when you’re looking to time investments.

This is probably the biggest difference for practical purposes between silver and gold, the fact that gold is more spastic so to speak and more difficult to predict at least trends of certain lengths with that silver is.

It’s not that silver’s price moves that orderly either, and its tendency to move up and down can test the patience and skills of the best investors and traders, but silver does tend to produce cleaner charts than gold and therefore we may rely on trends to show themselves more easily with silver than with gold generally.

This is important because cleaner price movements mean that we’re able to better predict price moments, which allows us to capture more of a move and also expose ourselves to less risk. If the price is oscillating pretty widely, that can be very hard to do.

Given the nature of the silver market, and the gold market as well for that matter, we also should be willing to play both sides, to go both long and short as the situation demands, and this is especially the case given that there really isn’t that much long term bias upward with gold and essentially none with silver.

Gold is certainly seen as a more upscale investment, and few people love investing in silver so much that they will turn away from gold by way of this preference, but those who are at least a bit more adventurous may enjoy and profit from investing or trading in silver as well.



Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

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