The Differences Between Gold and Silver for Your Portfolio

The world and financial markets are in turmoil. Investors are starting to worry. More and more people are realizing there are few things they can trust in this world, but they can still trust precious metals.

If you find yourself in this position, you may be wondering which precious metals you should buy to protect your investment portfolio. Well, we are going to break this down for you.

Gold and silver (and platinum and palladium) are all called precious metals because they do not occur in geology that often, and they have tremendous value to humanity. So, limited supply plus tremendous value equals a metal that is regarded as “precious”.

When it some to saving and investing though, there are some added nuances you’ll want to know before purchasing. This can be the difference between a smart investment, and a terrible mistake.

Silver is Way More Volatile

Silver is a new tech stock or a cryptocurrency for investors compared to gold, which acts more like a blue-chip stock like Berkshire Hathaway. The price rockets higher, and crashes lower than gold.

Some of this has to do with supply and demand dynamics. There are approximately 1 billion ounces of new silver produced every year and only about 130 million ounces of new gold produced annually.

The supply of silver is much bigger compared to gold.

But this is inverse compared to their value. The value of the new gold production is worth many multiples that of the new silver productions. Humanity simply values the gold metal more.

The annual market supply of gold (at current prices) is valued at about $200 billion whereas the annual market supply of silver is valued at about 15 billion, or less than 10% of that of gold.

This smaller value adds to silver’s volatility because there is less money that is needed to affect the market supply of silver. An amount as small as $150 million, about 10%, coming into or out of the silver market, will have a tremendous effect on the value of silver investments.

If the same $150 million goes into or out of the gold market, hardly anyone would notice.

So, how does this affect you as an investor that wants to add precious metals to your portfolio? Well, you better be prepared to handle the psychological highs and lows of holding silver.

In general, if you are new to investing in precious metals, you will want to stick mostly to investing in gold. And if you are a newbie to precious metals, you’ll want some help from the pros when making your purchases. You should start your research of which companies to work with by reading this¬†Hard Assets Alliance review.

Precious metals go through cycles just like everything else and investors need to understand this. You want to make these cycles your friend. These raging bull markets often last for a decade or so. Then they are followed by vicious bear markets. So your job is to understand the cycle and profit from it.

The 1970 – 1980 bull run saw gold climb in value 2500%, it then proceeded to crash in value 68%. During this same cycle silver, the more volatile sibling ran up 3200%, then silver proceeded to crash 90%.

A much more recent bull run from 2008 – 2011 saw gold charge 175 %, then crash 45%. During this same time, period silver went on a run up 470% only to crash back down 75%.

Can you see how as an investor you must understand these cycles? You will never sell at the top and buy at the bottom. What you want to do is to be aware of these cycles. When gold has been on a very long run-up, you might want to sell some, or simply stop your purchases. And when gold crashes, you want to start buying a little, until you see some price stabilization, then you can add more aggressively.

Another thing to note about the numbers above is that you can make a lot more money with silver. So why wouldn’t you allocate all your precious metals to silver? Because you can also lose a lot more money with silver. Now, if you are a seasoned precious metals investor then you may be fine going all-in on silver, and this article is not written for you.

If you are a beginner, how can you still capture some of that silver rocket fuel to turbocharge your portfolio? You can do this by smart asset allocation and position sizing. As a side note, if you want to learn more about asset allocation, this is a good article to read:

Let’s say hypothetically you want to put all the money you allocate for precious metals, in just gold and silver bullion. To get capture the upside of silver, without being punished by the downside, just allocate a smaller percentage to silver.

In this hypothetical situation, a 75% gold and 25% silver allocation makes a lot of sense. You have enough exposure to silver to benefit from the bull market, but not so much that you won’t be able to sleep soundly at night, knowing that you have made a prudent investment decision.

Another reason why many investors like silver are because it is more affordable. Currently silver is trading at $25/ounce. Gold is trading at $1950/ounce. This means that an ounce of gold is 78 times more expensive than an ounce of silver. Also, there are just more people that can buy an ounce, or several ounces of silver, than can buy an ounce of gold.

In this sense, silver is more divisible. This is attractive to a lot of investors, and everyday folks that want to protect some of their savings from inflation.

Your job is to understand where you fit as an investor. Gold and silver have a lot of benefits for people that are saving for retirement, and can be beneficial to a lot of portfolios, but only if you understand the unique and important differences between the two most popular metals to invest in.