When investing in gold and silver, you are investing in commodities which, in contrast to shares, do not pay any dividends and have storage costs given by the fact that the underlying is a physical good. Why do investors buy these products and can they be a suitable investment for all?
Both gold and silver are liquid assets, but gold is significantly more so. The annual value of the gold market in 2019 was $24.5 trillion, more than five times the value of the silver market at $4.4 trillion. For smaller retail investors, the market size should not matter as their trade volumes do not move the price but smaller markets in general tend to have lower liquidity and higher volatility.
As mentioned above silver, being a smaller market, tends to be more volatile. Volatile markets are preferred by certain types of investors that want to exploit price swings to make a quick profit. This can be risky for non experienced investors, because it can also cause quick losses if the price moves in the wrong direction.
On the other hand, silver can be a very good investment for long term investors as it has significantly outperformed gold in the last two bull markets. From 2001 to 2011 the value of gold increased by 636% while silver experienced a 904% growth over the same period. From 1993 to 1996, gold rose by 28% while silver performed 63% over the same period.
Many investors, and also central banks, buy gold to diversify their portfolio. This is because generally market performances of assets like stocks and bonds and gold usually have an inverse relationship, so gold performs better in a downturn. Silver though, because of its industrial use, usually follows business cycles more closely offering less diversification. For example, in the market drop at the end of February 2020 due to COVID-19, silver’s price drop was much more significant than that of gold.
4. Storage Costs
Being physical goods, gold and silver have costs to store the underlying asset. Gold has a lower cost since its price is higher, so for the same $10,000 you will need to store smaller amounts of gold than silver. Storage costs can be avoided though as there are many ways to buy these assets through ETNs, like on Oval, or ETFs that track futures on the commodities eliminating these extra costs for users.
In Oval we decided to offer both commodities to allow each and every investor to choose how they can become a part of their investment strategy. Find out more about our products in app.
Oval does not provide investment advice and individual investors should make their own decisions. Seek the advice of a financial consultant if you are not sure about your investment. Your capital is at risk and the value of investments can go up as well as down and you may receive back less than your original investment: you should not invest money that you can’t afford to lose.