Many precious metals investors prefer to invest in silver instead of gold, provided they see better returns in the coming years. Gold and silver prices are likely to have a strong link, but silver may perform better instead of gold in the future. Both metals are likely to be affected by the US dollar and factors such as weak economy, wars, interest rate hikes as well as inflation. Silver is considered a commodity because it is used in such a large number of industries and not a monetary asset like gold is considered to be.
There is no doubt that the properties that silver has makes it an interesting and important metal. Silver has the highest thermal and electrical conductivity on earth. This is why it is used in solar panels, electronics and energy efficient electric cars.
One of the factors that investors look at when comparing silver and gold is the gold-to-silver ratio. This refers to the amount of silver that one would need to purchase an ounce of gold. You get the ratio of gold to silver by taking the spot price of gold AUD and diving it by the silver price AUD at a given time. Looking at the historical context, this ratio allows us to understand how the market values both gold and silver. You can tell whether one metal is regarded as popular, useful and expensive or cheap and worthless. The rule of thumb is: when the ratio is high the price of silver drops and you will need more silver to buy that single ounce of gold.
Historically, silver is a great metal to buy when the ration is at 60-to-1. However silver is a very volatile metal and so the ratio has been known to fluctuate and even reach upwards of 100:1. For instance, 2020 became one of the best years for silver because the ratio hit 102-to-1. Gold makes significant gains when the goes down to 50-to-1.
Because the silver is cheaper compared to gold, it is faster and more likely to work on a much bigger scale compared to gold. That’s why young investors, who can manage consistency, prefer silver to gold because it operates better in an expensive bull market.
Change is not for everyone; however, sometimes it can be beneficial for you. Savvy investors will usually hold more than one type of asset in their investment portfolios. They may buy both silver and gold. They may sell silver to increase their gold holding or sell gold to increase their silver assets depending on market fluctuations and of course the gold-silver ratio. Those investors who are looking for something that will move faster will always look for silver.
Silver is twice as volatile as gold. In 2020, the silver price AUD rose by more than 40% whilst gold rose by a little over 23%. In any given year, gold averages 15.8% volatility whilst silver averages 31% volatility. High volatility may present more opportunities for short-term investors who have a high appetite for risk. These are the kinds of investors that will choose silver more than gold.