Investments in Focus

Questions

1. In what ways is gold similar to silver?

2. In what ways is gold different from silver?

3. What is the definition of volatility?

4. Why is silver more volatile than gold? Is volatility good or bad?

5. As an investment, do you prefer the actual gold/silver, or would you go with gold/silver ETFs?

Explain.

Silver vs. Gold: How the Two Metals

Compare as Investments

The world's two best-known precious metals have surged this year. But there are differences

that investors need to consider.

By

Simon Constable [WSJ, Aug. 8, 2020]

So far this year, investors in gold and silver have made out like bandits, especially when

you compare the returns of the world's two best-known precious metals with those of

stocks.

SPDR Gold Shares (GLD), an exchange-traded fund that tracks the price of bullion,

and iShares Silver Trust (SLV), an ETF that tracks silver prices, are up 34% and 57%,

respectively, so far this year. That compares to just a 4% gain for SPDR S&P 500 ETF (SPY),

which tracks the S&P 500 stock index.

As investments, gold and silver are similar in that they don't pay dividends and both

require investors to pay storage costs. But there are differences that could make one of the

metals more suitable for a specific investor's portfolio than the other. Or neither suitable at

all.

Here are a few things to consider:

1. Liquidity

The gold market is far more liquid than the silver market, says Rohit Savant, vice president

of research at New York-based commodities consulting firm CPM Group.

It also is larger in terms of the value of its annual supply. In 2019, the gold market was

valued at $24.5 trillion, more than five times the $4.4 trillion value of the silver market,

according to estimates from CPM's Gold and Silver 2020 yearbooks, respectively. "The

silver market is relatively less liquid with a slightly higher level of risk versus trading gold,"

Mr. Savant says.

While individual investors can easily trade into and out of holdings of both gold and silver,

better liquidity means it is easier for investors who want to make large purchases or sales

of gold do so without moving the price of the commodity. The relative lack of liquidity in

the silver market could make some large-scale precious-metals buyers choose gold instead.

This liquidity difference shouldn't be a problem for those wishing to trade smaller volumes.

2. Volatility

The silver market is more volatile than the gold market, which can be a good thing or a bad

thing, depending on the type of investor involved.

For traders wanting to make money from a run-up in prices, silver's additional volatility is

helpful because more volatility means larger price swings that traders can try to exploit.

"The biggest advantage for silver is volatility," says William Rhind, founder and CEO of New

York-based ETF provider GraniteShares.

Why is silver more volatile? One reason, as noted, is the size of the market. What's more,

much of the silver supply is produced as a byproduct of the mining of other metals such as

copper and lead. That means higher prices for silver don't necessarily result in extra

supply, which would tend to dampen a rally.

Silver outperformed gold significantly in the most-recent two bull markets for gold,

according to data provided by CPM Group. From 2001 to 2011 gold rose 636% while silver

rallied 904% over the same period. From 1993 to 1996 gold rose 28% while silver surged

63%, again over the same time.

But greater volatility also means more risk. As we saw earlier this year, the price of silver

plunged far more than did that of gold during the peak of the Covid-19 crisis.

Short-term investors need to be agile enough to exit trades when the price trend changes

from up to down or vice versa. And spotting these turning points is hard even for

professional investors.

3. Diversification

Many investors add precious metals to their portfolio because prices of these assets tend to

be uncorrelated to those of other securities such as stocks and bonds, thus reducing overall

portfolio risk. When stocks zig, precious metals may zig, zag or do nothing at all.

But when it comes to diversification, gold has the edge over silver.

"Silver is more linked to the business cycle," says Mr. Rhind. When the economy is doing

well, there is more industrial demand for silver and that can influence prices. There is little

industrial use of gold.

"Gold is more disconnected and more uncorrelated to everything," Mr. Rhind says.

Typically, central banks buy gold, not silver, as a way to diversify the risk of holding other

currencies, including U.S. dollars, he says.

4. Storage costs

Investments in silver or gold are associated with certain expensesspecifically storage and

insurance expensesthat most securities aren't. If stolen, precious metals are largely

untraceable, so investors typically place their holdings in vaults or other secure facilities.

There are charges for renting such space, insuring the assets, and then for transporting the

metal when it gets sold or purchased.

Again, there is a difference in how this affects gold and silver investments.

Investors would need to rent far more space in a vault for $1 million of silver than they

would for $1 million of gold. That's because $1 million would buy 41,118 troy ounces of

silver versus 505 ounces of gold at recent prices. A standard bar of gold is typically 400

ounces. "In terms of storage or transport then gold is a better option," Mr. Savant says.

For investors who buy gold or silver through ETFs or mutual funds, these differences may

not be a problem, as annual fund expenses tend to be low. The gold and silver ETFs

mentioned above, for example, have annual expenses of 0.4% and 0.5%, respectively. They

benefit from economies of scale, but those costs are still much higher than those of SPDR

S&P 500, which has annual costs of 0.09%.

Mr. Constable is a writer in Edinburgh, Scotland.

The Beginner's Guide to Investing in Gold

Here's everything you need to know about how to invest in this precious metal.

Reuben Gregg Brewer

Updated: Sep 4, 2019 at 4:28PM

Author Bio

Imagine yourself sitting in a stream swirling water in a pan, desperately hoping to see a small

yellow glint of gold and dreaming of striking it rich. America has come a long way since the early

1850s, but gold still holds a prominent place in our global economy today. Here's a

comprehensive introduction to gold, from why it's valuable and how we obtain it to how to

invest in it, the risks and benefits of each approach, and advice on where beginners should start.

Why is gold valuable?

In ancient times, gold's malleability and luster led to its use in jewelry and early coins. It was also

hard to dig gold out of the ground -- and the more difficult something is to obtain, the higher it is

valued.

Over time, humans began using the precious metal as a way to facilitate trade and accumulate

and store wealth. In fact, early paper currencies were generally backed by gold, with every

printed bill corresponding to an amount of gold held in a vault somewhere for which it could,

technically, be exchanged (this rarely happened). This approach to paper money lasted well into

the 20th century. Nowadays, modern currencies are largely fiat currencies, so the link between

gold and paper money has long been broken. However, people still love the yellow metal.

Where does demand for gold come from?

The largest demand industry by far is jewelry, which accounts for around 50% of gold

demand. Another 40% comes from direct physical investment in gold, including that used to

create coins, bullion, medals, and gold bars. (Bullion is a gold bar or coin stamped with the

amount of gold it contains and the gold's purity. It is different than numismatic coins, collectibles

that trade based on demand for the specific type of coin rather than its gold content.)

Investors in physical gold include individuals, central banks, and, more recently, exchange-traded

funds that purchase gold on behalf of others. Gold is often viewed as a "safe-haven" investment.

If paper money were to suddenly become worthless, the world would have to fall back on

something of value to facilitate trade. This is one of the reasons that investors tend to push up

the price of gold when financial markets are volatile.

Since gold is a good conductor of electricity, the remaining demand for gold comes from

industry, for use in things such as dentistry, heat shields, and tech gadgets.

How is the price of gold determined?

Gold is a commodity that trades based on supply and demand. The interplay between supply and

demand ultimately determines what the spot price of gold is at any given time.

The demand for jewelry is fairly constant, though economic downturns do, obviously, lead to

some temporary reductions in demand from this industry. The demand from investors, including

central banks, however, tends to inversely track the economy and investor sentiment. When

investors are worried about the economy, they often buy gold, and based on the increase in

demand, push its price higher. You can keep track of gold's ups and downs at the website of the

World Gold Council, an industry trade group backed by some of the largest gold miners in the

world.

How much gold is there?

Gold is actually quite plentiful in nature but is difficult to extract. For example, seawater contains

gold -- but in such small quantities it would cost more to extract than the gold would be

worth. So there is a big difference between the availability of gold and how much gold there is in

the world. The World Gold Council estimates that there are about 190,000 metric tons of gold

above ground being used today and roughly 54,000 metric tons of gold that can be economically

extracted from the Earth using current technology. Advances in extraction methods or materially

higher gold prices could shift that number. Gold has been discovered near undersea thermal

vents in quantities that suggest it might be worth extracting if prices rose high enough. .

How do we get gold?

Although panning for gold was a common practice during the California Gold Rush, nowadays it

is mined from the ground. While gold can be found by itself, it's far more commonly found along

with other metals, including silver and copper. Thus, a miner may actually produce gold as a byproduct

of its other mining efforts.

Miners begin by finding a place where they believe gold is located in large enough quantities that

it can be economically obtained. Then local governments and agencies have to grant the

company permission to build and operate a mine. Developing a mine is a dangerous, expensive,

and time-consuming process with little to no economic return until the mine is finally

operational -- which often takes a decade or more from start to finish.

How well does gold hold its value in a downturn?

The answer depends partly on how you invest in gold, but a quick look at gold prices relative to

stock prices during the bear market of the 2007-2009 recession provides a telling example.

Between Nov. 30, 2007, and June 1, 2009, the S&P 500 index fell 36%. The price of gold, on the

other hand, rose 25%. This is the most recent example of a material and prolonged stock

downturn, but it's also a particularly dramatic one because, at the time, there were very real

concerns about the viability of the global financial system.

When capital markets are in turmoil, gold often performs relatively well as investors seek out

safe-haven investments.

Ways to invest in gold

Here are all the ways you can invest in gold, from owning the actual metal to investing in

companies that finance gold miners.

Investment

Option Pros Cons Examples

Jewelry

Easy to acquire

High markups

Questionable resale value

Just about any piece of gold jewelry with

sufficient gold content (generally 14k higher)

Physical gold

Direct exposure

Tangible

ownership

Markups

No upside beyond gold price

changes

Storage

Can be difficult to liquidate

Collectible coins

Bullion (noncollectible gold bars and coins)

Gold certificates

Direct exposure

No need to own

physical gold

Only as good as the company

that backs them

Only a few companies issue

them

Largely illiquid

Perth Mint Certificates

Gold ETFs

Direct exposure

Highly liquid

Fees

No upside beyond gold price

changes

SPDR Gold Shares (NYSEMKT: GLD)

Futures contracts

Little up-front

capital

required to

control a large

amount of

gold

Highly liquid

Indirect gold exposure

Highly leveraged

Contracts are time-limited

Futures contracts from the Chicago Mercantile

Exchange (constantly updating as contracts expire)

Gold mining

stocks

Upside from mine

development

Usually tracks

gold prices

Indirect gold exposure

Mine operating risks

Exposure to other

commodities

Barrick Gold (NYSE: ABX)

Goldcorp (NYSE: GG)

Newmont Goldcorp (NYSE: NEM)

Gold miningfocused

mutual

funds and ETFs

Diversification

Upside from mine

development

Usually tracks

gold prices

Indirect gold exposure

Mine operating risks

Exposure to other

commodities

Fidelity Select Gold

Portfolio(NASDAQMUTFUND: FSAGX)

VanEck Vectors Gold Miners ETF(NYSEMKT:

GDX)

VanEck Vectors Junior Gold Miners

ETF (NYSEMKT: GDXJ)

Streaming and

royalty

companies

Diversification

Upside from mine

development

Usually tracks

gold prices

Consistent wide

margins

Indirect gold exposure

Mine operating risks

Exposure to other

commodities

Wheaton Precious Metals (NYSE: WPM)

Royal Gold (NASDAQ: RGLD)

Franco-Nevada (NYSE: FNV)

Jewelry

The markups in the jewelry industry make this a bad option for investing in gold. Once you've

bought it, its resale value is likely to fall materially. This also assumes you're talking about gold

jewelry of at least 10 karat. (Pure gold is 24 karat.) Extremely expensive jewelry may hold its

value, but more because it is a collector's item than because of its gold content.

Bullion, bars, and coins

These are the best option for owning physical gold. However, there are markups to consider. The

money it takes to turn raw gold into a coin is often passed on to the end customer. Also, most

coin dealers will add a markup to their prices to compensate them for acting as middlemen.

Perhaps the best option for most investors looking to own physical gold is to buy gold bullion

directly from the U.S. Mint, so you know you are dealing with a reputable dealer.

Then you have to store the gold you've purchased. That could mean renting a safe deposit box

from the local bank, where you could end up paying an ongoing cost for storage. Selling,

meanwhile, can be difficult since you have to bring your gold to a dealer, who may offer you a

price that's below the current spot price.

Gold certificates

Another way to get direct exposure to gold without physically owning it, gold certificates are

notes issued by a company that owns gold. These notes are usually for unallocated gold,

meaning there's no specific gold associated with the certificate, but the company says it has

enough to back all outstanding certificates. You can buy allocated gold certificates, but the costs

are higher. The big problem here is that the certificates are really only as good as the company

backing them, sort of like banks before FDIC insurance was created. This is why one of the most

desirable options for gold certificates is the Perth Mint, which is backed by the government of

Western Australia. That said, if you're going to simply buy a paper representation of gold, you

might want to consider exchange-traded funds instead.

Exchange-traded funds

If you don't particularly care about holding the gold you own but want direct exposure to the

metal, then an exchange-traded fund (ETF) like SPDR Gold Shares is probably the way to go. This

fund directly purchases gold on behalf of its shareholders. You'll likely have to pay a commission

to trade an ETF, and there will be a management fee (SPDR Gold Share's expense ratio is 0.40%),

but you'll benefit from a liquid asset that invests directly in gold coins, bullion, and bars.

Futures contracts

Another way to own gold indirectly, futures contracts are a highly leveraged and risky choice that

is inappropriate for beginners. Even experienced investors should think twice here. Essentially, a

futures contract is an agreement between a buyer and a seller to exchange a specified amount

of gold at a specified future date and price. As gold prices move up and down, the value of the

contract fluctuates, with the accounts of the seller and buyer adjusted accordingly. Futures

contracts are generally traded on exchanges, so you'd need to talk to your broker to see if it

supports them.

The biggest problem: Futures contracts are usually bought with only a small fraction of the total

contract cost. For example, an investor might only have to put down 20% of the full cost of the

gold controlled by the contract. This creates leverage, which increases an investor's potential

gains -- and losses. And since contracts have specific end dates, you can't simply hold on to a

losing position and hope it rebounds. Futures contracts are a complex and time-consuming

investment that can materially amplify gains and losses. Although they are an option, they are

high-risk and not recommended for beginners.

Gold mining stocks

One major issue with a direct investment in gold is that there's no growth potential. An ounce of

gold today will be the same ounce of gold 100 years from now. That's one of the key reasons

famed investor Warren Buffett doesn't like gold -- it is, essentially, an unproductive asset.

This is why some investors turn to mining stocks. Their prices tend to follow the prices of the

commodities on which they focus; however, because miners are running businesses that can

expand over time, investors can benefit from increasing production. This can provide upside that

owning physical gold never will.

However, running a business also comes with the accompanying risks. Mines don't always

produce as much gold as expected, workers sometimes go on strike, and disasters like a mine

collapse or deadly gas leak can halt production and even cost lives. All in all, gold miners can

perform better or worse than gold -- depending on what's going on at that particular miner.

In addition, most gold miners produce more than just gold. That's a function of the way gold is

found in nature, as well as diversification decisions on the part of the mining company's

management. If you're looking for a diversified investment in precious and semiprecious metals,

then a miner that produces more than just gold could be seen as a net positive. However, if what

you really want is pure gold exposure, every ounce of a different metal that a miner pulls from

the ground simply dilutes your gold exposure.

Potential investors should pay close attention to a company's mining costs, existing mine

portfolio, and expansion opportunities at both existing and new assets when deciding on

which gold mining stocks to buy.

Mining-focused ETFs

If you're looking for a single investment that provides broadly diversified exposure to gold

miners, then low-cost index-based ETFs like VanEck Vectors Gold Miners ETF and VanEck Vectors

Junior Gold Miners ETF are a good option. Both also have exposure to other metals, but the

latter focuses on smaller miners; their expense ratios are 0.53% and 0.54%, respectively.

As you research gold ETFs, look closely at the index being tracked, paying particular attention to

how it is constructed, the weighting approach, and when and how it gets rebalanced. All are

important pieces of information that are easy to overlook when you assume that a simple ETF

name will translate into a simple investment approach.

Mutual funds

Investors who prefer the idea of owning mining stocks over direct gold exposure can effectively

own a portfolio of miners by investing in a mutual fund. This saves the legwork of researching

the various mining options and is a simple way to create a diversified portfolio of mining stocks

with a single investment. There are a lot of options here, with most major mutual fund houses

offering open-end funds that invest in gold miners, such as the Fidelity Select Gold

Portfolio and Vanguard Precious Metals Fund.

However, as the Vanguard fund's name implies, you are likely to find a fund's portfolio contains

exposure to miners that deal with precious, semiprecious, and base metals other than

gold. That's not materially different from owning mining stocks directly, but you should keep this

factor in mind, because not all fund names make this clear. (For example, the Fidelity Select Gold

Portfolio also invests in companies that mine silver and other precious metals.)

Fees for actively managed funds, meanwhile, can be materially higher than those of index-based

products. You'll want to read a fund's prospectus to get a better handle on its investing

approach, whether it is actively managed or a passive index fund, and its cost structure. Note

that expense ratios can vary greatly between funds.

Also, when you buy shares of an actively managed mutual fund, you are trusting that the fund

managers can invest profitably on your behalf. That doesn't always work out as planned.

Streaming and royalty companies

For most investors, buying stock in a streaming and royalty company is probably the best allaround

option for investing in gold. These companies provide miners with cash up front for the

right to buy gold and other metals from specific mines at reduced rates in the future. They are

like specialty finance companies that get paid in gold, allowing them to avoid many of the

headaches and risks associated with running a mine.

Benefits of such companies includes widely diversified portfolios, contractually built-in low prices

that lead to wide margins in good years and bad, and exposure to gold price changes (since

streaming companies make money by selling the gold they buy from the miners). That said, none

of the major streaming companies has a pure gold portfolio, with silver the most common added

exposure. (Franco-Nevada, the largest streaming and royalty company, also has exposure to oil

and gas drilling.) So you'll need to do a little homework to fully understand what commodity

exposures you'll get from your investment. And while streaming companies avoid many of the

risks of running a mine, they don't completely sidestep them: If a mine isn't producing any gold,

there's nothing for a streaming company to buy.

The built-in wide margins that result from the streaming approach provide an important buffer

for these businesses. That has allowed the profitability of streamers to hold up better than

miners' when gold prices are falling. This is the key factor that gives streaming companies an

edge as an investment. They provide exposure to gold, they offer growth potential via the

investment in new mines, and their wide margins through the cycle provide some downside

protection when gold prices fall. That combination is hard to beat.

What's the best way for a beginner to invest in gold?

There's no perfect way to own gold: Each option comes with trade-offs. That said, probably the

best strategy for most people is to buy stock in streaming and royalty companies. However, what

to invest in is just one piece of the puzzle: There are other factors that you need to consider.

How much should you invest in gold?

Gold can be a volatile investment, so you shouldn't put a large amount of your assets into it -- it's

best to keep it to less than 10% of your overall stock portfolio. The real benefit, for new and

experienced investors alike, comes from the diversification that gold can offer. Once you've built

your gold position, make sure to periodically balance your portfolio so that your relative

exposure to it remains the same.

When should you buy gold?

It's best to buy small amounts over time. When gold prices are high, the price of gold-related

stocks rises as well. That can mean lackluster returns in the near term, but it doesn't diminish the

benefit over the long term of holding gold to diversify your portfolio. By buying a little at a time,

you can dollar-cost average into the position.

As with any investment, there's no one-size-fits-all answer for how you should invest in gold. But

armed with the knowledge of how the gold industry works, what each type of investment entails,

and what to consider when weighing your options, you can make the decision that's right for

you.

Should You Buy Gold?

The precious metal may be a good investmenthere's why

Ken Little

Gold has been a valuable commodity for centuries. Throughout recorded (and

unrecorded) history, gold has been used as a currency and a symbol of wealth and

power. Gold has been found in gravesites, buried alongside remains dating back as far as

4,500 B.C.E.1

This long-standing value demonstrates the stability of gold and its attractiveness over

time. Gold is considered by investors to be one of the safest investments, recovering its

value quickly through economic downturns. Its price often tracks in opposition to stock

market or economic swings.

When investor confidence is shattered, gold prices often climb as nervous investors look

for a safe place to put cash pulled out of the market. Gold is also a haven in times of

inflation because it retains its value much better than currency-backed assets, which may

climb in price, but drop in value.

If buying gold as an investment sounds like a good idea, read on to learn more.

Investing in Gold

Investing in gold is not like buying stocks or bonds. You can take physical possession of

gold by buying either gold coins or gold bullion. Bullion is gold in bar form, with a stamp

on it. The stamp contains the purity level and the amount of gold contained in the bar.

The value of the bullion or coin comes from its precious metals content and not its rarity

and condition, and it can change throughout the day. You can buy bullion or coins from

some banks, dealers, brokerage firms, and the U.S. Mint, which has been producing gold

coins and bullion for investment since 1986.

You can also buy stock in gold mining companies, gold futures contracts, gold-focused

exchange-traded funds (ETFs), and other regular financial instruments. If investors

purchase a gold-backed ETF, they are purchasing shares of a trust's ownership in gold,

but have no claim to the physical gold itself.2

Investing in gold with the idea it never loses value is the wrong approach. Like any

investment or financial asset, gold is subject to supply and demand pressures that cause

the price to fluctuate.

Current and Historical Prices of Gold

Investors should start by looking at the spot price of gold, which is what it can be bought

and sold for at that moment. The spot price of gold is quoted per one gold ounce, gram,

or kilo. For example, by the end of day on Friday, April 24, 2020, the spot price of gold

was $1,739.90 per ounce, $55.94 per gram, and $55,939.04 per kilo.3

If you look at historical gold prices, you'll find that the price of gold shot up dramatically

in the 2000s. In 2008, the price of gold varied from around $720 an ounce to over $1,000

an ounce.4 As the economy sunk further into the recession, gold prices soared to around

$1,888 in 2011 due to investor sentiment and demand. By April 2020, gold prices

declined slightly from where they were almost a decade earlier but continued to perform

well in the midst of an economic downturn.5

Something similar happened in the late 1970s. After the price increase in the '70s, gold

spent the next 20 years declining in value before going back up around 2000.6 During the

pandemic crisis, demand for gold surged, and the price of gold increased. Investors

couldn't be certain at that time whether the increase would continue or not because it is

equally possible that the trend could continue or the price would once again languish for

a considerable length of time. While languishing, any gold investment would not produce

any interest or dividends.

What Form of Gold Is the Right Investment for You?

Gold comes in many forms, so one may be better suited for your investment strategy

than another. You could purchase physical gold coins or bullion, but they must be stored

in a secure environment. This may involve paying a broker, bank, or another firm a fee.

One of the benefits of investing in physical gold is that, if you need to cash it in quickly,

you can. However, gold coins and bullion are often sold at a premium and bought at a

discount, so you may not get the market price when you do need to sell.

Investing in gold securities is similar to investing in any other security, except prices may

move with the stock market. For example, if you are investing in gold mining companies,

the price of the stock may reflect the company's financial health and market position

more than the price of gold. This can create a false sense of security if you are using it as

a hedge against risk.

When Should You Buy Gold?

Many proponents of gold suggest it is a good hedge against rising prices. The facts do not

support this statement though. Gold is often a better hedge against a financial crisis,

rather than a hedge against inflation. In times of crisis, gold prices tend to rise. But that is

not necessarily the case during periods of high inflation. If there's a financial crisis or

recession on the horizon, it may be wise to buy gold. However, if the economy is in a

period of high inflation, it may be wise to pass.

When investing for retirement, you need an investment that either generates current

income or is reasonably expected to appreciate in value so you can sell it in the future

and use it for consumption purposes. Gold is not an investment that you can rely on for

either of these purposes. Also, keep in mind that if you have gold in a retirement account

like an IRA, there may be penalties for early withdrawal if you decide to sell that gold and

cash out.

Key Takeaways

Investing in gold, whether the physical metal or gold-related securities, is a complicated

decision and not one to enter lightly. If you do decide to purchase physical gold, make

certain you are buying from a reputable dealer. If you are purchasing gold for your

retirement account, you must use a broker to buy and a custodian to hold your gold.

As a general rule of thumb, financial experts often suggest that you not have more than a

small percentage of your assets in gold. This is believed to be good advice because it acts

as an insurance policy. If you lose all other stocks in a crash, your gold should follow

historical trends and go up in value, keeping you from losing everything. But remember,

that's not guaranteed, so proceed with caution when buying this precious metal.

Investing in Gold vs. Silver: 3 Key

Differences to Know

Both gold and silver appeal to investors in a bear market, but the two

precious metals are not created equal.

Robin Hartill, CFP

Sep 10, 2020 at 7:16AM

When the economy is tanking and inflation is high, investors often rush to gold. Silver is also

viewed as a safe-haven investment, though it gets a lot less hype.

Both precious metals have been sought after throughout history, so they're appealing when

stocks and currencies are losing value.

In August, pandemic worries coupled with a weakening U.S. dollar sent gold prices

skyrocketing to over $2,000 an ounce for the first time in history. Silver has also rallied. For the

first time since 2013, silver prices soared to $28 an ounce in August, a 140% increase from its

2020 low.

Even in good times, many investors keep a small percentage of their assets invested in gold or

silver as a portfolio diversification strategy.

While gold and silver have similar boom-and-bust cycles, there are a few key differences to

consider when you're deciding whether investing in gold vs. investing in silver is a better move.

1. Gold is more expensive due to its smaller supply.

Gold can be prohibitively expensive if you want to buy physical metal. Let's look to the gold-silver

ratio, which tells you how many ounces of silver you'd need in order to purchase a single ounce

of gold.

The gold-silver ratio was around 72-to-1 at market close Sept. 9. That means ounce for ounce,

gold was 70 times more valuable than silver.

Back in March the gold-silver ratio was actually much higher, breaking 120-to-1 for the first time

in history, though the 21st century average is about 60-to-1.

Translation: Even when silver is expensive, there's a reason it's known as "the poor man's gold."

Gold is more expensive because it's by far the rarer metal. Worldwide, just 3,300 tons of gold

were mined in 2019, compared to 27,000 tons of silver, according to the U.S. Geological Survey.

2. Silver's industrial uses make gold the hedge of choice.

Gold and silver prices tend to move in the same direction, but gold is a better recession hedge.

More than half of the demand for silver is driven by its countless industrial uses. It's widely used

in electronics, automobiles, solar panels, medicine and manufacturing, to name a few.

Because it's so vital to industrial activity, demand for silver tends to rise and fall with the overall

economy. When production picks up, silver prices are likely to increase. If it slows, silver often

tumbles.

Gold usually surges when stocks are down. From December 2007 to May 2009 -- aka, the Great

Recession -- the S&P 500 fell 37%, but the price of gold rose by 24%.

Not only do investors drive up gold prices in a bear market, but the yellow metal is relatively

insulated from slowdown in economic activity because industrial uses are so limited. In the long

term, though, S&P 500 returns have historically crushed returns on gold.

3. Silver is more volatile than gold.

While short-term fluctuations in gold prices get a lot of attention, gold is relatively stable as a

long-term investment. The annualized volatility of gold was only slightly higher than the

annualized volatility of the S&P 500 during the 30-year period between 1989 and 2019.

The silver market's small size relative to the gold market makes it susceptible to wild price

swings.

While silver is mined at eight times the rate of gold, remember: Gold is currently over 70 times

more valuable than silver on an ounce-for-ounce basis, so the overall silver market is worth just a

fraction of the gold market.

Adding to the volatility: More than 70% of the silver supply is produced as a byproduct of mining

for other metals, like copper and gold, which makes the silver supply less responsive to changes

in demand.

Because of silver's volatility, it may be more appealing than gold if you're seeking to speculate on

short-term fluctuations. But as a long-term hedge, gold is clearly more attractive.

A golden investment opportunity

While many investors seek out gold and silver in physical form, like bullion or coin, a better

option is often to invest in mining stocks. You'll avoid the headaches that come with storing and

selling physical gold and silver, plus you may earn dividends. For those seeking greater

diversification, a gold ETF or silver ETF will be a better option.

Just remember that both gold and silver can be risky assets. As a rule of thumb, they shouldn't

account for more than 10% of your overall portfolio.

Investing in precious metals can be an effective hedge against a downturn. But when it comes to

long-term performance, the S&P 500 glitters far more than gold and silver.