Gold? Silver? Which is better for trading? That’s the question most traders ask before investing in either of these two precious metals. Traditionally, more traders prefer investing in gold than in silver. However, this can be a mistake because we’ve seen times when the price of silver moves faster than that of gold.

One reason for the preference in gold is that it is often viewed as a more valuable asset in the human imagination. For example, on 1st March 2018, one ounce of gold was trading at $1,321.50 while one ounce of silver was trading at $16.71. So, gold can be seen as a more lucrative investment than silver.

Nonetheless, the truth is that there are times when silver is a better investment than gold and vice versa.

This article will try to explain the reasons when choosing one precious metal over the other is preferable.

Choosing Between Gold and Silver

Here is a chart from www.macrotrends.net showing gold’s price (blue color) and silver’s price (orange color) from 2006 to early 2018.

As seen on the chart, gold and silver prices are strongly correlated. Few other financial assets ever exhibit this strong degree of correlation seen on the two precious metals.

Because they tend to move in the same direction, you should choose wisely the one to trade in. For example, instead of investing heavily in one precious metal, go for the one that is likely to bring more returns on your investment.

The above chart demonstrates that from June 2006 to October 2008, investing in gold was preferable to silver. During this period, a gold purchaser would have earned more than 20% in profits whereas a someone who bought silver would have experienced losses of more than 10%.

In June 2006, gold was priced at around $596.15 while silver was priced at around $10.70. In October 2008, at the height of the global financial crisis, gold was priced at $730.75 while silver was priced at $9.28.

From April 2009 to April 2011, trading in silver was a better choice than trading in gold. Silver strongly performed better than gold. In April 2009, silver was trading at $12.63 while gold was trading at $883.25. And, while the price of silver skyrocketed in April 2011 to $48.70, the highest ever, the price of gold was at $1535.50.

If you bought silver during this period, you could have gained almost 300%, which is more than the gain of about 75% in trading gold.

From May 2011 to May 2014, trading in gold was better than trading in silver. During this period, losses incurred in gold investments were significantly less than those from silver investments.

Therefore, as evidenced by the above analysis, there are times when trading in silver is better than trading in gold and vice versa.

Let’s look at the factors that will determine the choice you make.

Factors to Consider Before Making a Choice

Deciding to own either gold or silver can be a difficult task. However, with careful consideration of the differences between the precious metals and the factors influencing their movements, making an appropriate choice is possible.

Here are some factors to consider.

1. Volatility of Gold and Silver

Silver’s price shows more volatility than that of gold. Every year, about 25,000 metric tons of silver are supplied to the global market. The yearly gold supply is about 3000 metric tons.

As much as this may seem that the silver market is larger than gold, the opposite is true. Because of the enormous difference in their prices, the value of their annual supplies also differs significantly. At present prices, the value of gold’s yearly supply is about nine times larger than silver.

Therefore, silver exhibits more volatility because it requires only a comparatively small amount of money to cause price movements. It is estimated that when gold moves by 1%, either upwards or downwards, silver moves by about 3%.

Here is a table showing how the prices of the two metals performed in the past.

Rise from 1970 low to 1980 highDrop from 1980 high to 1985 lowRise from 2008 low to 2011 highDrop from 2011 high to 2016 low
Gold2,300%-65%165%-43%
Silver3,100%-88%440%-70%

As seen in the above table, silver gains more percentage points during bullish conditions and loses more points during bearish conditions.

As a trader, you can use silver’s high volatility, to your advantage. For example, if you place buy orders during bullish market conditions, silver will give you better profits than gold.

Similarly, when the market is bearish, silver will selloff quicker and farther than gold. Thus, when the bullish strength seems to be dwindling, selling silver could be a better option.

2. Gold-silver ratio

The gold-silver ratio is a determinant of the amount of silver needed to purchase one ounce of gold. For example, since the current price of gold is $1,321.50 and that of silver is $16.71, the ratio could be calculated as $1,321.50 / $16.71 = 79.08. This means that it requires 79.08 ounces of silver to purchase one ounce of gold.