Though we are far from the period when gold and silver were legal tenders and the value of currencies was tied to them, both precious metals remain valuable to investors as stores of value and safe-haven assets that can offer protection during economic downturns and uncertainty.
The stock market correction that has followed Trump’s tariffs is the newest proof of the value of these precious metals. While the S&P 500 Index has fallen by 9.42% yield-to-date (YTD) at the time of writing, gold and silver have surged by 17.29% and 3.1%, respectively.
Yet, there are fundamental differences between the two precious metals. The gold vs silver investment debate persists and many investors are often unsure which one to use for which purpose, especially as economic uncertainty brings them again to the fore.
In this article, we will consider the investment value of both precious metals, which is the better investment, and what they are best used for in an investment portfolio. We’ll cover:
- Gold as an investment: The investment value of gold
- Silver as an investment: The investment value of silver
- Gold vs silver investment: The fundamental differences
- Investing in silver vs gold: Where do they belong in your portfolio?
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1. Gold as an investment: The investment value of gold
Is investing in gold a good idea? There are at least four reasons why investors find gold valuable:
Gold as a store of value
Gold is a finite resource that is limited in supply. Extraction of this precious metal takes time and resources.
More importantly, the supply of gold is set to peak soon. “Major new gold discoveries have become increasingly scarce in recent years, with exploration focused more on expanding existing assets rather than greenfield projects,” according to Crux Investor, a platform providing insights into mining investments. “Gold supply is projected to peak in 2026 before declining through 2028.”
To understand the importance of this finite supply of gold, let’s compare it with a fiat currency like the pound. The Bank of England can increase the supply of the pounds in pursuit of an expansionary monetary policy. This will lead to inflationary pressure in the economy and the purchasing power of the pound reduces.
In contrast, since the supply of gold is limited, its value is stable, affected only by changes in demand. Thus, as long as demand continues to rise, the price of gold will rise and investors can be confident that their gold (whether physical gold or gold exchange-traded funds [ETFs]) will be worth more in the future than it is today.
When purchased as a physical asset, gold’s tangibility and durability confer on it an intrinsic value and this adds to its perception as a store of wealth.
Gold as a haven
As we saw above, when the stock market began to tumble due to the uncertainty that followed Trump’s tariffs, gold continued to rise. But this is not new.
During the global uncertainty that followed the Russian invasion of Ukraine in 2020, gold also held its mettle. “As Russian troops invaded Ukraine on 24 February, the yellow metal reached $1,974/oz, the highest it’s been since September 2020,” according to James Luke, Fund Manager, Metals at Schroders Capital, a global asset management firm.
In six of the eight US recessions between 1973 and 2020, gold outperformed the S&P 500 and produced positive returns for investors, according to Jim Iuorio, Managing Director of TJM Institutional Services, a brokerage firm, writing for Forbes.
Gold During Recessions in the US, 1973-2020
Source: Forbes
Beyond the US, gold is also a strong safe haven for market indices in the UK (FTSE Index) and Europe at large (both the STOXX and the DAX), according to the results of an academic article published by the Financial Innovation Journal and available on Springer Open.
Furthermore, gold has acted as a strong safe haven during periods of global economic crises between 1258 and 2018, according to an academic article published by Physica and available on Science Direct.
Gold as an inflation hedge
As regards gold’s role as an inflation hedge, the situation is not clear-cut. While gold was soaring during the inflationary period of the 1970s, it couldn’t repeat the performance in the 1980s and the 1990s.
Similarly, gold couldn’t prove its mettle as an inflation hedge in the 2021-2022 inflation that followed COVID-19 though it made a recovery beginning in November 2022.
What then can we conclude? “Some studies have found that gold can be an effective inflation hedge, but only over an extremely long time horizon of more than a century,” according to Wayne Duggan, a Forbes Advisor contributor, writing for Forbes. “Over shorter periods, researchers found gold’s inflation-adjusted price fluctuates dramatically.”
This conclusion also holds through from a global perspective. “Recent studies have shown that gold’s effectiveness as an inflation hedge varies depending on the time horizon and economic conditions, according to Al Romaizan, a gold and silver jewellery company. “Over very long periods (decades or centuries), gold has generally maintained its purchasing power. However, over shorter periods, the relationship between gold prices and inflation can be less reliable.”
Gold as a diversification tool
Gold’s low correlation to other financial assets and its ability to protect against tail risks makes it a good portfolio diversifier, according to State Street Global Advisors (SSGA), a global financial firm. These features also mean it can help reduce “portfolio drawdowns and volatility resulting in improved risk-adjusted portfolio performance.”
We can see an example of this low correlation in the chart below provided by SSGA:
Gold’s Correlation to Various Equity Indices Over the Past 30 Years
Source: State Street Global Advisors
Over the past 30 years, gold has maintained a low correlation to various equity markets, making it a good portfolio diversifier. Interestingly, the same low correlation holds in the relationship between gold and fixed-income indices across the globe:
Gold’s Correlation to Various Fixed-Income Indices Over the Past 30 Years
Source: State Street Global Advisors
2. Silver as an investment: The investment value of silver
Is silver a good investment? That question makes sense given that gold often has all the airspace when it comes to the use of precious metals as investment assets. In what follows, we consider silver as an investment, highlighting why investors are often interested in them:
Silver as a store of value
Silver’s supply is also finite which makes it a good store of value; that is, its value depends mainly on demand. As long as its demand (in the form of silver bullion [silver coins and silver bars ]and silver ETFs, among others) increases, silver prices will rise.
“Like gold, silver is rare and limited in quantity,” according to Markets.com, a trading platform. “While estimates vary, the total worldwide stocks of silver are around 530,000 metric tons. That may sound abundant, but it's very small compared to annual demand and production. Scarcity supports silver's value.”
Silver as a haven
Silver has enjoyed safe-haven demand during major geopolitical crises between 1979 and 2024, according to a study by Capitalight Research, an investment research firm focusing on commodities, referenced on Investing.com, a financial analytics platform.
Interestingly, the chart below shows that the price of silver grew faster than that of gold during these periods:
Impact of Key Geopolitical Events on Silver and Gold Prices
Source: Investing.com
Silver has also performed well during financial crises. When the collapse of Silicon Valley Bank and Signature Bank led to a banking crisis, silver went up 23.7%. More interestingly, during the Great Financial Crisis and the European Debt Crisis, silver went up by 495% while gold went up by 238%:
Silver During the Great Recession and European Debt Crisis
Source: Investing.com
Silver as an inflation hedge
Silver can act as an inflation hedge during periods of low inflation, according to an academic article published in the International Review of Economics & Finance and available on Science Direct. “Gold remains an effective hedge in high-inflation environments, while silver complements it by offering protection in low-inflation periods.”
Silver as a diversification tool
Silver also has a low correlation to other financial assets, which makes it a good diversifier.
“By adding silver to their investments, individuals can hedge against the volatility of other asset classes, particularly during economic downturns or financial crises,” according to Auronum, a British precious metal company. “Silver's price movements are influenced by a different set of factors than those that affect equities or bonds.”
3. Gold vs silver investment: The fundamental differences
Is it good to invest in silver? Yes. Is it good to invest in gold? Yes.
After comparing the two lists above, you are probably wondering if there is any need to consider gold vs silver investment. Wouldn’t it be okay to just close your eyes and choose one, since they seem to serve the same functions? Not quite!
To show why investing in gold vs silver is not a superfluous choice, we consider 6 fundamental differences between them:
Volatility
Historically, silver is more volatile than gold.
The charts below show that the two-year (2Y) moving average of gold has ranged between 5% and 15% while that of gold has ranged between 20% and 50%.
Gold’s Implied Volatility, 2007-2024
Source: CME Group
Silver’s Implied Volatility, 2007-2024
Source: CME Group
There are at least four reasons for this higher volatility:
- Smaller market size and lower liquidity: Silver has a lower market size and though very liquid, is still not as liquid as gold.
- Industrial demand: Silver has a wide range of industrial uses which makes industrial demand a big part of its overall demand. Industrial demand is about half of total demand, according to Steve Jones, a securities expert and Business Development Manager at The Royal Mint, the UK’s official coin maker.
However, industrial demand fluctuates based on economic cycles, which makes the demand for silver unstable, leading to higher prices.
- Economic sensitivity: Since industrial demand is a major part of silver’s demand, it is more sensitive to changes in the economy, both short-term and long-term.
- Central banks’ actions: Central banks tend to hold gold more than silver and this adds to the former’s stability. Since silver does not have the same level of institutional support, it is more volatile.
- Speculative trading: At a popular level, investors tend to view gold as a long-term asset and silver as an asset to make money from short-term fluctuations.
Affordability
Investors have used the gold-silver ratio to measure the relationship between the spot prices of both precious metals.
Gold-Silver Ratio, May 2024 - April 2025
Source: Chards
This ratio is currently 101.03, which means that the money that will buy one ounce of gold will buy 101.03 ounces of silver. In other words, to get exposure to one ounce of gold, you need 101.03X of what you need to get exposure to silver.
Said simply, silver is far cheaper than gold. For those who see the two as serving the same functions, silver is gold that can be purchased at a lower price. Also, retail investors with no huge capital embrace silver as a more affordable opportunity.
However, as we have seen and will continue to see, there are fundamental differences that make it difficult to see silver as just a cheaper gold.
Risk-return profile
There are two sides to volatility. On the one hand, a more volatile asset can provide higher returns to investors in bull markets. However, on the other hand, higher volatility means higher risk in bear markets, as the same price that can go up significantly can also go down significantly.
In a December 2024 article published on NASDAQ, Money.com, a personal finance website, noted that silver had outperformed gold over the past five years. However, gold outperformed over the long term. Its annualized return of 7.7% over the past decade exceeds that of silver (6.08%). Similarly, its 15-year annualized return of 4.9% exceeds that of silver.
(Disclaimer: Past performance does not guarantee future performance)
If we go back over 50 years, gold (yellow line) still maintains its outperformance over silver (silver colour), according to the chart below:
Historical Returns of S&P 500 vs Dow Jones vs Gold vs Silver Over the Past 50 Years
Source: Long Term Trends
Diversification potential
Due to its sensitivity to overall economic performance via industrial demand, silver has a higher correlation to the stock and bond markets than gold. This was borne out by a study by Oxford Economics, as seen in the chart below:
Summary Statistics on the Performance of Asset Classes
Source: The Royal Mint
Gold has a lower correlation to the broad basket of commodities, developed markets equities (large/mid-cap and small-cap), and emerging market equities. Silver only has a lower correlation with developed markets and emerging markets bonds.
This tenancy for lower correlation to other financial assets makes gold the better diversifier.
“Silver can be considered a good portfolio diversifier with moderately weak positive correlation to stocks, bonds, and commodities,” according to David Ambartsumian, a financial advisor at Morgan Stanley Morgan Stanley, the global financial firm. “However, gold is considered a more powerful diversifier. It has been consistently uncorrelated to stocks and has had very low correlations with other major asset classes—and with good reason: Unlike silver and industrial base metals, gold is less affected by economic declines because its industrial uses are fairly limited.”
Inflation-hedging capacity
When discussing silver’s function as an inflation hedge, we referenced an academic study that concluded that gold is a better hedge in a high inflation period while silver is better during a low inflation period.
This is how the study concluded:
“Based on the findings of this study, it is clear that gold, with its established role as a store of value, is the most reliable hedge against inflation. In contrast, silver's dual utility as both an investment and an industrial commodity makes it a second-best alternative.”
Drivers of future price
There are three main sources of demand for silver: industrial demand, jewellery demand, and investment demand. We saw above that 50% of total demand is from industrial usage.
On the other hand, there are four main sources of demand for gold: technology or industrial demand, jewellery demand, central bank demand, and investment demand. In 2024, these accounted for 5%, 50%, 20%, and 25% of total gold demand, respectively, according to the World Gold Council, a market development organisation for the gold industry.
High industrial demand means silver is more sensitive to the economy. Though this is bad for its volatility, over the long term, the global economy grows and industrial demand rises. We have also seen that investment demand for silver is not as long-term as that of gold.
Central bank demand and the small role played by industrial demand contribute to gold’s stability. Also, the demand inelastic nature of the jewellery industry adds to this stability. Finally, the investment demand for gold is often long-term.
Money.com, in the article published on NASDAQ, quoted above, introduces another interesting dimension to this gold vs silver investment conversation:
“Silver has more catalysts that can drive higher returns for long-term investors,” they noted in the article quoted above. “Artificial intelligence and tech products have stimulated the broad electronics industry, which has increased demand for silver. Those industries also have high projected compounded annual growth rates that imply a heightened demand for silver.”
Though they agree that the jewellery industry is also poised for growth, they believe that “tech presents more compelling growth prospects than the luxury industry.”
However, they also note that the projected drop in the supply of gold can also be a big driver of gold’s price. It remains to be seen if the projected higher demand for supply can outpace the drop in gold’s supply.
4. Investing in silver vs gold: Where do they belong in your portfolio?
We have covered the reasons to invest in gold or silver and the differences between investing in gold or silver. In this final section, we consider how best to use both assets based on your investment strategy.
So, is investing in gold a good idea?
If the goal is to improve the diversification of your portfolio, gold seems to do a better job at that. Also, you can buy gold if you are seeking an inflation hedge when inflation and/or inflation expectations are high.
Furthermore, if you are dealing with investors with a low-risk profile, gold’s lower volatility makes it appealing. Finally, if long-term investment is more important than short-term returns, gold
seems to be the precious metal of choice.
Is silver a good investment, then?
If short-term returns are the priority, silver’s higher volatility can be an advantage provided the fund’s investors have a higher risk tolerance. Also, if inflation and/or inflation expectations are low, silver can outperform gold. Institutional investors may also find silver’s affordability an advantage though it must be stated again that it is not a cheaper equivalent of gold.
You can gain exposure to gold by purchasing gold bullion (gold coins and bars), gold ETFs, gold stocks (mining stocks), gold mutual funds, and gold derivatives (futures and options). Similarly, you can purchase physical silver (bullion coins and bars), silver ETFs, silver stocks, silver mutual funds, and silver derivatives (futures and options).
In conclusion, the gold vs silver investment cannot be settled one way or the other. Asset managers have to consider the current state of their portfolios, what gold and silver are good at, what they need at every given moment, and the risk profile of investors.
Gold and silver are alternative investment assets that can play an important role in your portfolios.
At cio investment club, we provide you with a community of asset managers and asset owners from across the globe with whom you can exchange investing ideas and evaluate investment opportunities, including alternatives like gold, silver, and even platinum.
We also organise exclusive roundtables and investment breakfasts where you can have face-to-face interactions and one-on-one networking sessions with other investment professionals.
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Takeaways
- Gold is a proven store of value, especially during periods of economic uncertainty and high inflation. Its low correlation with other assets makes it a strong diversification tool and a preferred choice for low-risk, long-term investors.
- Silver’s industrial applications make it more economically sensitive and volatile than gold. While this adds risk, it also creates the potential for greater short-term gains—making silver more suitable for higher-risk investors seeking short-term returns.
- Gold performs better as a hedge during high-inflation periods, while silver can offer protection during low-inflation environments. This means the ideal inflation hedge depends on current macroeconomic conditions.
- Gold and silver are not interchangeable. There are different reasons to invest in gold or solver. While gold is better for diversification and long-term preservation of capital, silver's affordability and economic sensitivity give it a unique edge in certain market conditions.
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