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What Is A Better Investment Now: Gold Or Silver?

An investor who has decided to invest in precious metals has four choices: gold, silver, platinum, and palladium.  This article is limited to choosing between gold and silver.

There are times when gold is a better investment, and there are times when silver is a better investment.  Let us start by looking at the charts. 

Click here to see an enlarged chart.

The chart shows that from June 2006 to November 2008, gold was a better investment than silver; during this period a gold investor would have gained over 10% while a silver investor would have lost over 20%.  From November 2008 to May 2011, silver was a better investment than gold; silver significantly outperformed gold as shown on the chart.  From May 2011 to present, gold has been a better investment than silver; losses on gold have been considerably less than those on silver.  The y-axis scale on the chart is a percentage scale starting with 0% at the beginning of the chart. 

It is simply not enough to compare percentage returns.  Astute investors should be interested in risk-adjusted returns.  In other words, when they take higher risk, the investors should expect higher returns.  For the trained eye, an easy to make observation from the chart is that silver is a lot more volatile than gold.  For the entire period shown on the chart, the volatility of silver is about 70% higher than that of gold.  Therefore, it stands to reason, that an investor looking for high risk-adjusted returns would demand significantly higher absolute return from silver compared to gold to  compensate for the volatility. 

Past is instructive but the real question is what is going to happen going forward.  The further we go into the future, the more likely it is that most analysis will be proven wrong.  In spite of claims made by many gurus, the harsh reality is that no one can know with certainty what will happen in the future.  Having said that, the probability is very high that over the next three years, gold will be a better risk adjusted investment than silver, barring any new fundamental developments.  Here are the reasons for this conclusion.

Speculative Juices

Silver outperforms gold when speculative juices are flowing among precious metal investors.  Speculative investment in precious metals is likely to remain subdued over the near future.  This favors gold over silver.

Status as a Currency

The best argument that can be made for gold right now is its status as an alternative currency to fiat currencies.  No such argument can be made for silver at this time.

Central Banks

Several central banks, especially those in Asia and Russia, are likely to keep on buying gold.   There is no such buying likely in silver.

Industrial Use

Silver is more widely used in industry compared to gold. However, the world is likely to grow at a fairly slow pace dampening the growth in silver industrial usage.  In our analysis at The Arora Report, the actual use of silver is likely to fall short of projections.

New Production

In our analysis at The Arora Report, production of gold is likely to be in line with projections but production of silver is likely to exceed the projections.  This is not good news for silver.

Please keep in mind that the foregoing analysis is only for the near future and not for the very long term. Further, there may be very short periods when silver may outperform gold.  This column is written to give you insights for the next one to three year period.

Current Ratings on Gold and Silver

Our timing models on gold and silver are very sophisticated and take into account all relevant factors.  Here are our current ratings.

  • Negative in the very, very short-term. 
  • Negative in the very short-term. 
  • Neutral in the short-term, but a serious potential downside risk.
  • Neutral in the medium-term.   
  • Mild Positive in the long-term.   
  • Positive in the very long-term.

These ratings are reviewed daily and changed frequently to help both long-term investors and short-term traders.  These ratings are used by bullion dealers, jewelers and investors across the globe. For definition of time frames, please click here.

Full Disclosure: As appropriate, subscribers to The Arora Report are provided precise buy zones and the best instruments in the best precious metal or miners at a given time.  Further, subscribers to The Arora Report may undertake short-term trading positions in addition to the very long-term generational opportunities.

By Nigam Arora
Chief Investment Officer
Courtesy of www.TheAroraReport.com

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur. He has founded two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is the most money is made by predicting change before the crowd. He is the Chief Investment Officer at The Arora Report and the editor of four newsletters to help investors profit from change.  His record includes the recommendation to back up the truck and buy silver at $17.73, selling all the silver position at $48.- $50, buying gold aggressively in $600s, selling half of gold at $1904, and selling the other half of gold at $1757.  For more information please visit: www.thearorareport.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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