The Big Differences Between Gold and Silver

(…and it’s much more than their price or color)

Bullion.Directory precious metals analysis 27 August, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Gold and silver are the most common of the precious metals, in terms as investing. They have been used as both a store of wealth and currency throughout history. However, investors should know that they are not one and the same, and each should have a specific purpose in one’s portfolio.

According to data compiled from the World Bank and Federal Reserve by BlackRock’s Russ Koesterich, CFA, gold has been more sensitive to monetary related issues, such as the US dollar, inflation and real interest rates.

Investors tend to hold gold assets to hedge currency risk and the potential for higher inflation.

Whereas, silver has been more sensitive to economic variables, such as manufacturing data.

Almost 40 percent of all silver demand is created for industrial purposes. Moreover, silver is produced largely as a by-product of other metals.

This doesn’t create a tight link between silver prices and silver production as well as in the gold market.

Investors may purchase silver on the prospect of higher inflation, and due to its price per ounce compared to gold.

However, Koesterich points out that although silver has a relationship to inflation it is less correlated than gold.

Based on annual data going back 50 years, gold has a .5 correlation with inflation while silver is near .35 correlation.

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