If you want to invest in precious metals but feel gold may have lost its touch recently as the price slides, then try looking at silver.
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The two are not interchangeable investments.
Wealthy individuals tend to buy gold as a haven for their cash at times when markets and currencies are volatile.
Gold is more like a cash storage facility than silver.
The two precious metals have key differences that separate them as investment choices:
Commodity context
Silver is more of an industrial commodity than gold, which is more attractive to consumers.
Sure, gold does have commercial uses, but almost half of silver demand is commercial, while the public has an appetite for gold as something to shore up their investments and as jewellery.
As a result, the two are tied to different price variables. The price of silver is likely to move in line with industrial demand, while gold rises and falls very much with investor confidence in the markets and currencies.
Although the price of gold is not tied to the US dollar, values often drift in line with each other. Gold tends to go up in price when interest rates fall and inflation is high.
Sourcing gold and silver
Most silver is sourced alongside the production of other metals – like lead, zinc, copper and gold.
This removes any real link between the cost of extracting and producing silver from the market value.
Gold, however, is directly extracted and the price can depend on the extraction costs.
Silver also tends to have a lower per ounce price and a smaller market as the metal is less attractive to consumers.
Investing in gold and silver
Choosing which way to go depends on how investors view the global economy.
If the outlook is pessimistic and investors are seeking a hedge against inflation and market volatility, then gold is generally the precious metal of choice.
Taking a more optimistic outlook, if investors see global growth taking an upturn, then that could signal manufacturers increasing their stocks and demand as output rises. This would push up the price of silver.
The current spot prices per troy ounce according to Bloomberg are $1,310 for gold and $19.88 for silver.
Silver ended Q2 2013 34% down and with little sign of manufacturers building inventory, while gold ended the quarter 25% down, according to a report from precious metals trader Umicore.
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