Gold vs Silver: what to buy?

Why invest in Gold?

VAT free

Gold bullion is exempt from VAT, whereas silver carries a 20% VAT charge. This means silver must rise approximately 20% just to cover the VAT before you start earning any return. Gold's VAT-free status allows for quicker and higher gains on your investment.

Storage

Gold is highly practical due to its value density. Gold is much denser than silver, meaning you need far less volume to store the same value. For example, a 1kg gold bar is worth approximately £80,000, whereas you would need twenty 5kg silver bars to achieve equivalent value.

Independence from industrial demand

While both gold and silver prices are unaffected by the stock market, silver is significantly influenced by industrial demand, making it more volatile. Gold offers a more stable, predictable investment. This makes gold better suited for preserving portfolio value during times of uncertainty.

Superior purchasing power

Gold has historically preserved value over time more reliably than silver. Between 2011 and 2016, gold declined approximately 23% while silver dropped 59%. Gold remains more stable during inflation due to its limited supply.

Why invest in Silver?

More affordable

Silver is often called "poor man's gold" because it offers an affordable entry point into precious metals investing. It's ideal for investors with smaller budgets and makes an excellent gift option.

Higher volatility

Silver experiences larger price fluctuations than gold. During bull markets, silver rises more sharply; during bear markets, it falls more steeply. This volatility presents potential for higher returns, though it requires more attention from investors.

Selling benefits

Silver offers greater flexibility for everyday financial needs. You can sell smaller amounts (individual coins) rather than liquidating larger holdings, making it more convenient for minor expenses. This enhances overall portfolio liquidity.

More industrial uses

Approximately 56% of silver consumption goes to industry (compared to just 12% for gold). Silver is used in:

• Electronics
• Medical equipment
• Batteries
• Solar panels
• Data storage

Demand rises during economic growth, making silver prices more sensitive to global economic cycles.

The Gold/Silver Ratio

The gold/silver ratio tells you how many ounces of silver can be purchased with one ounce of gold. This ratio fluctuates in real time and provides valuable insight for investors.

Understanding the Ratio's Behaviour

• Bear market: The ratio rises as gold appreciates relative to silver
• Bull market: The ratio falls as gold becomes less valuable relative to silver

Historical Example: 2011-2016

In 2011 at the market peak, the ratio was approximately 31:1. By 2016, the ratio had risen to 88:1, indicating that silver lost nearly two-thirds of its value relative to gold during this period.

Supply, Demand, and Investment Implications

There is roughly 16 times more silver in the Earth's crust than gold. Some analysts suggest the natural ratio could be 16:1. The current deviation from this natural ratio suggests silver may be undervalued relative to gold.

Portfolio Strategy

Consider holding both gold and silver for optimal diversification. The gold/silver ratio helps with timing decisions but doesn't indicate which metal is fundamentally "better" - both have their place in a well-balanced precious metals portfolio.