Gold or Silver – Which One to Choose?

Gold or Silver - Which One to Choose?

By Christopher Aaron

Would it be better to sell gold or silver? There is no right or wrong answer - the questions lie with the individual investment goal.

Recently I needed to sell some of my long-term precious metals holdings. The reason? To pay for some unforeseen business expenses.

When the prospect of selling some physical metals first dawned on me, at first I felt resistance to the idea. How could I sell now, at current prices? What if prices rose after I sold? Would it be better to sell my gold or silver? Maybe I should take out a business loan instead?

These were all questions that arose soon after I began to contemplate the logistics of the transaction.

And they are important questions: after all, some of these precious metals I have been holding for well over a decade.

In the end, I decided that I would indeed sell the metals as opposed to taking out a loan. While one could argue that with today’s low-interest rates, I might have been better off locking in a low-rate loan, it felt more sound for me to pay for the expense outright at this juncture. Perhaps the value of keeping life simple is worth more than a specific amount of dollars during certain time periods.

Questions to Ask Oneself

In completing the transaction, I began to review how many personal factors go into the decision to buy or sell precious metals. In this series of articles, we often focus on macroeconomic trends and price analysis, but there is an equally important number of personal factors that must go into each individual’s investment planning:

For example, let us consider the simple question of choosing whether to invest primarily in gold or in silver (or platinum or palladium for that matter).

What on the surface seems like it should be a simple question is often found to require a multi-faceted thought process. For example, one must consider:

  • Does one intend to hold the metals personally, or have them stored in a vault?

The benefits of holding the metals personally are that one does not have to pay for storage, and no third party ever has a record of the transaction, so privacy is maintained. However, the downsides are that storage space may be limited, and one’s living space may not be suitable for this. Concerns of theft may also exist.

And indeed, at the present gold to silver ratio of 75-1, the amount of personal space and/or fees required to store $10,000 worth of gold (approximately equivalent to eight 1-ounce coins) is extremely small compared to the space needed to store the same dollar amount of silver (560 1-ounce coins). These practical considerations are paramount for some.

  • What are the individual’s risk tolerance and time horizon?

Gold is known to be more stable in value than silver – both when the metals are rising and when they are falling. For example, from the December 2015 low in both metals to the July 2016 highs, gold rose 32%, from $1,045 per ounce to $1,378. Meanwhile, silver rose 56% over the same time frame, from $13.65 per ounce to $21.25. Clearly a nice outperformance by silver.

However, let us consider another time period: 2011 – 2015. From gold’s peak in 2011 at $1,923 to its low over four years later at $1,045, the metal lost 45% of its value. Meanwhile, silver, which peaked at $49 in 2011, lost an incredible 72% in falling down to $13.65.

The point is: in choosing between gold and silver, an individual’s own time horizon and risk tolerance must be weighed. In a rising metals-price backdrop, silver tends to lag gold initially, and then play catch up on a greater percentage basis later in time. It may, therefore, be more appropriate for long-term investors with a higher risk tolerance. However, when the metals fall, gold tends to hold its value more so than silver. Gold provides a buffer to the extreme volatility of silver’s fluctuations.

These two broad topics – storage and risk tolerance – are just two of the important issues an investor must ask himself when engaging in physical precious metals transactions. Of course, there are other considerations as well: premiums paid above spot price, taxes, and the ability to easily travel and/or barter with the metals are all factors that may or may not be important for an individual.

In the end, there is never anyone right or wrong answer – the questions lie with the individual. No single plan of action will serve all investors. A realistic examination of one’s own goals and tolerances for risk must be considered:

“Know thyself.”

-Ancient Greek proverb, Temple of Apollo at Delphi

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Which Did I Choose?

So in the end, which did I end up selling to pay for the business expenses: gold or silver?

It was not what I prior thought I might have sold in such a situation.

While I do have a long-term time horizon, and my risk tolerance is high, I actually choose to sell some silver to raise my funds.

Why? I’m planning a move in the near future, and the thought of discreetly carrying a few gold coins with me to my new home was more appealing than transporting a box with hundreds of ounces of silver to a new neighborhood.

Again, this might not have been the right choice for everyone – nor myself even in a different circumstance – but for the present moment, it was right for me.

And in the end, I felt a sense of gratitude to have had the capital – crystalized in precious metals form – available for when I needed it. Ultimately, I have seen that the disciplined accumulation of capital is one of the most powerful benefits of regularly investing in precious metals.

Which do you choose as your precious metal of choice – gold or silver – and why?

About the Author

Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping: both are based on the observations of repeating and imbedded patterns in human nature.

His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.

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