The question about which of these two metals to invest in has no simple answer, it is more a question about what kind of investor you are and what you believe in.
If you are a long term investor who is just looking to participate in gold online trading or seeking to preserve value against diminishing currencies, a mix of gold and silver might be something to consider. Gold has, as we know, been a preserver of wealth since before the Roman empire. Lately, however, gold has been under a lot of pressure. It is true that gold preserves value over the really long run, but in the short run it is often used as a tool for traders to bet against something else.
For example, the major bull run in gold price that we saw begin a few years ago, was not due to the fact that gold was all of a sudden seen as a better preserver of wealth than before but rather because of the fear that the FED was creating too many dollars and easy credit. The thought was that these actions would ultimately push up inflation.
So in this sense, the question to ask yourself when you buy gold is not so much if it will preserve its value over time, it will (No matter what happens, your grand-kids will likely be able to obtain as much merchandise with the same amount of gold in 100 years from now). The more pressing issue when buying gold is what you think of the world economy and whether central banks around the world will be printing more money than they should. If so, is it time to buy gold?
The reason we have seen gold drop in price during 2013 is not because gold all of a sudden gold became less a vehicle of preserving value but rather because investors started to believe that inflation would not tick up. It is important to understand that gold preserves value from the point that it is bought just like any other investment instrument. For example, an ounce of gold passed 2000 USD roughly a year ago not because gold was a better preserver of value but rather because of many factors at play in the global economy. If you bought at that point, the idea that the economy was going down the drain and likely to see more central bank money printing needs to come true in order to justify that price. This means that you cannot just buy gold at any price and expect the value to always increase, there is always the matter of timing involved just as the old saying goes, “buy low and sell high”.
Silver Trading
Silver investing and trading is a different kind of trade all together. Silver, like gold, has historically been quite good at preserving value. It has not had the slow and stable growth that gold has had, apart from the volatile journey gold has been on the last couple of years (it was over two decades ago that we saw the same kind of volatile movement in the gold market). On the other hand, silver has a tendency to swing more – making it a perfect metal to trade on a short term basis.
The reason that silver swings more than gold is actually a combination of a few things. First of all, the global market in silver is much smaller – making it more vulnerable to people trying to manipulate its price – and throughout history there has been a lot of cases of silver price manipulation exposed. There is also almost no interest from central banks around the world to make the silver price stable, since most of their holdings have historically been in gold. More recently, since the mid 1970’s, central banks have been more likely to be buying foreign bonds and other securities to back their currencies with.
The second and last reason is macro economical, a lot of the silver that is mined is not mainly used for storage of value but rather a big chunk of it goes straight into production. Silver is used in everything from watches to computers and toasters. It is true that this goes for gold as well but since the silver market is smaller, the affect on the silver price is more substantial than the same affect on the gold market.
So what is best for the next coming years? Well there is no reason to think that we are going to have a major crash in equity’s again anytime soon. That should put a cap on how high gold can rise in the near-term. Although looking out into the future, if the global economy starts to get overheated and we start to get some serious inflation again, that would be an environment likely to favor gold prices rising again, since currencies will lose value against gold.
When it comes to silver, some of the market is definitely used to preserve value, just as the same thinking is applied to gold. The fact is that silver is also used heavily in production as well and if the global economy really takes off, we could start seeing silver prices rise without that being a signal of inflation or a new collapse in equity.
So to summarize, gold has historically been a more defensive investment play against central bank interventions and as an alternative store of value especially during inflationary economic periods. Silver, on the other hand, can be seen as a more balanced investment. It can be used as a possible store of value as well as an in-demand commodity for use in manufacturing production when we have an economy on the rise.
