A few decades ago, investing in bullion was reserved for high-risk traders with a lot of capital to burn. However, since 2005, the bullion market has been flooded by new entrants who are hoping to make it big through dent of their investment in high value metals like gold and silver. While investing in gold and silver brings returns, these are subject to the vagaries of market conditions and a host of other economic variables.
And while both have an undoubtable sheen attached to them, which of the two produces better returns? Read on below to find out.
Bullish Run For Bullion
Off late, the bullion market has been on a roll, with investors rushing to buy gold and silver due to uncertainty over equities and currency markets. After the banking collapse and recession of 2008, gold and silver demand has been steadily increasing, bar for a few stray months. An example of the increase in price can be demonstrated from the price per ounce in January 2000 (around $265 an ounce) and in January 2016 (around $1,335 per ounce).
The current trend points to a bullish run for commodities due to a number of reasons. And while both gold and silver values have been on the upswing, an analysis of the past prices gives a clear indication of which metal has performed better. Historical data points to gold being the metal that has gained the most, with a 17% increase in value since the start of 2016. Regarded as a ‘safe-haven asset’, the prolonged economic uncertainty and the fluctuating Dollar value have contributed to its rise in value, with recent events like Brexit and the looming Italian banking crisis only adding to it.
Gold has performed better than silver for a number of factors, one of them being its higher value and use. While silver is used on a large scale in industry, the demand for gold is manifold- it is used in jewellery, industry etc.
Gold also has a higher density, making it more valuable per gram in comparison to silver.
With gold being seen as a ‘third currency’, its demand usually spikes in times of economic turbulence.
The Exchange Traded Funds (ETF’s) for gold, which trade at close to the ‘spot’ or most accurate price of the metal have also been seeing renewed trading on bourses, indicating a high demand for gold in spite of its price reaching $1,340 per ounce or close to Rs.31,140 for 10 grams.
Gold futures have been more or less stable and on the increase, indicating that prices will continue to hover around the $1,300 or Rs.31,000 mark, barring a major rally by the Dollar.
Silver On The Rise
The price of silver, too, has seen major gains after suffering a setback in the previous year. Silver prices had reached a high of Rs.47,000 per kg in 2011, but the price declined after the initial bubble and silver has been playing second fiddle to gold ever since.
Silver used to traditionally lose out to gold as it is a very volatile commodity, with its value changing significantly.
The current trend looks set to reverse this, though, with the rate of increase in the price of silver keeping pace with gold.
Silver prices have increased significantly in 2016, with the rise attributed to an increasing demand from industry. Silver is used on a large scale in the production of electrical appliances and its use is also increasing in medicine.
Interest is silver coins and bars is also on the rise, in spite of the difficulty regarding storage due to the relative bulkiness of silver as compared to gold.
Other indicators pointing to a rise in silver prices and value are the U.S. Commodity Futures Trading Commission, where growth predictions for silver are at par with gold.
Evidence from silver ETF’s points to renewed interest from hedge funds and money managers, who are investing heavily in the metal as a means to offset possible bad debts.
Silver is also set to become increasingly rare, as silver mining is projected to fall by almost 9% this year as mines reach their saturation point.
Buoyed by good returns, investors willing to hedge the risk are also investing in silver, with demand for both ETF’s as well as bars on an increase.
As 85% of silver is used industrially, the physical product is being used up. Unlike gold, which can be melted and re-used in the form of ornaments, most of the silver being used cannot be recovered as it is used in minute quantities in electronic products, resulting in a large percentage of it being lost every year.
This has also contributed to the rise in cost as silver becomes rarer and more of a finite resource.
The Dollar value, which used to determine the value of gold and silver to a large extent is slowly losing its grip on silver. While fluctuations in the Dollar do affect the price of both gold and silver, there is no longer a marked difference in trading and demand of the two commodities as was the case earlier.
In conclusion, while gold still maintains its sheen, it remains to be seen how long the current growth bubble will last. With the price of gold ever increasing, there might come a time when it reaches saturation point and investors are put off by its unachievable valuation. Conversely, the demand for silver keeps increasing from the industrial sector. This, coupled with its rising status as a more affordable and more finite alternative to gold demonstrates its rise as a strong investment option in spite of its reputation of wildly fluctuating prices. What is evident is the rising number of investors willing to risk it to add a little shine to their investments, with silver appearing to overtake gold.