Despite its depiction in the popular imagination, investment is not carried out for the sole purpose of earning a profit. Although earning a profit is an important, and perhaps even the pre-eminent motivation for investors, it is not the only one out there.
For example, investors might choose to purchase shares in businesses that sell products considered inferior goods in order to protect the value of their investments during bad economic times.
Similarly, other investors might invest to reduce or eliminate the negative impact of inflation on the value of their investments.
Due to this issue, figuring out the question of whether gold or silver makes for a better investment depends on the reason for investing in the first place.
Similarities Between Gold and Silver
Given that both gold and silver are precious metals, it should come as no surprise that they share a great number of similarities that make them well-suited to the same investing roles.
Both gold and silver see little use other than ornamentation and a handful of industrial processes, which means that investment is one of the most important influences over their prices. Similarly, both gold and silver experience increased demand during bad economic times because precious metals are perceived to retain value even when currencies fall due to the lack of consumer confidence.
Overall, the similarities between gold and silver make both of them excellent investments for protecting the value of investors during bad economic times. However, gold has an edge in this regard because its price tends to be less volatile than that of silver.
Dissimilarities Between Gold and Silver
There are also dissimilarities between gold and silver. In general, these diffrences serve to make silver preferable as a means of earning a profit through investment.
First, silver is less expensive to purchase than gold, which means that it is easier for interested investors to get in on the game.
Second, silver retains more upward potential than gold because it has not been promoted in the media as heavily as gold. Gold prices were high even before the Great Recession and have only increased since then.
At this point, purchasing gold for the purpose of earning a profit is unwise both because its upward potential has been largely fulfilled and because its price is going to fall once the economy begins picking up the pace.
In contrast, silver has seen similar but not as severe pressures, meaning that there is a better chance of silver still retaining significant potential for upward movement in its value.
Best Investment Uses For Gold and Silver
At the present time, both gold and silver are useful investments for protecting the value of the investor, but silver is preferable when it comes to earning a profit.
As always, investors should never rely on any single asset but instead purchase a range of assets in order to diversify their portfolios. Both gold and silver make excellent additions to diversified portfolios as counter-cyclical hedging tools alongside more traditional, profit-earning investments such as bonds and stock shares.
By Mike Ferreira on December 31st, 2012