Must-know: 3 reasons silver isn’t the same as gold


Nov. 26 2019, Updated 12:51 a.m. ET

Many investors who remain cautious on gold wonder whether they should get their precious metal exposure through silver instead. In response, Russ explains why the two metals aren’t interchangeable.

In recent weeks, many investors reluctant to add to their gold positions are asking me if they would be better off getting their exposure to precious metals through silver instead.

While I don’t have strong views on the direction of silver prices, I think it’s important to distinguish between gold (IAU) and silver (SLV) rather than assume that the two metals are interchangeable.

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Market Realist – The previous graph shows the five year gold and silver ratio. The ratio is often used by investors to determine if either of the metals is undervalued compared to the other. The gold and silver ratio measures how many ounces of silver you can buy with one ounce of gold. The ratio was as low as 32-to-one versus gold in 2011. It has been steadily climbing since. It currently stands at 63-to-one levels. Despite it’s relative abundance, gold (IAU) is more expensive than silver (SLV). Gold is most widely used in jewelry and is considered to have more storage of value than silver. As a result, it’s in high demand by both central banks and individual investors. It’s important that investors in precious metal exchange-traded funds (or ETFs), such as the iShares Silver Trust ETF (SLV) and the iShares Gold Trust ETF (IAU), understand that these two metals aren’t interchangeable.

To be sure, it’s not unreasonable that gold and silver (along with platinum) are often lumped together in the precious metal basket. Silver, like gold, is viewed as a store of value and indeed has acted as a form of monetary base in the past. (History buffs will recall the late 19th advocacy of “free silver”, a debate memorialized by William Jennings Bryan in his famous Cross of Gold speech at the 1896 Democratic National Convention).

But while silver shares many characteristics with gold, there are a few important differences between these two metals.

Market Realist – The movements in gold can be accessed by the SPDR Gold Shares Trust (GLD) which carries an expense ratio of 0.40%, the iShares COMEX Gold Trust (IAU) which carries an expense ratio of 0.40%, and the ETFS Physical Swiss Gold Shares (SGOL) which carries an expense ratio of 0.39%. On the other hand, silver can be accessed by the ETFS Physical Silver Shares  (SIVR), which holds silver bullion and the iShares Silver Trust (SLV) which gives exposure to physical silver bullion.

Read on to find out the differences that distinguish the two often interchangeably used metals.


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