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Mark O' Donnell
 · 
Research Analyst
November 21, 2022
 · 

The similarities and differences of gold and silver

  • The prices of gold and silver are heavily affected by demand
  • Because it is widely held as investment commodities, gold can act contrary to the general economic trend
  • Silver is generally more susceptible to macroeconomic impacts
Gold

Gold and silver are two of the oldest materials used as a form of currency in the world and are now very popular in the trading world. 

Precious metals have always been at the center of commodity trading, with gold being the metal most commonly used for this purpose. Many investors looking to diversify their portfolio do so by placing part of their wealth in these metals. 

For both silver and gold, there is a high demand from the electronics industry because of the highly conductive properties of these metals. In addition, they are very durable yet malleable enough to be fashioned into jewelry and other accessories. 

The applicable rules for trading gold and silver are pretty similar. They are not immune to the law of supply and demand. Being finite resources, their prices are heavily affected by demand, particularly from industries utilizing them for various purposes. 

Where the differences lie 

Gold and silver can both be traded through CFDs (contract for differences). Analysts believe these alternatives are a more practical way to access the potential value of these precious metals as opposed to direct ownership, which can require specialist vaulting and custody arrangements, as well as other security and insurance concerns. 

As mentioned earlier, the prices of gold and silver are heavily affected by demand. These precious metals have industrial uses and the demand for them from the manufacturing sector will depend with the current state and future expectations of the broader economy. However, because it is widely held as investment commodities, gold can act contrary to the general economic trend. 

When stocks and currencies fall or the market faces an extended period of uncertainty, the price of gold can rise. Conversely, when the stock market is performing well and the market has a larger appetite for risk, gold prices can fall as investors opt to buy other assets.  

Silver is generally more susceptible to macroeconomic impacts. Because half of all silver produced is used in heavy industry and high technology, it is more sensitive to economic changes compared with gold. When economies run hot, demand tends to grow for silver. 

Another factor setting these metals apart from one another is their volatility. The price of silver is considered to be twice or thrice as volatile as that of gold, making it riskier to include in a portfolio than gold. However, this volatility can translate to larger short-term gains. 

Silver is generally, and traditionally viewed to be, cheaper than gold. In spite of that, gold is considered a more effective diversifier of a portfolio as it is consistently uncorrelated to stocks and has, traditionally, had very low correlations with other major asset classes.

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