Gold vs Silver: Which Should You Invest In?

Gold is seen as a store of value that tends to hold up when currencies weaken, inflation rises or markets are fearful. Central banks around the world hold gold in their reserves, and demand for jewellery is steady in India.

Gold often moves differently from shares, which is why many investors keep a small part of their portfolio in it. Our page on gold versus mutual funds explains its role.

Silver is also a precious metal, but a large share of its demand comes from industry: electronics, solar panels, electric vehicles and medical uses. When industrial demand rises, silver can rise sharply. When the economy slows, it can fall sharply too.

Our page on silver funds explains how silver ETFs and funds work.

Silver is a much smaller market than gold, and its industrial link makes it more sensitive to economic news. That is why silver prices can rise much faster than gold in good times and fall much faster in bad times.

If you buy silver after a sharp rally, be ready for equally sharp falls. Our page on risk and volatility explains how to think about swings.

Unlike shares, which can pay dividends, or bonds, which pay interest, gold and silver pay nothing while you hold them. Any return comes only from the price going up.

That is why most investors keep precious metals as a smaller part of their portfolio, with equity and debt funds doing most of the work. Our page on asset allocation explains how to balance them.

Both metals have gone through long periods, sometimes many years, where prices went nowhere or fell after a big rally. Investors who bought at the peak waited a long time to recover.

Do not judge either metal by the last year or two. Look at long periods, and remember past patterns may not repeat.

ETFs: gold and silver ETFs hold the physical metal and trade on the exchange. You need a demat account.

Fund of funds: gold and silver funds invest in those ETFs and can be bought like any mutual fund, including through a SIP, without a demat account.

Our page on gold ETF versus gold fund explains the difference, and it applies to silver too.

Physical gold and silver need safe storage, carry purity questions, and are often sold back at a discount. Jewellery adds making charges that you lose when you sell.

ETFs and funds hold high-purity metal, track the market price closely, and can be sold easily. If your goal is investment rather than wearing, funds are usually more efficient.

Some multi asset allocation funds hold equity, debt, gold and sometimes silver together, adjusting the mix within their rules. This can be a simple way to get some precious metal exposure without managing separate funds.

Our page on balanced advantage versus multi asset explains these funds.

Investors who want a steadier diversifier for part of their portfolio, a hedge against currency weakness, or savings towards future jewellery purchases. Our page on saving for gold jewellery covers the last case.

Investors who already hold gold, understand the large swings, and want a small extra exposure linked to industrial demand. It is not a good choice for money needed in the next few years.

There is no fixed rule, and we do not recommend a specific percentage. Many investors keep precious metals as a minor part of their total portfolio, with gold usually larger than silver because it is steadier.

Review the mix once a year and rebalance if one metal has grown far beyond your plan. Our page on portfolio rebalancing explains how.

• Buying after a big rally because the news is full of it.
• Putting too much of your savings into one metal.
• Treating jewellery as investment, forgetting making charges and resale discounts.
• Selling in a panic after a sharp fall.
• Ignoring costs of ETFs and funds, which differ between providers.

Our page on common mutual fund mistakes lists more traps to avoid.

Both metals are priced globally in US dollars, so the rupee also matters. When the rupee weakens against the dollar, the rupee price of gold and silver tends to rise even if the global price is unchanged.

Gold reacts strongly to interest rate expectations, global uncertainty and central bank buying. Silver reacts to those too, but also to factory activity, solar installations and electronics demand. That extra link to the economy is a big reason silver behaves differently.

Gold and silver ETFs and funds are taxed under the rules for non-equity mutual funds, which depend on how long you hold them and the rules at the time. We do not quote tax rates. A tax adviser can confirm your position, and our page on mutual fund taxation explains the structure.

• Gold is steadier, mainly a store of value.
• Silver swings far more, linked to industry.
• Neither pays income.
• ETFs and funds are the easiest way to hold both.

We are distributors rather than investment advisers and we recommend no schemes. If you want help deciding how precious metals fit your portfolio, get in touch.