When it comes to looking closely at which investment strategy is best for your particular circumstances, or when diversifying an existing investment portfolio to mitigate against risk, it is true to say that investment-grade precious metals offer a reliable hedge against volatility of investment markets for the long term. When you learn more about the value of purchasing gold and silver for investment, the next step becomes narrowing your decision down to either buying gold or silver bullion bars or coins.
Two of the most traded commodities that professional investors look to are both gold and silver bullion. Their attractiveness is probably due in part to the familiarity to us of these precious metals. They are the most commonly chosen metals for jewellery and of course are what investment grade bullion coins are struck from, for instance.
So-called ‘gold bugs’ (i.e. those people who like to regularly invest in gold), often like to spread risks to growing their wealth by investing in silver as well as gold. For newcomers to investing in precious metals however, there is often the question of what the difference is between gold and silver when it comes to deciding between the two.
With centuries of experience in striking coins and latterly producing gold and silver bullion bars, we can provide some professional insight into what investors may want to consider when they choose between gold and silver for investment purposes.
Investing for the long term
People often choose gold bullion as a long term investment, given the steady rise in value over the years. Silver generally follows gold in terms of relative values, and in the past decade, gold has demonstrated a steady overall annual profit. They can also be traded in the short and medium term too, given an understanding of how gold and silver prices move in the markets e.g. such as calculating the gold silver ratio.
Of course when starting out with small amounts to invest, entry price is often a primary consideration for those who are new to investing in bullion. For this reason, many start by purchasing silver coins. Silver prices are significantly lower than gold, of course, which makes buying a few at a time more affordable. In time, however, many silver coin buyers graduate to buying gold bullion.
Timing of gold and silver prices
Timing around buying and disposing of gold and silver bullion is also crucial, given that the market prices for precious metals can move very quickly. Silver prices are much more ‘volatile’ than those of gold in the short term, because of silver’s association with industrial uses. This means that it’s more likely that the price of silver can increase or decrease by 20% or more in a short period of time. Investment grade precious metals require the investor to understand the market and why perceptions of value for different commodities can change in order to understand timing of buying and selling gold and silver to maximise returns on investment.
Adding value to investments
One distinct reason why many choose to invest in gold bullion is that investing is VAT free in the U.K, which is not the case for gold throughout the world. Silver also attracts a VAT rate of 20% in the United Kingdom.
The background as to why this is the case is interesting for those learning about buying bullion for the first time. Before 1st January 2000, sales of gold in the UK were subject to VAT. This changed because of the disparity between rules in the European Union. For example, some countries in the EU didn’t charge VAT on gold at all or charged it at a very low rate. This meant that the UK was at a disadvantage compared with other EU member states. The introduction of the exemption meant that for VAT purposes, gold would be treated the same as other investments, such as stocks and shares. Silver is of course different, which is mainly due to the fact that as well as being used for investments, silver has many industrial and practical uses.
The precious metals investor would do well to bear in mind the fact that due to VAT, the price of silver in the market has to rise at least 20% in order to cover one’s initial investment, in order to make a worthwhile profit when you are ready to sell. Given that gold is VAT free in the U.K., this added cost does not apply. However, given the volatility of silver prices, if you understand timing of trading silver, you can steadily increase your returns sufficiently to diversify to gold, which intrinsically holds more value, due to its greater scarcity.