A question we get asked quite often by those new to gold and silver bullion investment is ‘Why is silver cheaper than gold?’. In this article, we’ll focus on some of the reasons why these precious metals differ in value.
Rarity
One of the main reasons why silver is cheaper than gold is the rarity of the metal. There is much less gold available in the world than there is silver, and the difference in their prices is mainly due to the imbalance in supply and demand.
For example, if we magically discovered many new large gold ores next week, or gold suddenly became more plentiful than silver, it would be more than likely that gold would see a huge drop in price and silver would become the more expensive of the two.
Mining
Both gold and silver are mined, however the mining and chemical extraction processes for gold are known to be more difficult. Therefore, these processes can add cost to the end gold product, compared to silver.
Properties
Gold has been used as a form of money for centuries; it doesn’t tarnish and so the low maintenance nature of this metal may also add appeal, adding a few extra digits onto the price.
Both gold and silver are malleable metals that can be easily shaped into coins, bars and jewellery. However, gold has a higher density than silver which means a little can go a long way.
Aesthetics & Status
The use of gold and silver in jewellery can help drive up prices – more so for gold than for silver. Seen as aesthetically beautiful due to its warm colour, gold has been used as a status symbol for the rich and powerful for thousands of years. Gold has been found in caves dating back to 40,000 B.C., and the metal also played a very important role in civilisations such as ancient Egypt and ancient Greece.
Demand is always high for something regarded as rare, precious and beautiful, and because demand is high, the price can be increased without the market turning away. Constant demand for jewellery as well as coins and bars, makes both silver and gold highly valuable commodities.
Summary
The key answer to the question ‘why is silver cheaper than gold?’ is scarcity. Gold is much rarer than silver, and this imbalance in supply and demand between the two metals makes up the majority of the difference in their prices.
However, both precious metals have significant value. Gold bullion and silver are the most popular of the precious metals because they both have functions outside of investment purposes, in jewellery and industry, for instance. And, although one more so than the other, both are rare commodities, making them in high demand.
Both gold and silver are popular investment choices, and it must be stated that silver’s cheaper price should not wrongly deter any potential investors. There are a wide range of coins and bars available, and its lower price can make it easier to obtain and stack.
For many, an investment portfolio which includes both gold and silver is a smart way to prepare for the future. The prices may fluctuate, but precious metals will both always remain a store of value. Physical gold and silver are often held in order to hedge against inflation, to add security in times of economic or political uncertainty, or simply something to keep for a rainy day.
This blog represents one person’s opinion only. Please note, gold and silver prices may go down as well as up. Atkinsons Bullion & Coins accepts no responsibility for any losses based on information we have provided. We do not offer investment advice. Please carry out your own research before making an investment decision.
