13 August 2013

Gold and Silver Performance From the Recent Bottom and Year To Date

I wanted to take a look at the relative performance of gold and silver from the bottom of the precious metals market which seems to have occurred around the end of June.

As you can see in the first chart, silver has recently outperformed gold, rising a little over 16% with gold rising 11%.

However if one looks at the year-to-date chart, gold is still outperforming silver by quite a bit, since it did not drop nearly as far in value.

Does this mean that one is better than the other? No, it just means that they are different, that they have different risk factors. Silver is much more volatile than gold, with bigger upside recoveries, but commensurately larger losses on price declines.

One needs to take this into account for your portfolio and your investment objectives. I tend to 'blend' the two metals in my overall portfolio, and hedge them against declines a bit differently.

Silver has a greater industrial usage than gold, which is more of a monetary play. Silver is also more favoured by a different category of investors because of its lower unit price, and greater storage and handling costs for the same monetary amounts.

For purely short term trading purposes silver is the 'hotter play' given its gearing to volatility, provided one is capable of 'timing the market.' 

Sometimes it takes on the nature of a religious debate, silver vs. gold, from those who have bought into the concept of precious metals.  Again, I think both have their functions and attractions, and their particular place in constructing a portfolio.   Most non-professionals don't 'get this' and that is what makes the markets interesting.

To put it in le mode de cuisine, gold is the meat, and silver is the sauce and the spice.  Too much of either can spoil the outcome. 

But most often the particular mix is a matter of taste.