Gold vs Silver Returns: Which is a better investment?

Published: August 21, 2020 at 12:04 pm

Last Updated on August 22, 2022

We there is a discussion on gold returns, someone tends to point that “silver has done better” or “silver has more upside potential than gold” or some such statement. In this article, we compare returns and risk associated with gold and silver from Jan 1979 to Aug 2020.

As of now, for the typical retail investor, this comparison is only academic as there is no Indian silver ETF or fund or fund with an underlying silver ETF.  An attempt to launch them in 2010-11 did not bear fruition. However, in May 2019 SEBI allowed mutual funds to participate in exchange-traded commodity derivatives including silver.

Via this rule, multi-asset funds can get commodity exposure up to 30%. See our earlier report: Will ICICI Multi-Asset Fund become more volatile with Commodity Derivatives?


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In this article, we shall only focus on the returns and risk associated with a silver investment compared to that in gold. As we shall see below, silver price volatility is almost twice that of gold as the demand and supply forces are quite different. Those who wish to learn more about these differences can consult this article on the Gold/Silver price ratio.

We are comparing gold and silver only from the point of view of their price movements (and resulting gains or losses). The traditional, emotional, psychological values associated with these metals and the resulting purchase for aesthetic use as jewellery, ornamentation etc is not (cannot be) factored in.

A key difference is the nature of the demand. Silver as many readers may be aware has higher demand in industry and may not perform well during a recession, unlike gold. When investors see a long-term price chart of gold, they concluded – hastily and therefore inaccurately – that “gold prices always keep moving up”.

We have dispelled this myth multiple times before. See for example Gold: 11% annualized return in 41 years, but there is a catch. When we see a long-term price chart of silver, it is tempting to once again hastily conclude that “silver is a bad investment”.

Gold vs Silver Price Movement in INR and USD

Normalised gold and silver price in INR per ounce from Jan 1979 to Aug 2020
Normalised gold and silver price in INR per ounce from Jan 1979 to Aug 2020. The price scale in log10 scale. Each 0.5 division represents a movement of the same magnitude.
Normalised gold and silver price in USD per ounce from Jan 1979 to Aug 2020
Normalised gold and silver price in USD per ounce from Jan 1979 to Aug 2020. The price scale in log10 scale. Each 0.5 division represents a movement of the same magnitude.

In both graphs above, the price scale in log10 scale. Each 0.5 division represents a movement of the same magnitude. The higher volatility of silver is seen better in USD. We need to look at rolling returns to appreciate risk and reward in a silver investment.

Gold vs Silver Rolling Returns and Rolling Risk Comparison

In the charts below, we consider every possible 5,10, 15 and 20-year returns from gold and silver price movements. We also consider rolling standard deviation or (price risk aka volatility) from  Jan 1979 to Aug 2020.

Five years

Returns

Rolling returns over 5 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling returns over 5 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Risk

Rolling standard deviation (volatility) over 5 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling standard deviation (volatility) over 5 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Notice the spread in returns (min return to max return). This is a measure of risk and is obviously higher for silver. The rolling standard deviation – a measure of daily price ups and down also confirms this. Silver volatility is almost regularly twice as that of gold!

Ten Years

Returns

Rolling returns over 10 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling returns over 10 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Risk

Rolling standard deviation (volatility) over 10 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling standard deviation (volatility) over 10 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Fifteen Years

Returns

Rolling returns over 15 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling returns over 15 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Risk

Rolling standard deviation (volatility) over 15 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling standard deviation (volatility) over 15 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Twenty Years

Returns

Rolling returns over 20 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling returns over 20 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Risk

Rolling standard deviation (volatility) over 20 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)
Rolling standard deviation (volatility) over 20 years from Jan 1979 to Aug 2020 for silver (INR per ounce) and gold (INR per ounce)

Summary

The above results can be summed up in a single sentence:

Silver is consistently twice as volatile than gold but is only ocassionaly rewarding.

Therefore investment in silver should be tactical (including trading) with appropriate indicators. Buying and holding silver for returns/diversification can be twice as frustrating than gold.

References

  1. Silver price data
  2. Gold price data (USD INR exchange rate history can also be obtained here)
  3. Some interesting gold and silver charts
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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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