In recent weeks, many investors reluctant to add to their gold positions are asking me if they would be better off getting their exposure to precious metals through silver instead.

While I don’t have strong views on the direction of silver prices, I think it’s important to distinguish between silver and gold rather than assume that the two metals are interchangeable.

To be sure, it’s not unreasonable that gold and silver (along with platinum) are often lumped together in the precious metal basket. Silver, like gold, is viewed as a store of value and indeed has acted as a form of monetary base in the past. (History buffs will recall the late 19th advocacy of “free silver”, a debate memorialized by William Jennings Bryan in his famous Cross of Gold speech at the 1896 Democratic National Convention).

But while silver shares many characteristics with gold, here are three important differences between the metals.

  1. Silver tends to be more sensitive to economic variables, while gold is often more sensitive to monetary variables. Industrial uses make up a large portion of silver demand — roughly 40%. In contrast, gold demand is driven almost exclusively by investment and jewelry demand. Thanks to its strong tie to industry, silver tends to be far more sensitive to economic variables, such as industrial production and manufacturing demand, than gold is.

Next page: More on comparing gold to silver

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