Gold vs. Silver Trading – Which is better?

Precious metals have long been considered as stores of wealth for thousands of years. Prior to the advent of the fiat currency system, the world’s currencies were directly or indirectly pegged to gold. Some proponents of the latter system still believe that holding precious metals is better than holding currency. Investing money in silver and gold as commodity is simple and profitable. Anyone can learn the easy ways of buying silver and gold as a physical wealth. Since the value of of gold and silver is considerably high, the precious metal constitutes to be great investment option. While people give a lot of opinions, investing in Gold has always comes out as a clear winner.

History of Gold

In 1990, the price of gold was $400 an ounce. From September of 1990 to September of 2005, the price of gold ranged from around $280 to $450 an ounce: a difference of $170 over 15 years. Over the course of any given year, a $40 to $50 move in the price would be considered a big – in a single year. Nowadays, that’s an afternoon. Since September of 2005, the price of gold has been on a historic run – from $450 per ounce to a high of $1,875 per ounce in 2011. Now in pandemic crisis 2020 many one moves towards commodities like Gold and it’s rate reached $2,072 per ounce and now it trades at around $1,923. The average investor probably didn’t pay much attention to the first part of the rally in gold, but once it convincingly crossed $1,000 in 2009, most market watchers keep an eye on gold along with the Dow, the S&P 500, and the price of crude oil.

What was once only watched by central banks, insurance companies, and gold miners suddenly has become as mainstream as IBM and Microsoft. In fact, We would say that gold is even bigger. Whenever the financial crisis happens Gold always stands as the Safe haven and many people flocked to gold as a “safe haven” investment. The average small retail investor can easily invest in gold through exchange traded funds, or ETFs.

But what about other precious metals? What about silver? Silver has had an impressive run up in price as well, and may even have more upside than gold over the coming months and years.

Gold Has a Much Larger Supply

In absolute terms of mass, silver has a much larger supply than gold. However, due to gold’s rarity, its price is a lot higher. As such, the annual supply in USD is around 12 times larger for gold as compared to silver. That being said, physical gold has many different uses besides investing.

Another important point to remember here is that due to its cheaper price, silver requires a lot more storage space than a similar amount (in USD) of gold. This increases the price of its option contracts and makes it less desirable to individuals as it cannot be efficiently stored in safe-deposit boxes.

Silver is Cheap

Despite many disadvantages, the one advantage that silver has over gold is its lower price. This means that it is easier for small-time investors to purchase certain quantities of silver as compared to gold.

Both silver and gold are often sold in the form of bricks and coins, so it is quite difficult to purchase a small amount of an expensive metal like gold. Most investors who want exposure to gold but do not have a lot of money either invest in gold ETFs or gold mining stocks.

Gold

Gold has traditionally been a safe haven for investors who do not believe in the strength of the current economy. This was proven once again during the COVID-19 crisis, as gold gained more than 56% during the first half of 2020. Due to its low volatility, high demand (which is continuously rising as the ramifications of quantitative easing become apparent), and history as the primary store hold of wealth for centuries, gold has always been a part of mainstream finance.

The Federal Reserve printed more than $3 Trillion to counteract the negative consequences of COVID-19. This has led to many investors being wary of extreme inflation in the next few years. Gold has limited supply and it usually rises as the cost of living increases.

Silver

The main advantage that you get when you own physical silver is convenience. Not only you can purchase silver quite easily, but it is also easier to offload as compared to gold. Meeting a small financial need is much easier with silver due to it being only a fraction of the price of gold.

Another important point to note is that the demand for silver is rising, both in industry as well as consumers  (as investment as well as jewelry). Apart from by the investors, silver is also considered a precious metal because of its application, including its use in industries like mobile hand-sets, glass, normal lead acid batteries, solar panels, electric conductors, computers and soon. It is a surprise to see that no other metal has been able to replace silver in this industry. Additionally silver is used in many life saving medicines as well.

Silver has been on a constant downfall in the last decade. At its highest, it hit $50/ounce. However, it finished 2019 at a very modest price of $17.83/ounce. Due to this, silver is being mined less and less each passing year. Once you couple the increase in demand with a fall in supply, it is easy to see how profitable an investment in silver could be.

However, you must not forget the risks associated with silver. Due to it being so readily available and cheap, all these factors could change in an instant. It is also important to remember that until the complete effects of COVID-19 become apparent, there is still a chance of a continued decline of industrial silver demand which may hamper its price.

Silver Performs Worse in Crashes

We mentioned previously how silver seems to perform much more in tandem with the economy as opposed to gold which rises in price during a crash. The simple reason for this is that silver is used abundantly in industry. Over half of the silver mined every year is utilized in industry. When the economy collapses, factories often reduce their output or shut down entirely. As such, the demand for silver falls massively. This leads to silver often falling in price during a crash, despite many investors flocking to it as a safe asset.

And also it was noted after US ‘2008 debt crisis, the world bought both gold and silver in bulk. This resulted in dramatic increase in the price of silver and gold between from 2008 to 2013. At that time of price of silver went up to nearly Dollars 45 per ounce. Currently the craze of silver bubble has fizzed out but gold still continues to shine and now pandemic corona crisis increases the price of Gold and silver.

Its properties as a conductor of heat as well as electricity, along with its reflective nature, make it ideal for many industries. Until a better alternative is found, silver will always be more volatile than gold.

Conclusion

Right now, less than 1% of the world’s total wealth is invested in gold and silver. Even a minor increase in this percentage could have a significant impact on their prices. What is even more interesting is that the demand does seem to be gradually increasing. So much so that mining cannot keep up with it!

This means that you might see favorable returns on your investment regardless of which metal you invest in. However, the purpose of gold and silver is very different. As such, they are for people of very different mindsets.

Generally speaking, gold is for more conservative-minded investors. While it is possible to see higher returns in silver, you will need to time your exits and entries into the commodity in order to do that. Gold, on the other hand, is great for investors who want to sleep well.

Do remember that gold should only be a small part of your portfolio usually. If you begin to see a crisis looming ahead that may cause uncertainty in the markets, only then should you flock to gold before everyone else does and raises its price.

Silver is a lot more of an opportunistic investment. Due to its volatility, it can give returns that are much better than gold in certain conditions. However, silver does not tend to fare well when held for a long time.

Our advice is that conservative investors who are looking to hedge their portfolio with precious metals should stick with gold. Only those who understand the world of commodities in depth should try to trade silver. Those with experience could quite possibly greatly enhance their returns if they invest in silver at the right time. Novice investors, on the other hand, will probably lack sufficient knowledge to trade it effectively.

Economic stimulus package favors yen

Japan announced a fresh $708 billion economic stimulus package on Tuesday to speed up the recovery from the country’s deep coronavirus-driven slump, while targeting investment in new growth areas such as green and digital innovation.

The new package will include about 40 trillion yen ($384.54 billion) in direct fiscal spending and initiatives targeted at reducing carbon emissions and boosting adoption of digital technology, Prime Minister Yoshihide Suga said in a meeting with ruling party executives.

Policymakers globally have unleashed a wall of monetary and fiscal stimulus to prevent a deep and prolonged recession as the coronavirus closed international borders and sent millions out of work. In the United States, a $908 billion coronavirus aid plan is currently under debate in Congress.

“We have compiled the new measures to maintain employment, sustain business and restore the economy and open a way to achieve new growth in green and digital areas, so as to protect people’s lives and livelihoods,” Suga said at the meeting. Suga’s cabinet is set to endorse the stimulus package later on Tuesday, which would bring the combined value of coronavirus-related stimulus to about $3 trillion.

Two previous packages this year worth a combined $2.2 trillion focused on dealing with the immediate strain on households and business from the pandemic.

The new plan includes a 2-trillion yen fund to promote carbon neutrality by 2050, 1 trillion yen to accelerate digital transformation and 1.5 trillion yen in subsidies to support restaurants hurt by shortened trading hours due to COVID-19.

Japan’s economy, the world’s third-largest, rebounded in July-September from its worst postwar contraction in the second quarter, though many analysts expect a third wave of COVID-19 infections to keep any recovery modest.

But the Japan’s benchmark 10-year government bond yield likely to remain negative for the foreseeable future, the pressure to keep buying debt abroad will continue, even as rates fall elsewhere.

USD/JPY 4 Hour Chart:

Support: 103.88 (S1), 103.70 (S2), 103.49 (S3).

Resistance: 104.27 (R1), 104.49 (R2), 104.66 (R3).

The announcement of the stimulus package to recover from the covid 19 disasters favors yen against the greenback. We expect a bearish trend for USD/JPY.

EU’s dovish move weakens Euro

European Union (EU) scheduled to decide budget and relief package on Thursday alongside European Central Bank’s monetary policy decision. Both Poland and Hungary have vowed to veto the budget, including the €750 billion ($909 billion) coronavirus stimulus package. Both nations believe the budget is punishing them for their conservative values, as noted by Financial Times.

The correlation between the size of the European Central Bank’s (ECB) balance sheet and inflation in the common currency area is zero , according to Jeroen Blokland, Portfolio Manager for the Robeco Multi-Asset funds, Robeco ONE and Robeco Pension Return Portfolio.

That seems to be the case the central bank has expanded its balance sheet from roughly EUR 4.7 trillion to a record high of EUR 6.83 trillion in the eight months to November 2020. However, Eurozone’s inflation turned negative in September and the Consumer Price Index has remained below zero ever since.

The ECB, too, is expected to increase the size of its asset purchases this Thursday. While that’s typically bearish for the currency, the central bank’s impending dovish seems to have been priced in by markets. Moreover, the central bank needs to match the Federal Reserve’s aggressive easing to put downward pressure on the euro.

The German 10-year bond yield has declined by more than 30 basis points to -0.54% this year.

Ministers will not take decisions at their meeting on Monday, leaving that to Thursday’s summit of EU leaders, who in October told Turkey to stop exploring in disputed waters in the eastern Mediterranean or face consequences. Turkey’s move in late November to return a seismic exploration vessel to port has calmed tension, but EU officials and diplomats said broader issues – over Libya, Syria, Russia and authoritarianism in Turkey – have hardened EU positions.“I’m not aware of any EU government challenging the view that the situation is worse than October and that leaders should consider the consequences,” said a senior EU official. “We have been requesting a change that has not come.”

EUR/USD 4 Hour Chart:

Support: 1.2096 (S1), 1.2071 (S2), 1.2031 (S3).

Resistance: 1.2161 (R1), 1.2202 (R2), 1.2226 (R3).

All the catalysts makes Euro weaker, we expect a bearish trend for EUR/USD.

USD/JPY Weekly Forecast (7th December 2020 – 11th December 2020)

Fundamental view:

The US dollar has gone back and forth against the Japanese yen. Federal Reserve is flooding the market with dollars so it is possible to see this pair drop. But the market’s mood is mixed as participants are still trying to find equilibrium from fundamental headlines. The pair’s bounce has little to do with the dollar’s strength, instead of linked to a modest bounce in US Treasury yields and equities. Japan didn’t publish relevant data, with the focus on the US November Nonfarm Payrolls report. The country is expected to have added 481K new positions in the month, below the previous 638K. The unemployment rate is seen improving from 6.9% to 6.8%, while wages are expected to have risen by 0.1% MoM and 4.3% YoY.

In the past week, Japan Prelim Industrial Production monthly report and Housing Starts yearly report on 30th Nov and  Japan Capital Spending on 1st Dec created a bearish trend for the pair whereas US Average Hourly Earnings m/m, Unemployment Rate & Factory Orders monthly report on 4th Dec created a bullish trend for the pair.              

The major economic events deciding the movement of the pair in the next week are Japan GDP quarterly report at Dec 07, US Nonfarm Productivity quarterly at Dec 08, BoJ Corporate Goods Price Index monthly report, US JOLTS Job Openings at Dec 09, Initial Jobless Claims at Dec 10, and US CPI monthly report at Dec 11.

USD/JPY Weekly outlook:

Technical View:

Last week’s high was 0.01% lower than the previous week. Maintaining high at 104.75 and low at 103.67 showed a movement of 108 pips.

In the upcoming week we expect USD/JPY to show a bearish trend. The currency pair is trading below the 200 Simple Moving Average and the MACD trades to the downside. A solid breakout below 103.64 may open a clean path towards 103.11 and may take a way down to 102.56. Should 104.71 prove to be unreliable resistance, the USDJPY may raise upwards 105.27 and 105.79 respectively.  In H4 chart, Formation of double top pattern indicates reversal of the trend creating prospects of a bearish trend Along with a bullish spinning top formation braces our expectation.

Preference
Sell: 104.18 target at 103.12 and stop loss at 104.76

 

Alternate Scenario
Buy: 104.76 target at 105.78 and stop loss at 104.18