1 kg gold and silver bars by PAMP Suisse on a light green background

Gold Volatility Vs. Silver Volatility: What’s the Difference?

10 minutes read
Apr 6, 2023

Both gold and silver are loved by investors but the two precious metals were not created equal. Gold is much less volatile than silver. Why so and how can this impact your investment?

Perhaps you've witnessed the mercurial swings of silver, a metal known for its moody disposition and unpredictable nature. But why does gold, its precious counterpart, seem to stand firm in the face of chaos?

Well, it’s a fascinating question that requires a deep understanding of the markets and the factors that influence them.

Gold and silver have been valued for their beauty, rarity, and utility for thousands of years. They have played a significant role in shaping the global economy, and their prices are closely watched by investors, economists, and governments worldwide.🌎

But while they are both precious metals, their prices can vary widely. Gold is known for its relative stability, while silver is notorious for its volatility. But why is that the case? Is there a correlation between gold volatility and silver volatility?

This article will explore these questions and shed light on the factors that make gold less volatile than silver. We'll also closely examine the correlation between gold and silver volatility and what it means for investors.

So, buckle up and get ready to discover the fascinating world of precious metals volatility.

What is volatility?🤔

a man with a briefcase balancing on red and green arrows symbolizing price volatility

Simply put, volatility is a measure of how much the price of an asset fluctuates over time.

It can be compared to the weather. ☁️ Just as the weather can be calm one moment and stormy the next, the value of an asset can also fluctuate wildly.

In financial markets, volatility is a critical factor in determining an investment's risk profile. Volatile assets are riskier because their prices can fluctuate significantly, which makes them more difficult to predict.

💡High-volatility assets vs. low volatility assets

A classic example of volatility is stock prices. When the stock market experiences a significant drop or sudden surge, it's considered volatile. The market’s volatility is due to various factors, such as economic indicators, political events, and company news—the more significant the change in the market, the higher its volatility.

In contrast, low-volatility assets are less risky because their prices don't fluctuate as much over time. For example, bonds are generally considered less volatile than stocks because their prices are less sensitive to market fluctuations.

Gold is also considered a rather stable asset. Although its price can vary significantly in the short term, it has always maintained its value and even increased over the long term. For example, gold's value has increased from around $38 per ounce in 1972 to over $2,000 per ounce in 2023 (you can always monitor the live price of gold on our website).

The bottom line is, volatility is essential for investors because it impacts their investment decisions. Investors may be less likely to invest in an asset or demand a higher return to compensate for the risk if an asset is volatile. On the other hand, if an asset is less volatile, some investors may be more willing to add it to their portfolio, even if the returns are lower.

Now, let's delve into precious metals and explore the meaning of gold and silver volatility.

What is gold and silver volatility? ✍️

Gold volatility refers to the degree of a price change in the gold market over a given period. It measures the frequency and magnitude of price fluctuations in gold.

Like gold, silver volatility refers to the degree to which the price of silver fluctuates over time. Silver is typically considered a more volatile asset than gold due to its lower value and greater susceptibility to market fluctuations.

💡What does it mean for investors?

While this can make silver an appealing investment option for those potentially seeking higher returns, it also entails greater risk. 

This is why investors should evaluate their risk tolerance and investment objectives before investing in silver.

Track the live price of silver on our website.

To gain insight into the potential direction of gold and silver prices in 2023, take a look at our Precious Metals Price Forecast.

But why is silver more volatile than gold?

1 kilo silver bar by PAMP Suisse and a fluctuating arrow with the GOLD AVENUE logo on a light blue background

There are several reasons why silver usually is much more volatile than gold. Let’s take a look at the key ones:

Reason 1: Smaller market size and less liquidity 🌊

a silver shopping cart

The silver market is significantly smaller than the gold market, with a lower trading volume and fewer participants. This basically means that changes in supply and demand can have a much greater impact on the price of silver, resulting in higher volatility.

This smaller market size also makes it easier for speculators to manipulate the price of silver through coordinated buying or selling. This type of manipulation can contribute to sudden price changes and increased volatility in the silver market.

In contrast, the gold market, with its larger size and greater liquidity, is less susceptible to manipulation and price swings caused by changes in supply and demand.

Reason 2: Wide range of industrial applications 🧑‍🏭

silver being used in different industries including carmaking

Silver's wide range of industrial applications is one of the main reasons it is more volatile than gold. Unlike gold, which is primarily used for investment and jewelry, silver is used in various industrial applications such as electronics, solar panels, batteries, and medical equipment. This means that the demand for silver is heavily influenced by economic and geopolitical factors that affect the industries it is used in.

For example, if an economic downturn leads to a decrease in demand for electronics, the demand for silver used in electronic components will also decrease, leading to a decrease in the price of silver.

Similarly, suppose there is a breakthrough in the development of solar panels or electric vehicles. In that case, the demand for silver used in these applications may increase, leading to an increase in the price of silver.

Reason 3: Silver supply is heavily dependent on mining production ⛏️

a machine used in silver mining

Silver supply is heavily dependent on mining production, which is subject to various factors that can affect output levels and production costs.

For example, mining companies may face disruptions in their supply chains due to political instability, natural disasters, or labor disputes. Similarly, they may experience input costs such as labor, energy, and materials fluctuations, which can affect their profitability and output levels.

These factors can cause fluctuations in the supply of silver, leading to price volatility. When mining production falls or production costs increase, the supply of silver can decline, causing prices to rise. Conversely, when mining production increases or production costs decrease, the supply of silver can increase, causing prices to fall.

Reason 4: Changes in investor sentiment 👨‍🦰

a man hanging on a red economic indicators with gold dollar coins falling

Silver is often viewed as a speculative investment, and changes in investor sentiment can cause large price swings. For example, if there is a sudden shift in investor sentiment towards riskier assets, such as stocks, investors may sell their silver holdings, causing the price to drop.

Reason 5: Fluctuations of the U.S. dollar 💵

a man sitting on a red arrow holding a golden dollar coin

Like most commodities, silver is priced in U.S. dollars, so its price can be affected by forex valuations as well. When the value of the dollar rises, the price of silver may decline as it becomes more expensive for buyers using other currencies. Similarly, when the dollar's value falls, the price of silver may rise as it becomes cheaper for buyers using other currencies.

With the U.S. dollar being the most traded currency, representing 88% of all forex trades for instance, it's easy to see how these fluctuations in exchange rates can cause significant price swings in the silver market.

How is the volatility of gold compared to silver?🤔

gold and silver Lady Fortuna ingots by PAMP

Gold and silver are among the world's most valuable and widely traded precious metals. When it comes to volatility, however, they have significant differences.

As we´ve already mentioned above, gold is known for its stability and low volatility, while silver is much more prone to price swings. The primary reason for the difference in volatility between gold and silver is the differences in supply and demand. Silver is used for various industrial applications, including electronics, solar panels, and medical equipment.

On the other hand, gold has a much more stable demand profile because:

  • Its prices are affected by inflation, geopolitical events, and central bank policies.
  • It is a rarer metal than silver, and it is not produced as a byproduct of other metals
  • Its stability stems from its use as a store of value, hedge against inflation, and as a safe-haven asset.

Recent examples of gold and silver volatility

In recent years, we have seen examples of gold's relative stability. In 2020, the COVID-19 pandemic caused significant disruptions to global financial markets. In the early days of the pandemic, both gold and silver prices fell as investors fled to cash.

However, gold prices quickly rebounded and reached record highs, while silver prices continued to experience significant volatility.

Another example is the recent silversqueeze, which caused silver prices to surge as retail investors sought to replicate the success of the GameStop stock rally. However, silver prices quickly retreated as the silver market proved too large and too complex to manipulate in the same way as a single stock.

What´s the bottom line?

Gold and silver have been prized for their beauty and rarity for thousands of years.

Investing in gold can be a powerful force in the world of finance, providing benefits such as diversification, potential for long-term gains, and a store of value due to its limited supply, cultural significance, and proven safe-haven status.

On the other hand, while the price movements of silver are larger than those of gold, you can buy silver due to its diversification benefits, industrial demand, limited supply, and potential for growth.

In any case, both gold and silver are beneficial to have in your investment portfolio, especially if you want to increase your exposure to precious metals, which can serve as a hedge against inflation and diversify your holdings.