Gold and silver have always been and will always be the investors' favorite precious metals. The recent bounce in gold and silver has reignited investment fever in the commodities.
Investors often substitute silver for gold because the two have a strong correlation with each other. However, Carson Fitch advises clients that the commodities are very different and should not be used interchangeably despite the seeming correlation.
"Trading commodity futures can be difficult if you do not study their unique fundamentals on a commodity by commodity basis," said James Knight, chief analyst at Carson Fitch.
"A fund might have many millions in capital combined with near perfect information on supply and demand but it is not guaranteed success in the volatile commodity markets if fundamentals are ignored or not fully understood."
"The price fundamentals for gold and silver are very different. Gold is primarily used for investment purposes. On the other hand, half of all demand for silver is from industrial sources. This means that demand for silver is tied more tightly than gold to global industrial growth."
"At the same time, gold demand is more closely tied to macroeconomic factors like inflation and central bank actions. Unlike silver, gold is considered a store of value and is used by central banks on a grand scale for this purpose. As such, the use of gold as an alternative currency, investment hedge and as a safe-have pushes its intrinsic value far beyond that of silver."
"With current fundamentals as they are, gold is better than silver for your portfolio, and by a considerable margin," Knight added.
"Despite the correlation, silver and gold are two very different commodities with very different underlying price drivers. Due to its higher price, gold can exhibit greater volatility than silver. Based on this, and with all current fundamentals considered, gold is currently a far superior short-term trading vehicle, whereas silver would make more sense for the long term. We are advising clients to look at gold over 3 to 6 months and silver over 12 to 18 months," James Knight concluded.
About Carson Fitch:
Carson Fitch is a client friendly commodity futures firm that puts the needs of the client ahead of its own. We are dedicated to providing the best service available in the futures industry today and to provide our clients with the tools that can assist them in becoming more successful in their commodity trading. We want to help you learn and we want to help you trade!