Silver vs gold: Which will shine brighter for you this festival season?

Gold And Silver Prices Surge

For many years, it is gold that has glittered the most, silver, though valued, didn't quite catch the fancy like the yellow metal. This narrative, however, is swiftly evolving. A set of factors has elevated silver’s profile, turning it into one of the most captivating investment stories of recent times.

on September 29, gold and silver surged to fresh highs in the domestic futures market on strong global cues and expectations of rate cuts by US Federal Reserve alongside a weaker dollar.

On the Multi Commodity Exchange (MCX), silver futures for December delivery climbed to an all-time high of Rs 1,44,179 per kg, while December gold contracts also hit record Rs 1,15,939 for 10 grams. The October gold contract reached a record Rs 1,14,992.

Over the past year, gold has delivered an impressive annual return of 51 percent but silver has gained 57 percent.

Rise in demand

Silver is unique among precious metals due to its dual demand profile. While gold is predominantly an investment vehicle, silver straddles two powerful drivers - investment safe haven appeal and indispensable industrial usage.

Almost 60% of silver’s demand today arises from industrial applications. Its exceptional conductivity and versatility make it crucial in solar panels, electric vehicle batteries, semiconductors, LEDs, and medical devices. As the world accelerates towards cleaner energy and advanced technology, silver’s role becomes even more critical.

“There is also a strong valuation argument. The gold-to-silver ratio, which measures how many ounces of silver equal the price of one ounce of gold, stands at around 87," said Anil Ghelani, who is the head of passive investments & products at DSP Asset Managers. “There is no direct cause-effect relationship between gold and silver prices, so this ratio should be seen as an indicator.”

Historically, this ratio’s median over the past 30 years has been approximately 67, indicating that silver could be undervalued relative to gold. When the ratio spikes to such extremes, history shows that silver tends to outperform gold considerably in the subsequent years, said Ghelani.

Fundamentally, silver is facing a structural supply deficit. For four consecutive years, global demand has outpaced supply. In 2024 alone, the market faced a shortfall of about 149 million ounce about 15 percent of available silver supply, said a recent Client Associates report The Investment Case for Silver.

Ways to Invest in silver: ETFs vs Fund of Funds

In India, investors can gain exposure to silver digitally through Exchange-Traded Funds (ETFs) or Silver ETF Funds of Funds (FoFs). Both offer exposure without the need for physical storage, but they differ in cost, convenience, and tax treatment.

Silver ETFs invest directly in physical silver and trade like stocks, requiring a demat account but offer lower costs and shorter holding periods. However, they may pose liquidity challenges for very large transactions.

Silver FoFs don’t require a demat account and are easier for larger investments, though they often involve higher costs and longer holding periods. Gains from ETFs held over 12 months attract 12.5 percent long-term capital gains tax, while FoFs require a 24-month holding period to qualify for such benefits.

Gold vs silver: Complementary not competing

While silver shines with its growth potential, experts advise investors to maintain gold holdings as a foundation. Gold’s low correlation with equities and use as a safe-haven commodity provide crucial portfolio stability.

Despite gold’s stellar gains in turbulent times, it remains under-owned globally, with continous central bank buying expected to sustain robust demand.

Hence, gold and silver ETFs should co-exist in portfolios with exposure of around 10-15 percent in your portfolio. Gold safeguards wealth, while silver captures growth from industrial demand and technology trends. This balanced approach enables investors to benefit from both metals’ unique advantages.