GLD Offers a Smoother Ride Than SLV Over 10 Years

Gold and silver are both precious metals. They are both viewed as safe-haven assets. But they are still very different metals, and you need to look beyond recent performance if you are considering buying either SPDR Gold Shares (GLD +0.86%) or the iShares Silver Trust (SLV +0.51%). Here’s what you need to know.

What do SPDR Gold Shares and the iShares Silver Trust do?

There are different ways to own precious metals. For those who expect a financial collapse (or a zombie apocalypse), the best option is to buy physical gold and silver. It is an inefficient market with high costs, and you have to actually store the bullion once you own it. But you will have the metal at your disposal in a worst-case scenario. Still, most investors will probably prefer buying SPDR Gold Shares or the iShares Silver Trust.

Image source: Getty Images.

Essentially, these two exchange-traded funds (ETFs) buy gold and silver, respectively, and hold them. Investors buy these ETFs because it provides them with direct exposure to metals without having to buy physical gold and silver. It’s a good compromise for investors who expect a financial storm, but one that won’t burn down the global financial system.

That said, gold and silver are very different commodities.

Don’t chase performance

Gold is the more traditional store of wealth. It’s used extensively in jewelry, and countries own it in huge amounts in brick form. Gold has some industrial uses because of its conductivity, but its high cost generally leads industrial customers to seek out other alternatives. Silver is used in jewelry, but it’s more commonly used in industrial settings thanks to its lower cost.

GLD data by YCharts.

The outcome is that gold tends to be less volatile than silver over time. They are both volatile commodities, but the drawdowns can be particularly brutal for silver as economic demand drops along with economic activity, as the chart above illustrates. Of course, silver can outperform to the upside, too, as investor enthusiasm around economic activity heats up. But if you plan to make one of these metals a core holding as a safe-haven asset, SPDR Gold Shares is likely to provide you with a smoother ride.

Gold and silver are hot right now

Right now, gold and silver are both in the headlines thanks to massive price advances. Chasing those moves may not be the best choice. Notably, silver has recently plunged dramatically from its highs, dragging the iShares Silver Trust along with it. That said, if you feel compelled to own one of these ETFs for strategic diversification reasons, it might make sense to make a modest commitment to SPDR Gold Shares.