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Silver: No Mettle to Fight Inflation

Donald Calcagni

MBA, MST, CFP®, AIF®, Chief Investment Officer


CIO Perspective

Is silver better than gold as a hedge against inflation?

Recently I wrote about gold and whether it’s a reliable hedge against inflation. In response to this article, several clients have asked, “What about silver?”

This seems like a fair question; many gold investors also have a proclivity for silver on the premise that it has more industrial uses than gold. But that hasn’t helped silver deliver superior returns to investors by any means. From 1980-2019, silver returned -1.97% annually since 1980 versus +2.46% annually for gold. That’s right, an investor who purchased gold in 1980 lost nearly 55% of their initial investment by the end of 2019.  Subsequently, the data suggests silver is far worse than gold.

Some have argued the early 1980s was an exceptionally bad period for precious metals, given the double-digit inflation (despite inflation being the original logic behind the gold thesis), and that if we cherry pick the data a little and invested 5 years later, the returns would’ve been better. Indeed, they would’ve been, but you would’ve also purchased and owned gold and silver during a relatively low inflationary period, which undermines the inflation-centric argument for owning precious metals in the first place. For the record, gold returned 4.72% since 1985 versus 3.07% for silver from 1985-2019. Inflation returned 2.51% but stocks, arguably the best long-term inflation hedge, returned 11.44% during that time.

The evidence shows, quite conclusively, that the prices of silver and gold appear to be anything but correlated in any systematic way with inflation. Subsequently, it’s hard to argue that they’re somehow reliable hedges against inflation or safe, stable stores of value.

Silver and Gold since 19801


Silver, Gold, and the Russell 1000 since 19851

Sharing nuggets of wisdom

I gave this advice in the gold article and it’s relevant when discussing silver and inflation as well.

  1. Put silver (and any real assets) in context relative to other asset classes. Every decision you make to own something is a decision to not own something else. There are opportunity costs to including all assets in a portfolio; this is true of silver, given its poor returns relative to inflation (and even gold). There are other asset classes better suited to hedge inflation (like stocks or real estate) that have much better long-term expected returns.
  2. If you want to include silver (or any hedge) in your portfolio, you should consider whether the amount you’ve allocated will have a meaningful impact on hedging a portfolio or specific cash flows against inflation. Most portfolio allocations to silver are usually far too small to have a material impact on hedging inflation. Is that enough to have a material impact on your portfolio or financial plan? Of course, it isn’t. Any decision to increase silver allocations beyond a token amount has serious opportunity costs given silver’s poor risk/return profile. So why own it?
  3. Finally, try to hedge inflation over time, not every time. If the notion of increasing or decreasing portfolio withdrawals every month (or even every year) to adjust for CPI sounds foolish, then so is trying to hedge the purchasing power of those cash flows on a monthly or annual basis. Think longer-term.

Speak to your advisor about other strategies that can help protect your investment portfolio and financial plan from inflation.

1 FactSet, Inc.

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