Why the Sell Price of Physical Gold Often Surpasses That of Physical Silver

The difference in the sell prices of physical gold and silver can often be attributed to the larger market liquidity and intrinsic value of gold. In larger markets, the gap between ask and bid prices tends to be narrower. Given that the gold market has a more extensive base of participants, including buyers and sellers, the differential between the ask and bid prices is generally smaller when compared to silver or diamonds. This paper explores the reasons why, percentage-wise, the sell price of physical gold often outperforms that of physical silver.

The Role of Market Liquidity in Gold and Silver Prices

One of the primary reasons for the superior sell price of physical gold is the higher market liquidity. The gold market boasts a significant number of participants, which directly impacts the spread between buy and sell orders. When more players are involved in the market, it tends to diminish the spread, leading to a narrower gap between the prices at which one can buy (bid) or sell (ask).

Portable Form of Money: A Unique Advantage of Physical Gold

Physical gold is often considered a more portable form of money compared to physical silver. Portability is a crucial factor because it affects storage, transport, and convenience. Considering the nature of physical gold, it is easier to carry in smaller quantities compared to the equivalent amount of silver. This enhanced portability contributes to higher demand, pushing the sell prices of physical gold upwards.

Money vs. Currency: Definitions and Interplay

Understanding the distinction between money and currency is essential to grasp why the sell price of physical gold has a higher premium. Money and currency, although often used interchangeably, have distinct definitions. Money is generally viewed as a form of stored value, whereas currency is the legal tender used in transactions. In the United States, the US Dollar is the currency, but it is also considered money because it is widely accepted by merchants and the government to settle debts.

However, it is important to note that American currency, like many others, is a fiat currency. This means it has value because the government declares it as legal tender. In contrast, pre-fiat systems such as the gold and silver standards, where currencies were directly linked to these precious metals, were considered harder currency. The shift away from these standards to fiat currencies has made the value of physical gold and silver particularly appealing in times of economic uncertainty.

Intrinsic Value and Market Perception

Gold, and to a lesser extent, silver, possesses intrinsic value that is recognized and preserved over centuries. Precious metals like gold and silver are suitable mediums of exchange, stores of value, and units of account, thus fulfilling the criteria of money. Their intrinsic value lies in their durability, recognizeability, and portability, making them highly sought after in various economic scenarios.

Economists often argue that money should possess certain properties, such as divisibility, fungibility, and ease of transportation. For instance, gold's ability to represent more value in one ounce (1133/oz t) compared to silver (14.60/oz t) is a testament to its superior inherent value and divisibility. This makes gold a more attractive investment and storage option for various economic and individual reasons.

Conclusion

In summary, the higher sell price of physical gold when compared to physical silver can be attributed to factors such as market liquidity, portability, and intrinsic value. The broader participation in the gold market and its recognized status as a store of value, combined with its ability to fulfill the properties of money, make it a more desirable commodity. Understanding these factors can help investors make informed decisions and appreciate the nuances of the precious metals market.