Ask TheStreet: Precious Metal

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I am confused about silver and gold. Do these two metals usually go up or down together or are they completely independent? Also, what are the advantages and disadvantages of owning the commodities themselves vs. owning the mining stocks? Thanks very much, your column is very helpful. -- K.W.

Thanks for the kind words, as well as your insightful question. Now, about those precious metals...

If you compare the chart for the streetTRACKS Gold(GLD) exchange-traded fund, which directly tracks the price of gold, to the iShares Silver Trust(SLV), which tracks silver, you will see that these two metals move in concert with each other but at different levels. Since the silver ETF started trading in May, it has generally underperformed gold by 10 to 15 percentage points.

There are some obvious reasons why gold and silver tend to move more or less in tandem. Most notably, both serve as a currency of last resort or as a store of value during periods of high inflation.

Gold has served throughout history as a leading currency and, despite what some analysts say, silver is as much a monetary metal as is gold. In the U.S., for example, gold coins were called from circulation in 1933. Standard U.S. 90% silver coins, however, were minted through 1964.

Gold and silver are also highly sought after for industrial use. Gold performs critical functions in computers, communications equipment, spacecraft, jet engines and many other products because of its malleability and conductivity. Industrial demand for silver has increased in the last half-century in areas like photography. And, of course, both metals are huge components for the jewelry industry.