Silver

With silver prices on the rise, how does one invest in the white metal? That’s the question on many investors’ minds.

So far in 2019, prices have oscillated between US$14 and US$19 per ounce. Although the metal is currently on the rise, many industry insiders believe that its performance will only continue to increase before the year ends, possibly hitting US$20 per ounce.

Before investing in silver, one should consider the pros and cons, the several ways to add it to your portfolio, elements that affect silver’s movements and where prices could be headed.

Factors to consider before investing in silver

Like with most investments, there are both pros and cons to silver investing. Below is a list of factors you may want to consider before adding the white metal to your portfolio.

Pros

Silver can offer protection — Investors often turn to precious metals during times of turmoil. When political and economic uncertainty are rife, legal tender generally takes a backseat to assets like gold and silver.

Silver bullion is tangible money — Silver bullion is a tangible asset that is finite. That means that, although it is vulnerable to market fluctuations like other commodities, physical silver isn’t likely to completely crash because of its inherent and real value.

It’s cheaper than gold — Between gold and silver, the white metal is not only the less expensive of the two products, and therefore more accessible to buy, but it’s also more versatile to spend. That means, if you are interested in buying silver coins to use as currency, they’re easier to break than gold because they are lower in value.

Silver offers higher returns than gold — Because silver bullion is worth around 1/79th the price of gold bullion, it is affordable and stands to see a much bigger percentage gain when silver prices go up.

History is on silver’s side — Silver and gold have been used as legal tender for hundreds and hundreds of years, and that lineage lends the metal a sense of stability. When individuals invest in physical silver, whether that be through silver bars, fine silver, coins or other means, there is a reassurance that its value has and will continue to persist.

Cons

Lack of liquidity — There is a chance that if you hold physical silver, it may not be immediately liquidatable. In order to make common purchases such as groceries, you are not able to use bars of silver, so you will need to convert that to currency first, and the ability to sell in a hurry can be an issue. Due to this factor, you may want to consider silver stocks.

Danger of theft — Unlike most other investments, such as stocks, holding silver bullion can leave investors vulnerable to theft. Securing your assets from looting with methods such as a safety deposit box in a bank or a safe box in your home can incur other costs.

Weak return on investment — Although silver may be a good safe haven asset, it may not perform as well as other investments — for example, real estate, or even other metals.

What factors most affect silver?

Geopolitical issues

Like gold, silver prices often increase when geopolitical issues are at play. US President Donald Trump continues to cause concern, continually clashing with China and the Middle East. The president is locked in a trade war with the Asian nation, with both the US and China imposing tariffs on each other.

These geopolitical issues seem to be supporting the white metal, as it has been steadily making gains in the third quarter of 2019. Investors will have to see if this trend continues as these and other geopolitical issues will more than likely continue to develop.

Interest rates

In general, higher interest rates tend to put pressure on non-interest-bearing assets like gold and silver; conversely, when interest rates are lower, precious metals tend to perform better. However, last year there were three rate hikes, and gold prices rose instead of falling, while silver was relatively flat.

Thankfully for the white metal, the Fed recently dropped interest rates, in a move that has since positively affected both the metals. Although gold and silver initially dipped following the news, they have rallied in the weeks since.

Further rate cuts remain front and center in many investors’ minds — and for good reason. The Fed has already paused and cut rates and continues to have a dovish tone for the remainder of the year. Market participants who are looking to invest in silver and wondering, “When will silver go up?” will want to watch what central banks do.

Gold’s movements

David Morgan of the Morgan Report believes that one of the main catalysts behind a potential uptick in silver prices is the value of gold.

“Everything revolves around gold right now,” he said. “Once investors return to the precious metals, silver will catch up and most likely overtake gold, bringing the gold/silver ratio back to a level of 70 to 1 or lower.”

EB Tucker, director at Metalla Royalty & Streaming (TSXV:MTA,OTCQX:MTAFF), shares Morgan’s sentiment, stating, “At some stage silver wakes up and plays catch up. That’s a move worth owning.”

Similarly, Lobo Tiggre, CEO of Louis James LLC, recently told INN, “It’s well known … how silver tends to lag gold. Gold moves first and then silver more than catches up.” He also stated, “If gold goes bananas, silver will go bananas — no question in my mind, and it will go more bananas than gold.”

Different ways to invest in silver

Physical silver is sold on the spot market, meaning that in order to invest in silver this way, buyers pay a specific price for the metal and then have it delivered immediately. There are two popular ways to go about investing in silver. The first is through purchasing bullion products such as bullion bars, bullion coins and silver rounds.

The second is accomplished through paper trading, which is done via the futures market, with participants entering into futures contracts for the delivery of the white metal in the future at an agreed upon price. In such contracts, two positions can be taken: a long position to accept delivery of the metal or a short position to provide delivery of the metal.

Many silver investors are also involved in mining stocks. Like all publicly listed stocks, silver companies issue shares that are available for investors to trade. When you purchase shares of a silver mining stock, you are essentially purchasing a stake in the company, making financial returns or losses from its profits.

There are two main paths to take when purchasing from companies with silver mines. One direction of silver stock investing is by making purchases from major mining companies. The other way of trading on the stock market is by investing in silver mining stocks through a junior miner. While both avenues have their pros and cons, it’s worth noting that investing in a junior stock can be risky. Since these companies often fail due to the risks associated with exploration and development, you stand a greater chance of also taking on a loss when you buy silver this way.

Finally, market participants can obtain silver shares through investing in silver streaming and royalty companies, such as Wheaton Precious Metals (TSX:WPM,NYSE:WPM).

It is also worth noting that many market participants could also opt to invest in silver through an exchange-traded fund (ETF). Investing in a silver ETF is similar to trading a stock on an exchange, and there are several silver ETF options to choose from. For instance, some ETFs focus solely on physical silver bullion, while others focus on silver futures contracts.

Where is the silver price headed?

Where are silver prices headed in 2019? Panelists polled by FocusEconomics see prices dipping below the current per ounce level in 2019, but not by a lot. As a whole, they expect prices to average around US$15.80 in the fourth quarter of 2019 before climbing back up to reach an expected average of US$16.60 in Q4 of next year.

However, with the white metal currently trading over US$19 per ounce, many other market watchers believe that silver is not done rallying yet.

“We could easily see US$20 per ounce silver … that can happen quickly,” Tucker told INN.

Additionally, Brien Lundin, editor of Gold Newsletter, recently told INN that he shares Tuckers price prediction.

“Silver is being driven by gold, which is an encouraging sign in that this fact confirms that one of the primary drivers of the gold rally is concern over the future values of fiat currencies,” he said. “At this rate, it won’t be long before the US$20 level starts to act like a magnet, and I would not be surprised to see silver breach that benchmark before November.”

Finally, Brian Leni, founder of Junior Stock Review, followed suit, stating, “I believe silver will follow much of the same course (as gold), but is more volatile. I would guess that (it will reach) US$16 on the downside and break US$20 on the upside, which may be conservative,” he said. “Overall, I think the trend of escalating precious metals prices will continue moving in 2020.”

Want to know what some of the top stocks currently are? Don’t forget to check out INN’s lists of the best silver stocks on the TSX and TSXV that have seen the biggest share price gains year-to-date.