Silver

man dropping coins into glass bowl

Are you wondering how to invest in silver? With turmoil running high worldwide, now may be the time for investors to enter the market.

How does one invest in silver given the metal’s notorious volatility? That’s a question on many investors’ minds.

Silver has long been an attractive vehicle for not only displaying and storing wealth, but generating it too. Silver bugs rave about the growth opportunities to be had in a price rally. However, what goes up must come down, and the silver market is prone to deep dives.

Before investing in silver, one should consider the pros and cons, the several ways it can be added to a portfolio, the elements that affect silver’s movements and where its price could be headed.


What are the pros and cons of investing in silver?

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

Pros

Silver can offer protection — Investors often turn to precious metals in 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 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 less expensive and therefore more accessible to buy; it’s also easier to convert silver coins into currency versus gold coins.

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 the price goes 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 — Bars of silver can’t be used to make common purchases such as groceries, meaning the metal must generally be converted to currency before it can be used in daily life. The ability to sell in a hurry can become an issue as there’s a chance that those who hold physical silver may not immediately be able to liquidate it. As a result, silver stocks may be a better option for some investors.

Danger of theft — Unlike most other investments, such as stocks, holding silver bullion can leave investors vulnerable to theft. Securing assets from looting with methods such as a safety deposit box in a bank or a safe box at 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 affect the price of silver?

Geopolitical issues

Like gold, the silver price often increases when geopolitical issues are at play.

Continual clashes between the US and China, with both nations imposing tariffs on each other, is one current geopolitical concern that has influence over the silver market. Growing social unrest over COVID-19 lockdowns and vaccine passports is another. As is Russia's escalating war in Ukraine.

Investors will be closely watching these trends and any other geopolitical events that bring a higher level of uncertainty.

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, there are times when silver has remained relatively flat in the face of rate hikes, such as in 2018.

The US Federal Reserve had kept interest rates incredibly low in recent years, which did positively affect gold as well as silver.

Central Banks around the world, including the Fed, are raising interest rates to battle inflation at the risk of pushing economies around the world into recession. Further rate hikes and the possibility of a return to rate cuts remain front and center in many investors’ minds — and for good reason. The Fed continues to have a hawkish tone when it comes to interest rate hikes. Market participants who are looking to invest in silver and are wondering when silver will go up will want to watch what the Fed and other central banks do in regards to interest rates and gold buying.

Gold’s movements

Where gold goes, silver will typically follow. In fact, many silver analysts emphasize that one of the main catalysts behind a potential uptick in silver prices is the value of gold.

It’s helpful to look at gold price drivers when trying to understand silver’s price action as the white metal often trades in relative tandem with gold. Sometimes it might take silver a bit of time to play catch up, and it has been known to overtake gold in its rally gains as well.

Expert market watcher EB Tucker has shared this sentiment, stating, “At some stage silver wakes up and plays catch up. That’s a move worth owning.”

Similarly, Lobo Tiggre, CEO of IndependentSpeculator.com, has 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.”

How can investors get exposure to 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. Purchasing shares of a silver-mining stock essentially means buying a stake in the company, with financial returns or losses tied to its performance.

There are two main paths to take when investing in silver companies. One silver stock direction is to purchase shares of major mining companies; the other is to invest in a junior miner. While both avenues have their pluses and minuses, it’s worth noting that investing in a junior stock can be risky. Since these companies can fail due to the risks associated with exploration and development, investors stand a greater chance of taking on a loss when getting exposure to 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 industry traders can 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?

After starting 2022 at the US$23 per ounce level, the silver price fell to a two-year low of US$20.23 in mid-May and sank further in August to US$17.90 per ounce. Where is the metal headed in the rest of the year and beyond?

In the near-term, rising interest rates and a slowing global economy is expected to reduce consumer demand for silver end-use products such as electronics and jewelry, especially from major markets in China and India.

A stronger dollar and higher bond yields are also pushing down silver prices.

In a mid-2022 interview, Jeffrey Christian, managing partner at CPM Group, shared long-term bullish sentiments with INN. Smith said in his opinion silver’s days below US$30 are likely coming to an end, and these low prices represent a buying opportunity for patient investors. However, Christian cautioned against unrealistic expectations.

Want to know more about the top silver stocks? Don’t forget to check out the Investing News Network’s lists of the silver stocks on the TSX and TSXV with the biggest share price gains year-to-date.

This is an updated version of an article first published by the Investing News Network in 2019.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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