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 of investing in silver

• 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 has 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 — The gold/silver ratio, which has moved between 1:75 and 1:95 since June 2022, is a metric that compares the metals' prices at a given moment. Often when gold moves up silver will play catch up, and it stands to see a much bigger percentage gain when its price goes up.

• History is on silver’s side — Silver and gold have been used as legal tender for 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 reassurance that its value will continue to persist.

Cons of investing in silver

• 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 — 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.

Recent concerns include a banking crisis, social unrest and Russia's escalating war in Ukraine. Investors will be closely watching these trends and any other geopolitical events that bring higher levels of uncertainty.

Interest rates

In general, higher interest rates put pressure on non-interest-bearing assets like gold and silver; conversely, when interest rates are lower, precious metals tend to perform better. However, at times silver has remained relatively flat in the face of rate hikes.

Right now, global central banks, including the US Federal Reserve, are raising interest rates to battle inflation at the risk of pushing economies around the world into recession. The Fed's tone remains hawkish, but 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 next.

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. For that reason, 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, but 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 commented, “It’s well known … how silver tends to lag gold. Gold moves first and then silver more than catches up.” He has also stated, “If gold goes bananas, silver will go bananas — no question in my mind, and it will go more bananas than gold.”

Where is the silver price headed?

While it's important to know what factors impact the price of silver, investors looking to enter the market will also want to know where exactly it may be headed in 2023. It's tough to say for sure, but many experts are optimistic.

David Morgan, publisher of the Morgan Report, said he expects 2023 to be good for silver, but not great. He sees the white metal getting above the elusive US$30 mark, but pointed out that it could face obstacles.

"We'll have to see what happens," he said. "Last time we got near US$30, very close to it. Rostin Behnam of the (Commodity Futures Trading Commission) came out and said they had to tamp down the silver market. What kind of a free market is that?"

Click here for further details on the silver forecast for 2023.

How can investors get exposure to silver?

Those who have decided to invest in silver often choose one of two popular methods. The first is through purchasing bullion products such as bullion bars, bullion coins and silver rounds. 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.

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. 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 typical paths to take when investing in individual silver companies. One option 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.

Private investor Don Hansen has honed his due diligence process over more than 20 years of resource sector involvement. Speaking to the Investing News Network, he shared his strategies for evaluating gold and silver stocks, including his process for assessing risk/reward and how he analyzes market cap/gross margin.

Who is the biggest silver investor?

JPMorgan Chase (NYSE:JPM) is believed to hold the biggest position in physical silver through its custodianship of the iShares Silver Trust ETF (ARCA:SLV) and its significant COMEX silver bullion holdings. The financial services company's majority position in the silver market has placed it in the center of silver market manipulation investigations in recent years.

Does Warren Buffett invest in silver?

Yes — despite his strong feelings against gold, Warren Buffet has reportedly invested nearly US$1 billion in silver. While the Oracle of Omaha sees no intrinsic value in gold, silver's industrial and medical uses make it a good fit for his investment values.

What price did Warren Buffett pay for silver?

Buffett's Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) took advantage of ultra-low silver prices between 1997 and 2006, buying up 37 percent of global silver supply. Silver ranged from US$4 to US$10 per ounce during that period.

In fact, between July 1997 and January 1998 alone, the company bought about 129 million ounces of the metal, much of which was for under US$5. Adjusted for inflation, the company's purchases in that window cost about US$8.50 to US$11.50.