Investing in Silver Bullion in Australia

Here's everything you need to know about investing in silver bullion in Australia.

When one thinks of investing in precious metals, gold is often seen as the main option owing to its historical profile as a safe haven metal and hedge against inflation and stock market volatility. However, investors should also consider silver as an attractive alternative to gold with equal if not greater upside potential.

In a February interview with Investing News Network, David Morgan of the Morgan Report said he expects silver to break through the US$30 per ounce mark in 2022 and trade in the US$33 range. That would represent a gain of more than 30 percent over the current price of silver, which was trading in the range of US$24 to US$25 as of April.

While the price of silver tends to rise and fall alongside that of gold, silver's valuation is generally more volatile — slower to move in either direction, but more prone to abrupt spikes and plunges. Interestingly, over the last five years, the price of silver has risen by approximately 25 percent, an almost identical increase to that of gold. In addition, silver has tended to outperform gold during bull markets.

More recently, silver prices soared more than 45 percent in 2020, fell about 10 percent in 2021 and were up roughly 7 percent as of April 2022 compared to only a 5 percent gain in gold prices for the current year.

Another interesting point in favour of silver investing is how it has outperformed gold by a wide margin over the course of the precious metal rally that got underway in earnest in mid-July of last year. Since then through April 2022, silver had risen by over 30 percent as compared to only 8 percent for gold.

Certainly, most analysts expect commodity and precious metals prices in general to continue rising in 2022 in the wake of ongoing supply chain disruptions and further uncertainty due to the Russian invasion of Ukraine. This is all the more reason for investors to consider silver as an alternative investment.

One characteristic of silver that distinguishes it from gold is its far greater role as a key industrial metal. It is estimated that industrial usage accounts for about 50 percent of overall demand for silver with the other 50 percent accounted for by silver investors and speculators, including jewelry and silverware.

Rising industrial demand for silver ― apart from being caught up in the overall rally in precious metal prices since mid-2021 ― is a major reason why the metal has outperformed gold lately. Silver is also an essential component in clean energy, particularly in the fast-growing solar energy and electrical vehicle (EV) sectors. Silver's conductivity and corrosion-resistant properties make it essential for the manufacture of conductors and electrodes.

Virtually every electrical connection in an EV uses silver, and the auto sector overall uses 55 million ounces of silver annually. Additionally, almost every computer, mobile phone and appliance is made with silver, not to mention radio frequency identification device (RFID) chips, which are currently replacing barcodes used in supermarkets and for general inventory purposes.

Australian silver market

Some shrewd investors are looking to Australia for their silver picks. A country whose silver mines continued to flourish even when most of the world was in a precious metal slump, Australia has emerged from the COVID-19 pandemic as a major player in the global silver market.

When you think of mining in Australia, you may not think of silver, especially since the country is a top global producer of several other metals, including gold and iron ore. Yet silver mining has a rich history in Australia, and Australian mining and metals giant BHP (ASX:BHP,NYSE:BHP,LSE:BLT) started out as a silver operation in the 1920s.

Today, silver is back on the rise in Australia. Several important new silver mines have recently been opened and the potential for further exploration and production is even higher in the wake of the recent price surge of the precious metal over the last two years.

Australia is now tied with Poland and Russia as the fifth largest silver producer globally as of the end of 2021. Mines in Australia churned out 1,300 tonnes of silver in 2021, a slight drop from 1,340 tonnes in 2020.

Those looking at the Australian silver market have options. There are plenty of big players with interests in Australian silver, and many smaller players for investors to consider researching too.

Most silver comes from mines dedicated to other metals ― Glencore's (LSE:GLEN,OTC Pink:GLCNF) Mount Isa in Queensland produces mainly copper, zinc and lead, but silver is separated by the company's integrated processing streams. Glencore also operates the McArthur mine in the Northern Territory, which is primarily zinc. Between its copper and zinc assets, Glencore produced 7,404,000 ounces of silver in Australia in 2020 ― over 200 tonnes.

Elsewhere, BHP produces a lot of silver as well at the Olympic Dam operation in South Australia. Perhaps best known for the production of uranium and copper, it also yields significant silver resources to the tune of 984,000 ounces in 2020, or almost 28 tonnes.

South32 (ASX:S32,OTC Pink:SHTLF) runs Queensland's Cannington mine, which produces more silver than any other in the country. The company claims it is one of the world’s largest and lowest-cost silver producers.

Meanwhile, global demand for silver is on the rise and is expected to reach 1.11 billion ounces in 2022, an increase of nearly 100 million ounces compared to last year's record figure of 1.03 billion ounces.

All this bodes well for the price of silver in 2022 as both industrial demand and consumer demand ― in particular from India, where COVID-19 limited silver purchases in 2021 ― are expected to rise this year.

Investing in silver bullion in Australia

Investing in physical silver is the most straightforward option: you simply buy a tangible piece of the precious metal in the form of bullion, official coins or medallions. Bullion comes in the form of bars or solid silver coins with at least 99.9 percent purity. Official silver coins are currency produced by a government mint, while silver medallions resemble coins, but lack monetary value.

The price of physical silver will rise and fall alongside the metal's spot market value. Physical silver is a relatively safe investment, although if you plan to trade often, the added costs of buying, selling and storing physical silver may make the investment not worth your while.

Investments in physical silver rose by 8 percent last year, boosted by silver's status as a safe asset and market bullishness on gold. In Australia, coins and medals fabrication increased by 35 percent year-over-year.

Silver bullion bars

Minted silver bars are available for purchase in various sizes. The 1,000 ounce silver bar is the industry standard for trading, but will normally oblige an investor to pay for storage fees at a reputable bullion dealer. For investors wishing to buy silver in large quantities, cast and minted bars are the best option.

Many investors, however, will prefer to buy bullion in smaller quantities ranging from 1 ounce to 100 ounces. While some individuals may choose to store these bars in home safes, it is recommended that silver bars be kept in safety deposit boxes in banks or with the secure storage facilities provided by bullion dealers such as the Royal Australian Mint, Perth Mint, Sydney Mint and Melbourne Mint.

Silver coins

Purchasing silver coins offers the advantage of being able to buy silver bullion in smaller quantities anywhere from 1/10th of an oz to 1 oz, thereby making it easier to accumulate physical silver over time. Many minted silver coins comes with various design features that add to the cost of the coin above spot price.

Be wary of premiums

As mentioned above, purchasing special coins will cost extra compared to a basic silver ounce coin. Additionally, accumulating small amounts over time will cost more than buying the same amount in silver bars all at once.

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

Securities Disclosure: I, Harold Von Kursk, hold no direct investment interest in any company mentioned in this article.

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Harold von Kursk has worked as an political, cultural, and financial journalist for the past 25 years. He considers himself to be an ardent Keynesian who was working on his doctoral thesis in economics at McGill University in Montreal when he abandoned academia to work as a currency trader at a Toronto brokerage house. Mr von Kursk then decided to pivot to journalism and since the late 90s has lived and worked as an editor and writer based out of Paris, Berlin, Rome, and Brussels. His articles have been published in most of Europe's leading magazines and newspapers including the German and Italian editions of GQ, Playboy France, Matador, Manager Magazine (Germany), and the Frankfurter Allgemeine Zeitung.