Investing in silver is a simple process, yet it’s essential to view this precious metal as a safeguard against the turbulence of other assets. In this blog post, we’ll explore the world of silver investments, offering insights into whether it’s a wise or less favorable option for securing your portfolio in the face of market shifts.
The Context
Too many people miss the silver lining because they are expecting Gold — Maurice Setter
Gold has dominated the world of finance for centuries, but Silver often appears in literary references as a metal of tremendous worth and artistic appeal.
Throughout history, silver has been utilized by numerous ancient cultures to create jewelry, tableware, sculptures, ritual artifacts, and rough-cut pieces known as hack-silver that can be used for trade or to keep wealth.
For a very long time, silver has been the metal of choice for making coins, and the discovery of silver mines in regions like Greece, Spain, Italy, and Anatolia played a significant role in many ancient wars.
The metal was also discovered in mines in ancient China, Korea, Japan, and South America, among other places. These countries used the metal to create exquisite things for elite usage and to exchange as tribute and prestige gifts between nations.
Silver was one of the few global commodities that both united and divided the ancient world because it was simple to mine, work, and reuse, and it was stunningly shiny. The limited usage of silver in jewelry in the current era is a result of the metal’s quick tarnishing and low oxidation resistance.
Silver as an investment asset
Silver is viewed as a shelter, a different investment option, and an affordable investment asset for uncertain times. Technically, this dazzling metal protects investors’ portfolios from inflation-related bonds and stocks.
This common metal is regarded as a commodity in the trading community, and like Gold, it is favored as a cheap haven to fend off the stock market blues in tumultuous times. Due to its various industrial applications, which have accounted for more than half of yearly demand globally over the past five years, silver has a higher intrinsic value than gold from an industrial perspective.
This indicates that the price of silver is much more susceptible to future economic expansion than the price of gold.
Only 10 to 15 percent of the yearly global demand for gold is used industrially; the remainder is used for jewelry and investments. Due to its exceptional electrical and thermal conductivity, sensitivity to light, and antibacterial properties, silver is used in a variety of industrial applications.
Today, silver is essential for a variety of industrial applications, including:
☑ Batteries
☑ Dentistry
☑ Glass coatings
☑ LED chips
☑ Pharmaceuticals
☑ Nuclear reactors
☑ Photography
☑ Photovoltaic (or solar) energy
☑ Semiconductors
☑ Touch screens
☑ Water purification
☑ Wood preservatives, and many more
The US, Canada, China, India, Japan, South Korea, Germany, and Russia have been the top industrial consumers of silver over the previous ten years. Older industries’ use of silver has decreased over time, but new technology applications have taken their place.
According to several experts, the demand for silver is anticipated to rise dramatically in the following years. Here are some strategies to invest in this metal.
Silver investment options
1. The Physical Form
It is rewarding to invest in silver physically in the form of coins, ingots, or bars. Coins that often come in multiples of 10 grams can be used for smaller investments. The conveniently stackable bars that come in heavier weights can be used for larger investments. You can purchase silver through local dealers and pawn shops.
Online shopping is also an easy way to buy and invest in Silver if it is purchased through certified vendors like APMEX, Money Metals Exchange in the US, or MMTC in India. More knowledgeable vendors let you buy complete bars rather than just coins.
Don’t forget to verify the validity and purity of your silver transaction before making a physical purchase. You should ensure post-purchase storage after you acquire your Silver. Additionally, watch out not to overpay on the day of your purchase at the spot price.
2. Silver Futures Contract
Similar to stock futures, silver futures can provide exposure to this precious metal for a small portion of the contract’s overall cost. Typically, a Silver futures contract involves making an initial payment, signing an agreement, and scheduling the final delivery for the specified date — all without really owning any Silver.
Because Silver contracts entail leverage (loan money), this method of investing is serious speculation and should not be handled lightly. Investors with no prior knowledge of futures or contracts should not use contracts.
3. Silver ETFs
Exchange-traded products for silver include exchange-traded funds, exchange-traded notes, and closed-end funds with the same goal as stock market ETFs — to monitor the price of silver. The major stock markets across the world trade products that are exchange-traded in silver. ETFs for silver have been available on the US stock market for quite some time.
Aberdeen Standard Physical Silver Shares ETF (#SIVR), iShares Silver Trust (#SLV), and Invesco DB Silver Fund (#DBS) are a few popular ETFs that are listed on the US stock exchange. ETFs are still an emerging story in the silver market on the Indian subcontinent.
In a board meeting on September 28, 2021, market regulator SEBI gave the green light to the introduction of silver exchange-traded funds (ETFs) in India. Only Gold ETFs have been made accessible thus far. On behalf of the investors in ETFs, fund companies purchase and store physical gold.
Similar to gold ETFs, it’s likely that Indian investors will soon have access to paperless silver. Although it is quite simple to purchase silver ETFs, it is important to consider the expense ratio and the underlying exposure to assets like coins, bullions, and occasionally contracts when determining the overall risk.
Potential profits from silver investments
It should be remembered that Silver has only increased by 12 percent during the past ten years. In five of the past ten years, nevertheless, it has produced negative returns. Due to the consequences of the global financial crisis, silver reached its highest price throughout the decade on April 25, 2011, when it reached ₹74,000 per kilogram.
In the subsequent five years, Silver generated returns ranging from 8.8 percent in 2011 to a staggering 71 percent in 2010, demonstrating a significant degree of volatility. Silver and silver investments caused losses for investors between 2013 and 2018, except in 2016.
Losses ranged from 2.1 percent to 24.3 percent.
The exception to this rule during the time in question was the calendar year 2016, which saw investors earn a 20 percent return. If an individual had invested ₹1 lakh in Silver in March 2012 (at ₹56,290/Kg), the returns would now be ₹111,565 (at ₹62,800/Kg), expressed in absolute terms.
The absolute return is only 12 percent, and the CAGR is only 1.10 percent.
Conclusion
As of December 2021, the 10-year compound annualized growth rate (CAGR) for Sensex was approximately 11.37 percent, representing an absolute return of roughly 193 percent. On the other hand, the returns on Gold over the past ten years have produced a CAGR of almost 4.48 percent or an absolute return of almost 57 percent!
Despite being simple to invest in, Silver is just a white metal that might be used as a hedge against other risky assets. However, gold still makes a stronger argument for sane long-term investors if you are looking at higher rewards with significantly lower risks.
If you want to understand more about gold investments, as opposed to Silver investments, check out our other articles that are focused only on the yellow metal.
To read “How to Invest in Gold” and “The Golden Argument,” please click the links provided.
🔔 Investing is expensive, but leaving a comment on this blog is free!
Frequently Asked Questions (FAQs)
1. What is the significance of investing in silver?
Investing in silver serves as a hedge against market volatility and economic uncertainty. It provides diversification to investment portfolios and offers protection against inflation. Additionally, silver holds intrinsic value due to its widespread industrial applications, making it a valuable asset during uncertain times.
2. What are the different ways to invest in silver?
There are several methods to invest in silver, including purchasing physical silver in the form of coins, bars, or ingots, trading silver futures contracts, and investing in silver exchange-traded funds (ETFs). Each method offers distinct advantages and risks, catering to varying investment preferences and objectives.
3. How can I invest in physical silver?
Investing in physical silver involves purchasing silver coins, bars, or ingots from reputable dealers or online platforms. It is essential to verify the authenticity and purity of the silver before making a purchase and ensure secure storage post-purchase. Physical silver provides tangible ownership of the metal and serves as a long-term investment asset.
4. What are the risks associated with investing in silver?
Like any investment, investing in silver carries certain risks, including price volatility, liquidity constraints, and counterparty risk. Additionally, silver futures trading involves leverage and speculative risks, making it suitable for experienced investors. It’s crucial to conduct thorough research and consider your risk tolerance before investing in silver.
5. What returns can I expect from investing in silver?
The returns from investing in silver can vary depending on market conditions, supply and demand dynamics, and global economic factors. Historically, silver has demonstrated price volatility, with periods of significant gains and losses. While it can provide attractive returns during certain periods, investors should be prepared for potential fluctuations in the silver market.
We will shortly return with another instructive article; in the meantime…
