Precious metals investors have most likely been spoilt for choice when deciding which metals are best for investing in at any given moment. Many wonder which silver and gold are the right picks for their risk appetite, prevailing economic conditions, or investment timeframe. Silver is often overlooked when making such crucial decisions, yet it has historically been the most affordable of the precious metals. It has, however, had value throughout civilization. In 2023, however, is silver a good investment? With the current economic uncertainties, should I invest in silver now?
From a consumer’s perspective, silver may look like a valuable possession, yet from an investor’s point of view, many variables come into play. Silver investment has pros and cons that a newbie investor cannot ignore. These are some considerations at your fingertips before investing in silver.
5 Pros of silver investment
All-weather store of value – It’s tangible money
While cash deposits, stocks, treasury bills, bonds, and other similar financial products are good stores of wealth, they remain promissory notes. You can expect them to have substantial exposure to depreciation because of practices such as printing money. Having silver bullion guarantees a finite and tangible asset. Even in turbulent market conditions, physical silver will never become worthless. Silver will keep its intrinsic and real value.
Silver is an effective portfolio diversifier for beginners
Silver should be a featured ingredient in any portfolio. Even if silver sometimes trades in a tight range, there is always an expectation that a market-moving event is about to happen. You should consider having silver because of its ability to retain value over the long term, giving your portfolio a cushion against adverse market performance. Whenever a stock market crashes, having most of your savings in cash can reduce your net worth. Silver assets enable you to recoup some value if you have over-invested in riskier financial instruments like stocks and funds.
It is not surprising that during stock market crashes, silver has historically skyrocketed. Having gold and silver in a portfolio helps investors recover stock market losses and provides a backup source of capital to re-invest in undervalued shares once the economy starts to recover.
Silver offers higher returns than gold
Silver is much more affordable than gold, yet it has higher returns than gold. The silver spot price moves further than the gold price moves, even when they trend in the same direction. You can expect a larger percentage gain whenever silver prices begin to rise. When looking for short-term speculative deals, you can count on silver to outperform gold during a bull run. For example, as both metals rallied between 2008 and 2011, gold only gained 170% while silver gained 450%. Investors can consider having more silver than gold in their portfolios.
Silver is a safe-haven investment
Silver is a safe-haven metal that will help investors apply hedging mechanisms against inflation and any economic downturn. A recent example is how the silver price rose at the onset of the COVID-19 pandemic in early 2020. Uncertainty drove the silver spot price to jump 45% for the year. With the major central banks and governments altering their fiscal policies to provide more stimulus packages, there was a rush to buy silver.
Versatile metal with plenty of uses – Continued demand
Silver is a widely used metal in the industrial sector and is an essential financial commodity invested in portfolios. Many industrial appliances use silver because of its high conductivity and rust resistance. Technological innovations for the future include silver in batteries, electronics, energy cells, and medical research equipment. As a result, you can expect silver investment to continue growing even as the global economy expands.
The economic expansion goes hand in hand with technological expansion. For example, the new battery-electric vehicle (BEV) includes silver in multiple ways. BEV also uses silver in other components, such as vehicle navigation and charge status sensors. Plenty of semiconductors use silver to interact with the electrical components. There is an expected expansion of charging stations (both at home and infrastructural level) that need silver to operate.
4 Cons of silver investment
With all its benefits, silver investment is still not a waltz in the park. Some slight disadvantages come with it, and blindly investing may have dire consequences, especially for beginners. Here are some disadvantages to consider before deciding whether or when to invest in silver.
Fear drives prices negatively
Since speculation has continued to grow in the silver trade, fear is a driving force that cannot be ignored. Fear jolts the prices unpredictably, and in some cases, it is hard to find an explanation for why the price behaves in a certain way. Due to fear, the price can always work for or against an investor. Investors also act irrationally and, therefore, overreact to some news events. They can be sold off when you expect the prices to favour the upside and turn to the downside when the news looks optimistic. Extreme optimism and pessimism also cause a lot of mispricing of spot prices.
Even with a good trading strategy, some people still cannot master their emotions and end up dumping silver to meet their short-term living expenses. They may also do it with the hopes of buying the silver at a different price, which they cannot accurately estimate due to inflation. When it was clear that COVID-19 would affect the overall market, the silver prices whipsawed for some weeks before finally taking a defined direction against the market. People first sold off their stocks, and silver followed immediately after when factories had to cut down on production, reducing the demand for silver. The price falters when there is a surplus of investments based on silver.
Physical silver has no dividends
Holding silver bullion is an investment that relies on appreciation to make money. It erodes the appeal of investing in a silver coin or silver bar. In many cases, such investors must venture into other businesses or buy other financial assets to generate cash flow that will sustain them after retirement. There are plenty of options to get cash inflows in the future, but purely relying on selling off the silver to generate survival income is a bad idea. It is easy to run out of the stash of silver you have accumulated all your life. With the volatility experienced in silver prices, sometimes people sell it cheaper than they bought it if they want immediate cash.
No spot-on value per ounce
Even if it is possible to go online and get the spot price of silver any time, ultimately, you can only sell your silver bar at the price someone is willing to pay at the prevailing moment. The willing buyer–willing seller rule applies even while trading in a sophisticated market like precious metals. Besides supply and demand, there is also a combination of emotion and leverage to worry about. While it is easy to value a business based on revenue projections, outstanding loans, and such parameters, the silver price is influenced by external forces.
Silver ETFs carry counterparty risks
The idea of counterparty risk simply means that an investor depends on another party to ensure that their investment is well-managed. This is why investing in two different Silver ETFs can still yield different results. The situation is the same as having a bank account, which means you rely on the bank to disburse your withdrawals whenever needed. ETFs are highly liquid, but some clauses and conditions sometimes favour the fund in case of a catastrophic event.
Table of summary
|All-weather store of value – It’s tangible money
|Fear drives prices negatively
|Silver is an effective portfolio diversifier for beginners
|Physical silver has no dividends
|Silver offers higher returns than gold
|No spot-on value per ounce
|Silver is a safe-haven investment
|Silver ETFs carry counterparty risks
|Versatile metal with plenty of uses – Continued demand
4 Ways to invest in silver
Armed with enough information about the advantages and disadvantages of investing in silver, you now need to consider how to invest in silver. Here are some ready tips if you are looking for the best way to invest in silver.
Buy silver bullion
A value investor can buy physical silver minted ships as coins, silver bars, or assorted junk silver. Junk silver is considered the purest form in that you can get silver. It is usually an assortment of pure-grade silver held in a small chest at home or in large quantities in a vault. It is, however, difficult to store silver as there need to be separate plans made for security equipment, especially knowing that precious metals get stolen. You can invest in physical silver to avoid other parties making contracts or guarantees regarding its handling. Silver bullion does not carry default risk, as with bonds or company stock.
Silver in physical form needs someone to buy or sell it in an online store or a local coin shop. You are more likely to get a better price if you buy it online because brick-and-mortar stores usually factor in other things like storage, rent, and security costs.
Trade silver ETFs and futures
An Exchange-traded fund (ETF) craze has made it easier for many investors to own precious metals without worrying about their storage. You can monitor prices and learn to trade through a demo account before you invest in silver ETFs. Some well-known silver ETFs and futures contracts include the Invesco DB silver Fund and the SPDR. This is a good way to invest in silver because people can enjoy the benefits of owning silver, intra-day trading, and real-time quotes to monitor the price of the silver in your portfolio.
Traders who like a lot of volatility like silver ETFs over gold because silver prices are more volatile and more reactive to slight movements in manufacturing data. The greatest advantage, however, is selling or buying immediately when the need arises. Physical bullion may take ages to sell at the right price and quantity. Click here to trade commodities.
Owning silver company stocks
If you prefer having silver assets without worrying about supply issues, you can buy silver mining stocks. There are times when silver mining stocks may outperform the gains made on the silver itself.
Furthermore, the mining company’s management may make asset investments that allow it to increase its silver production, making its share price rise quickly. Always ensure that you invest in a mining company that has silver as the majority of its focus. First Majestic Silver (NYSE: AG) has silver as its key venture, with 65% of the 2020 revenue coming from mining silver. Click here to start stock trading.
Trade silver as forex currency pairs
If there is a trick that can let you invest in silver with the fewest steps possible, it has to be trading it alongside a currency pair. Include silver pairs in your forex trading if you already know how it works. People can invest any amount they want because it does not require traders to purchase some minimum quantity to own silver. The currency is simply swapped according to the value of spot silver at the prevailing moment. This method is a favourite for speculative traders because they can also make profits whether or not the spot silver price is on a downward trend. Short positions become profitable when you bet that the prices will stumble, and it happens.
So, Should you invest in silver?
The overall consensus among Wall Street experts, traders, and market connoisseurs is that silver has plenty of upside potential in the long term. There is little downside risk, but silver is backed by increased industrial use, unlike many other asset types. It is the preferred metal for dummies and newcomers. You can bet that silver will maintain its strategic importance in hedging different market events that may suggest economic depression.
Silver investment is highly rated because it gives people a safe asset even in a volatile precious metals market. Even if silver’s performance in the next few months is still uncertain, you can count on it to remain a strategic hold for portfolio managers and speculative traders. Therefore, it is highly recommended that you include silver in the portfolio to safeguard your net worth against future economic volatility. Learn how to become a trader.
How do you start trading in silver?
You can begin your silver investment career within minutes with a few easy steps. Open an account and start trading crude oil, silver, gold, stock, forex, and other financial instruments on your computer or phone. ATFX offers all the major currency pairs, cryptos, and other pairs on a very practical trading platform. If you still want to learn the markets a bit more before investing real money, you can open a demo account and practice different strategies while still learning from a guide or the free training materials ATFX provides. Sign up right away!