Is silver a good investment? A beginner's guide to silver and the role it can play in your portfolio
- Silver is seen as a safe haven investment in uncertain times, a hedge against inflation and stocks.
- Silver’s use as an industrial metal in many fields also affects its price performance and outlook.
- Silver is cheaper than gold, but more thinly traded, making it more volatile and illiquid.
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Gold tends to get all the glory in the investing world — it’s the go-to people think of when they want an alternative investment to traditional stocks and bonds. But from time to time, the financial spotlight falls on silver, and it shoots up in price, even outperforming its yellow-metal cousin in the market.
For example, in early February 2021, traders on Reddit’s WallStreetBets forum sent silver prices spiking to an eight-year high. Back in 1979-80, a pair of billionaire brothers, the Hunts, tried to corner the global silver supply, sending its per-ounce price from $11 to nearly $50.
But what about when the metal isn’t being manipulated by traders? Is silver a good investment?
The short answer is, it can be — both as a cheaper alternative to gold and also for some intrinsic qualities of its own. But silver also comes with unique considerations and risks that investors need to consider.
Why invest in silver?
Like gold and other natural resources, silver is classified as a commodity — a publicly traded, tangible asset. Tangible assets’ prices generally move in the opposite direction from stocks and bonds.
For this reason, many investors turn towards commodities like silver when the stock market has a poor outlook or in times of economic recession or political turmoil. Since it’s impacted by different influences, silver can be a good way to diversify and counterbalance your portfolio vis-a-vis equities or other paper securities.
Silver also acts as an inflation hedge. As a physical asset, it has intrinsic worth, unlike the dollar or other currencies. Silver holds its value long term and fares well when interest rates are low — and fixed-income investments aren’t earning much.
In these ways, silver functions like gold as an investment, serving a similar “safe haven” role. However, silver is an industrial metal as well as an investment metal — which significantly affects its price performance and outlook.
Silver is used in the manufacture of a variety of things, from glitzy jewelry to humble batteries, from medical equipment to microcircuits. It’s also at the forefront of some innovative fields.
“Because silver has a very high conductivity, it’s used for many technological applications in solar energy and the electric automotive industry,” says Giancarlo Camerana, a strategic advisor at QORE Switzerland, a precious metals and investment advisory company. With both fields expanding rapidly, he explains, many analysts predict that the demand for silver is likely to rise substantially in the coming years.
So investing in silver can be a way to bet on the technological advances and the clean energy movement.
What are the risks of investing in silver?
Of course, silver — like any investment — isn’t all reward; the metal brings its fair share of risks, as well.
- Sensitive to recession: Driven as it is by industrial growth, the price of silver can be decimated by an economic slowdown
- Vulnerable to technology shifts: There’s always potential for silver to be replaced by another metal in its manufacturing uses. Or for something to happen to the industry itself — witness the decline of photographic film, a big user of the metal
- Limited income/appreciation potential: as a tangible commodity, silver doesn’t offer any interest like a bond, or dividends like a stock. Your only chance to benefit is if you sell it during a price rise.
- Unpredictable price moves: Because silver has worth in multiple categories, its price can vacillate wildly, caught in a tug-of-war between its industrial and investment valuations. Say investors bid up silver prices. “As the silver price rises, the incentive to recycle silver from industrial scrap, jewelry, and silverware grows,” says Camerana. “As there is a lot of potential scrap around the world, it could cause unexpected oversupply,” which would then cause the price to drop.
Silver vs. gold as an investment
It’s natural to compare silver to gold as an investment. They share the same tangible asset strengths — counterweights to stocks and stock markets, safe havens against socio-political shocks, inflation hedges. However, the two precious metals have several major differences.
Silver is cheaper than gold
Silver is less costly than gold — much. In the 21st century, its spot price in the financial market has never exceeded $50 an ounce. Gold trades in the four figures. So silver is much more affordable: The same dollar investment buys you a lot more silver than gold, and silver has the potential to offer more profit.
Gold is easier to store than silver
The more-for-your-money aspect is a double-edged sword, though. Silver takes up more physical volume than gold. Since the same size investment literally buys more silver than it does gold, that means silver holdings will take up a lot more space will cost more to store and transport. Oh, and it tarnishes too.
Silver is more volatile than gold
The silver market is much smaller than the gold market. Because it’s more thinly traded than gold, silver can demonstrate far greater volatility, or price swings, than its glittering cousin — like leaping 13% in a single day, for example.
Silver is less liquid than gold
Those looking to offload silver will likely have a more difficult time finding a buyer than those selling gold. The gold market is simply more widely known and understood. It offers a wider array of safer, reputable places to invest.
Gold is a better hedge than silver
Since silver is an industrial metal, it’s more vulnerable to recession and pressures affecting manufacturing companies. Such factors can affect gold, which also has its industrial uses, but overall, gold is more driven by investor sentiment. So gold acts as a better, purer hedge against the economy and stock market.
What’s the best way to invest in silver?
There are two main ways to expose yourself to silver: directly (buying the actual metal itself) and indirectly (buying silver-related securities).
Investors can buy physical silver in the form of bullion coins, bars, or junk silver bags. This is the purest form of silver investment, but it does incur storage-related problems and expenses.
Less pretty, but more pragmatic, is to invest in financial instruments that represent silver. For individual investors, these best indirect options include:
- Silver stocks: companies involved in the mining or processing of silver (“miners”) or in re-selling it (“streaming companies”). Camerana notes that there are very few “pure silver plays,” as he terms it, because “silver is often extracted from or mined together with other metals such as copper.”
- Mutual funds or exchange-traded funds (ETFs) that hold silver portfolios. Some invest in physical silver, others in silver companies.
- Exchange-traded commodities (ETCs), publicly traded securities that invest in silver bullion like the funds. However, they differ from that in that they’re debt instruments (sort of like a bond); the underlying commodity they track — silver in this case — serves as collateral.
The financial takeaway
Despite its affordability and industrial uses, silver has maintained a fairly low profile, especially in comparison to gold. As Camerana notes, investor demand currently represents just 15% of the market, as opposed to industrial uses, a statistic that suggests the commodity is both under-owned and undervalued. It also remains relatively cheap — especially in comparison with gold — presenting investors with more buying opportunities.
But silver is more volatile and less liquid than gold. These factors, along with its dependence on different industries, can make it difficult to predict what the silver market will look like in 10 minutes, let alone 10 years. For those reasons, it’s probably wise for newbie investors to steer clear and stick with good old gold if they want a safe haven against the stock market’s moves.
But if you’re slightly more experienced and have a stomach for risk, Camerana suggests that silver could be a good choice. Now might just be the perfect moment to take the plunge, as the combination of a bullish market intersects with increased demand from both the industrial sector and financial investors.
Related Coverage in Investing:
How to buy gold to diversify your portfolio and help shield against market downturns
Warren Buffett bought 3,500 tons of silver in 1997. The purchase helped make Thomas Kaplan a billionaire.
What are liquid assets? A guide to the investments that are easiest to cash in, and why they’re important
What is diversification? A portfolio strategy that uses a variety of investments to limit risk
How to take advantage of low interest rates — the best financial moves for investors and borrowers
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