As with gold, silver has a certain attraction as an investment due to its classification as a precious metal. There are lots of different ways to buy and hold silver, making it a bit more inviting as well. But whether investing in silver is a wise idea or not depends on individual circumstances. For some people, silver makes an excellent addition to an already diverse portfolio. Other investors may find it a mere distraction from more lucrative opportunities.
The history of silver as a precious metal is fairly well known. It has been around for thousands of years as a form of currency as well as a precious metal used in jewellery manufacturing. Silver has even been used as a currency standard in just about every developed country in the world. This is no longer the case, but minting companies still manufacture silver coins for collectors willing to purchase them at face value.
How popular is silver as an investment? Not as popular as gold, but still attractive enough to make it worth mentioning. In Canada, for example, Silver Maple Leaf coins are made by the millions every year. The same goes for the American Silver Eagle in the US. Here in Europe, you can purchase silver over-the-counter at banks in countries like Switzerland and Liechtenstein. The fact that it is so readily available suggests that investors want it.
Many Investment Vehicles
When purchasing gold, you are usually limited to certificates, coins, and small volume bullion. Silver offers quite a few more options. Depending on where you live and who you purchase from, you can invest in silver in the following ways:
- Silver Bars – Silver bars are nothing more than bullion cast in bars of different weights. You can buy them over-the-counter in some countries, or through a broker in others.
- Coins and Rounds – The previously mentioned Canadian and American coins are examples of these kinds of vehicles. Coins and rounds tend to be minted as either fine silver (99%+ purity) or junk silver (90% purity). Junk silver is often sold as sterling silver.
- Silver Certificates – Purchasing a silver certificate gives the investor ownership of a certain volume of silver without actually having bullion or coins in his/her possession. The silver is stored elsewhere, represented by the certificate issued to the purchaser.
- Silver Accounts – Silver accounts are similar to currency accounts. Purchasers do not actually possess the silver itself; they possess a claim against the bank or broker selling it.
- Exchange Traded Products (ETPs) – Exchange-traded products are similar to stock certificates. Investors purchase a certain number of shares through the ETP broker that actually owns the silver. ETPs can be traded on a daily basis just like stocks and shares.
The greater number of options for purchasing silver probably contribute to its popularity as an investment. But like gold, silver does have an inherent disadvantage: it is no longer considered legal tender in any developed country. You cannot go down to the local supermarket and use silver to purchase the food you need for the day.
Factors Influencing the Price of Silver
The price of silver is known to fluctuate fairly significantly between decades. But over long periods, it does tend to do very well. The key is to predict when the price is getting ready to drop so that you can sell at the right time. Therefore, it helps to study historical trends. It also helps to know what drives the price of silver.
Again, as with gold, numerous factors influence the price of silver. Here are the four primary factors to be concerned about:
- Non-Investor Demand – Investors are not the only ones looking to buy silver. The precious metal is very much in demand for industrial, consumer, and commercial purposes. For example, the photovoltaics industry uses quite a bit of silver, as do technology companies manufacturing things such as RFID tags. The greater the demand among non-investors, the higher the price of silver.
- Economic Stress – Investors tend to look at silver and other precious metals as a hedge against inflation, deflation, and currency devaluation. In times of economic stress, the price of silver tends to go up. When economies are strong, prices may modify or decline.
- Large Volume Trading – A big difference between gold and silver, as investments, is volume. The amount of gold traded around the world is more than 18 times that of silver, making it less vulnerable to investor trading. Silver is not so fortunate. Because silver volume is so low, it is possible for large-scale trading to influence the price significantly.
- Short Selling – The practice of short selling is one of dumping silver at a high price in anticipation of prices falling in the very near future. Once prices bottom out, short sellers start buying silver again to take advantage of future growth. Short selling can artificially influence silver prices if it happens frequently enough.
Silver may be a good investment for your portfolio under the right conditions. It is at least worth looking into if you don't yet possess any precious metals.