All that glitters isn’t gold. Sometimes it’s silver. The two are often thought of together, and as precious metals they…
All that glitters isn’t gold. Sometimes it’s silver.
The two are often thought of together, and as precious metals they occupy a certain niche in the investing world.
They’re often thought of as safe-haven investments in times of economic or political uncertainty because they can move in different ways than stocks and bonds do.
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They’re also considered alternatives to the world’s reserve currencies, such as the dollar and euro, because they are finite assets with limited production potential, while governments can manipulate their currencies through policy measures. And gold and silver aren’t as prone to the vulnerability of sanctions like assets inhabiting the dollar- or euro-based financial systems.
“Lots of folks who don’t trust the monetary system love the idea of investing in what they call ‘real money’ — money (whose) intrinsic value comes from its metal content, not the government backing it,” says Noah Lehmann-Haupt, founder of coin and currency dealer Rarity7.
Like other commodities, both metals are considered hedges against inflation, or the decline in purchasing power over time.
“I do see silver as an inflation hedge,” says Vince Stanzione, founder of First Information, a publisher of educational materials related to financial spread betting and derivatives trading. “As costs of mining the metal go up … this needs to be reflected in the price.”
As a cheaper option than gold but with similar financial uses, silver is often considered the “poor man’s gold” and will often follow the yellow metal’s price moves.
“I think of silver as micro gold,” says Lehmann-Haupt. “Not everyone can afford (roughly) $3,000 per ounce of gold, so silver offers a chance for folks to own a precious metal at (about) 1/100th the cost.”
Beyond price, another difference in the metals is that silver is much more widely used in industry, whether that’s electronics or in solder for pipes in homes.
Here’s what you need to know to make a decision about investing in silver:
— Silver’s industrial uses.
— Volatility in the silver market.
— History of the price of silver.
— How to invest in silver.
Silver’s Industrial Uses
Silver’s industrial uses offer an investment thesis that may provide more upside potential than gold, especially as a raw material in the energy transition away from fossil fuels.
Silver has long been used in electronics, automobiles, mirrors and water purifiers. But it is also used in solar panels and electric vehicles, and demand for both is only getting stronger.
This industrial use can help silver as an inflation hedge in a way not seen in the gold market because rising consumer prices often accompany economic growth and an increasing demand for goods that use silver.
Volatility in the Silver Market
At the same time, this adds an element of volatility to silver by tying it more to boom-and-bust economic cycles than gold. The silver market is also smaller than the gold market, which can exacerbate the volatility.
Because silver is much cheaper than gold, each dollar of investment in it represents a bigger percentage of its price than gold, potentially causing silver price swings to be larger than gold’s in percentage terms, even if the metals are moving in the same direction.
[Read: 8 Things to Know Before You Invest in Gold.]
History of the Price of Silver
From February 1915 through March 7, the inflation-adjusted price of silver has more than doubled, indicating that over the very long term the metal’s price can outpace inflation. But in shorter time increments, silver, like many commodities, can be quite volatile.
For example, silver bought in 1915 had lost about half of its inflation-adjusted value by 2001. The price of silver spiked to about $64 per ounce in 2011 over concerns about the Federal Reserve’s quantitative easing program and instability in Europe following the global financial crisis.
But by 2020, the price of silver had dropped below $12. Silver’s spot price is now about $32.
It’s enough to give even the most limber-necked investors whiplash.
How to Invest in Silver
Physical Metal
“There are a number of ways to get precious metals exposure in your portfolio that largely vary based on how directly you want to hold the underlying asset, which can range from direct physical custody all the way to secondary exposure through ‘picks and shovels’ infrastructure,” says Michael Petch, president of Argo Digital US, a platform offering secure access to physical precious metals.
Investors can buy 99.9% pure silver bars ranging in weight from 1 ounce to 100 ounces or bullion coins such as the 1-ounce American Eagles produced by the U.S. Mint.
Investors can also buy so-called junk silver coins. Prior to 1965, dimes, quarters and half-dollars issued by the U.S. Mint contained large quantities of silver. While many of the coins have no collectible appeal, they maintain value tied to their silver content.
Any investor buying silver bullion should be sure to use reputable, well-established metals or coin dealers, such as JM Bullion, APMEX and SD Bullion.
But even the most reputable dealers will charge a premium over the spot price. And if you want to sell metal back to them, they’ll buy it at a discount. So you’ll have to factor those costs in when thinking about whether you’ll make a profit or not.
Also, keep in mind that paying for secure storage and insurance subtracts from any gains in the price of the investment.
“Holding physical silver can be seen as the safest as you have no counterparty risk, but then you have to consider storage and costs,” Stanzione says.
Silver Futures and Options
Investors can also buy silver futures, or contracts in which the buyer agrees to purchase a standardized quantity of silver at a predetermined price on a future delivery date.
Meanwhile, silver options holders have the right, but not the obligation, to buy or sell a certain quantity of the metal at a certain price during a specified window of time.
Keep in mind that investing in futures carries a steep learning curve that involves knowledge of leverage and the need to roll over contracts as they expire to avoid taking delivery of the metal.
You’ll also need to get special permission from your broker to trade futures.
“For most, futures and options are too risky,” Stanzione says.
Silver Mining Stocks
An easier way to gain exposure to silver is through silver mining stocks. Popular silver miners to invest in include Fresnillo PLC (ticker: OTC: FNLPF), Coeur Mining Inc. (CDE) and Hecla Mining Co. (HL).
Silver miners can outperform the price of silver during times when silver is rising because they can use operating leverage to increase profits. But owning a stock can introduce risks not associated with the market price of silver. Management can make bad decisions, or a mine might not pan out as expected. Mine accidents also happen in this risky industry.
The farther away mining companies are from production, such as “juniors” exploring for the metal or developing a mine, the riskier they are. Many of these companies don’t have cash flow like producing miners do and rely on taking on debt or issuing new shares to stay afloat.
As these companies hit milestones, such as getting a permit, completing a bankable feasibility study or securing the backing of a joint venture with a larger mining company, they become less risky.
Silver ETFs
To help cushion the risk of investing in single mining companies, investors can consider exchange-traded funds, or ETFs, that group mining companies together based on certain criteria.
The biggest of those traded in the U.S., based on total assets according to VettaFi’s ETF database, are Global X Silver Miners ETF (SIL) and Amplify Junior Silver Miners ETF (SILJ). Another option is the iShares MSCI Global Silver and Metals Miners ETF (SLVP).
But ETFs have management fees not associated with owning individual stocks, and because of the diversification, an ETF may not perform as well as a single miner that strikes it rich.
Silver ETFs aren’t limited to just miners. For example, the iShares Silver Trust (SLV) and abrdn Physical Silver Shares ETF (SIVR) invest in physical silver, and the Invesco DB Precious Metals Fund (DBP) invests in silver and gold futures contracts.
Silver ETNs
Exchange-traded notes, or ETNs, are debt instruments that operate like a hybrid between a stock and a bond, potentially tempering investor risk.
UBS AG ETRACS Silver Shares Covered Call ETN (SLVO) is a silver ETN that tracks the price of silver and pays a monthly distribution to investors.
This is one way to approximate the income from bonds that owning physical silver doesn’t provide. Because silver itself doesn’t pay interest, there is an opportunity cost when it comes to holding silver as a safe haven versus holding government debt for the same reason.
It’s also worth considering that when bond yields move higher, silver and gold prices can come down as traders sell precious metals and buy debt.
Silver Streaming Stocks
Investors can also buy shares of silver streaming or royalty companies that finance mining projects and receive a portion of the profits.
A royalty company gets a percentage of revenue from a mine, while streaming companies get the right to buy physical metal at discount — all while not having to take on the operational risk of the company operating the mine.
Wheaton Precious Metals Corp. (WPM) and Franco-Nevada Corp. (FNV) are among the most popular of these types of stocks.
Silver IRAs
Another way to invest in silver is through a silver IRA. These individual retirement accounts function similarly to a regular IRA, except they allow investment in silver coins or bars.
These accounts are exempt from the higher collectible tax that governs other profitable transactions in physical precious metals.
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Should You Invest in Silver? originally appeared on usnews.com
Update 03/07/25: This story was published at an earlier date and has been updated with new information.