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How to invest in silver? Although it is not as popular a bullion as gold, it still has many supporters. Investing in silver, like gold, can be long-term, or an investor can make money from changes in its price in the short term. Regardless of how he would like to invest in this metal, he should properly prepare for it and carefully analyze the nature of this type of investment.
How to invest in silver? Features of bullion and its market
Before moving on to matters that are closely related to investing in silver, it is worth looking a little at the characteristics of this metal and its market. In the past, together with gold, it formed the foundation of the monetary system in many countries. This was the case for several hundred years until paper money was introduced. Then silver gradually ceased to serve as a means of payment.
However, it worked well as a monetary metal for similar reasons as gold. It is malleable and ductile, and allows the production of durable and hard products such as bars and coins. Moreover, it is characterized by a relatively low supply, as well as a low rate of extraction, so it is often purchased to protect against inflation. However, it is worth mentioning that the supply and extraction are much higher than for gold, so silver is not as valuable as gold bullion. Currently, depending on the period, for an ounce of gold you have to pay from tens even to more than a hundred times more than for an ounce of silver.
Investing in silver carries a lot of potential when it comes to generating profits. Long-term investors have a chance to achieve a satisfactory rate of return. This is evidenced by the analysis of historical data, as well as the continuous increase in the value of silver on the charts. Interestingly, a particular time to invest in silver is during economic crises. Investing in silver can involve buying its physical form, i.e. bars or coins, but an investor can also opt for its paper form, i.e. stocks, CFDs, futures, ETFs, etc. It all depends on the investor’s expectations and preferences. One can successfully invest in silver even if one has little capital.
The value and size of the silver market
No country currently has circulating coins that are produced from pure silver, but silver bullion coins and bars that are intended for investment purposes are common. It is important to note that the share of investment silver in the global silver market, reaches only about 20 percent and is 3 times smaller than the share of silver that is used in industrial products.
In order to get an idea of the approximate size of the gold and silver market, it is also useful to consider bullion prices. The value of investment gold in 2021 was about $4.5 trillion, and the value of investment silver is about $80 billion. The difference is very large and the fact that silver is a relatively small market has important implications for investors.
Investing in silver – risk and profit potential
Investment silver is characterized by a shallow market and can therefore be subject to relatively large price fluctuations. It is seen as a cheaper alternative to gold. Some investors believe that it allows a kind of leveraged investment in precious metals. This is due to the fact that silver’s increases or decreases usually follow the same direction as gold’s movements, while usually being several times larger than them.
Due to the small size of the market, if there is a sudden panic among investors, it could lead to a sharp drop in the price of the metal silver. On the other hand, rapidly growing demand for silver coins and bars could cause a strong increase in the price.
In February and March 2020, there was a huge panic in commodity markets, but also financial markets, including silver, which was linked to the coronavirus pandemic. This resulted in silver falling from $18.5 to $12 in 2 weeks. After that, however, the situation changed a lot, which was related to the strong response of central banks and governments to the resulting crisis. In the following 5 months, the price of silver rose to nearly $29. For this reason, investing in silver carries a relatively high risk, but also high profit potential.
In many cases, the purchase of silver is either medium or long-term, this type of investment can also bring good results in a few months. It should be remembered that investing in silver and gold allows products that have different characteristics. Some perform better in the short term, while others are used for long-term investments.
How to invest in silver?
Whether an investor will want to store a portion of his wealth in silver for the long term or wants to make money from changes in it over a shorter period of time, an important issue is choosing the right investment product. An investor must choose whether to put money in physical bullion or opt to invest in paper silver.
Investing in physical silver
Many investors take it for granted to buy investment silver in the form of bars or bullion coins. Such products are made of pure bullion with a fineness of 999. They do not have a specific mintage, do not have aesthetic qualities and do not exhibit collector value. This means that, unlike collector coins or silver jewelry, the price of investment silver depends primarily on the amount of bullion contained in it, as well as the current market rate.
For this reason, silver bars and bullion coins are ideal for storing assets in this bullion. The investor should ensure that they are in good condition and from reputable manufacturers. It is worth choosing bars of Heraeus, Umicore, Maple Leaf, Australian Kangaroo, etc. These types of products are very popular among investors, so you will be able to resell them further without any problems.
Bullion coins and gold bars are associated with the same benefits, so choosing the type of investment silver doesn’t really matter. Once the investor has determined the amount he would like to invest in physical silver, he will be left with the selection of products of the right weight. In the case of silver bullion coins, silver coins weighing one ounce are the most popular, but you can also easily find ones weighing 2, 5 or even 1/2 or 1/4 ounce. However, it is important to keep in mind that for investment purposes it is best to purchase one-ounce or heavier coins. This is primarily a matter of two factors:
- In this case, you will pay less for each gram of silver than if you acquire lighter coins,
- They are most in demand, and this guarantees their quick resale.
It should be noted that dealers and producers of investment silver, such as the National Mint, offer the possibility to buy silver coins both individually and in a set. The second option may be of interest to those who want to place a few or even several thousand dollars in physical silver. In this case, the seller charges a lower margin, and this results in the investor paying a lower unit price for the product.
Bullion coins are worth tacting as a medium- to long-term investment in silver. It will help protect part of the investor’s capital against inflation, uncertainty in the financial markets or economic crisis.
As for bars, the investor also has different weight standards at his disposal. When it comes to investing in silver, it’s a good idea to buy as large bars as possible, as well as bullion coin sets of, say, 25, 50 or 100 standard one-ounce products. Then the manufacturer’s and seller’s margins are lower, and the profitability of the purchase becomes higher. In such a situation, an investor will pay less for each gram of silver than if he or she were to purchase individual bars or coins of small weight.
Investing in paper silver
Investing in paper silver is an alternative to bars and silver coins. It is about all financial instruments that are related to silver, i.e. products that mimic changes in its price or strongly dependent on the situation in the bullion market.
If an investor wants to invest in bullion for a period of several months or years, he should opt for silver ETFs (read also: Investing in ETFs). On the other hand, for short-term speculation, futures and CFDs are most often used. This is because, among other reasons, silver contracts allow for leveraged trading, as well as taking short positions.
Investing in silver can also take the form of buying shares in any company that mines the metal or produces investment silver. It is worth bearing in mind that there are few companies that focus only on this bullion in their operations. Producers usually produce both silver and investment gold, and mining companies often acquire silver while also mining other metals, such as copper. This means that the price movements of the shares of the depicted entities can at times bear little relation to the current situation in the silver market.
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A much greater correlation can be expected by the investor in the case of the shares of companies that focus only on silver. However, in this case, too, it is important to remember that although their when usually follow the market price of the metal, they are often subject to stronger movements. They function like a leveraged instrument, and this can work to an investor’s advantage, but can also wipe out high losses during downturns.
Buying shares of silver mines
Of course, you don’t have to own physical silver to cash in on the rise in its price. You can be a part-owner of a mine that mines it. However, in the case of silver, the matter is a little more complicated, because among the 10 largest producers, only 3 have a “clean” bet on silver. This is because more than 2/3 of silver mining is a by-product of mining other metals, such as copper, gold or zinc.
The standard silver stocks that trade on the New York Stock Exchange are those of Pan American Silver. It is the 7th largest producer of silver. On the other hand, shares of Fresnillo, a giant from Mexico, are available on the London Stock Exchange.
The shares of companies that mine silver act as a leveraged instrument. Typically, the change in their quotations is several times greater than the change in the price of the raw material itself. Moreover, it works both ways. In addition, by deciding to buy silver shares of one mining mine, the investor exposes himself to a specific risk for this entity. It may turn out that, for some reason, the investor’s company will get into trouble and lose out on the investment despite the fact that the price of silver itself will rise sharply. However, it is possible to protect against this type of situation by either buying shares in various producers or by purchasing an ETF that reflects the behavior of an index of silver company stocks (read also: How to invest in stocks). The largest such entity is the Silver Miners ETF, which costs 0.65 percent per year + brokerage commission to buy or sell its units.
Silver futures, options and CFDs
For investors who like light risk, there are also futures and CFDs (read also: What are CFDs and Best CFD broker), which are offered by exchanges and forex brokers. Both of these are derivatives with built-in leverage. Therefore, they have a higher investment risk than stocks or physical silver (read also: Making money on forex).
When it comes to investing in silver, the benchmark is usually the quotation of the nearest contract on the New York commodity exchange. This is a liquid market, but rather for large investors. One contract is for 5,000 ounces, with a margin of $5,000 per contract. Moreover, it is necessary to set up a brokerage account, which offers access to Comex (read also: How to set up a brokerage account and Forex broker or Forex online and Forex currency trading).
The New York Stock Exchange also offers options on futures contracts, but this is aimed more at experienced people. Moreover, both options and futures contracts are intended for short-term speculation rather than long-term investment. However, for an investor with a sizable portfolio, the Comex is the cheapest source of silver that offers physical delivery of the metal.
For the investor, the most affordable option is the CFD instruments offered by Forex platforms (read also: Trading platform). These are the over-the-counter equivalents of futures contacts, which have no central clearing system and no quotation, but also no specific maturity date. The advantages of such instruments are flexibility, leverage and high availability. However, the disadvantage is that in most cases the other party to the transaction is the broker itself. Playing against one’s own broker, is associated with additional risks, which clients of Forex brokers have managed to find out about themselves (read also: Playing the stock market). Moreover, in the case of silver, there are high spreads, as well as the cost of holding a position more than 1 day. CFDs are a tool for short-term silver speculation, but they are not suitable for long-term investments (read also: How much money can you make on stocks).
Buying a silver ETF fund
This type of ETF invests in companies that mine silver. This is a much less risky solution than the previous method, and allows you to gain broad exposure to almost the entire silver mining market. This eliminates the risk that by choosing only one company, for example, it could turn out to be bankrupt and the investor will lose all his capital. If an investor does not want to do various analyses on silver miners, but still wants to reap the benefits that come from owning a mining company, he can turn to an ETF that owns silver miners. He will then get diversified exposure to miners and lower risk than owning 1 or 2 individual mining stocks (read also: Investing in stocks and bonds and Forex investments or Stocks and bonds). Of course, there are many more of these types of funds on the market, and in this case it is necessary to do a thorough analysis to choose the best fund, having as many high-quality companies in its portfolio as possible.
What is the best way to invest in silver?
When deciding to invest in silver for a period of several or more years, a better choice will be investment silver in the form of coins and bars. In this case, the investor can benefit from all the physical properties of silver and retain full control over the entire investment.
Physical silver is stored outside the financial system, so to speak, so the investor does not have to worry about such events as the collapse of a broker or government action. In addition, according to the interpretation of the tax authorities, if the investor resells it after at least six months after the purchase, he will not have to pay income tax on it.
However, investment silver has several serious disadvantages, and for this reason it is not suitable for short-term investing, and some investors are completely discouraged. First of all, it needs to be stored somewhere, which, in the case of a larger investment, may require the purchase of a safe or the rental of a vault box. What’s more, it’s a bit problematic to purchase, and later resell, physical silver. In addition, purchased silver coins and bars, unlike investment gold, are subject to tax (read also: Investing in gold).
In the case of paper silver, the advantages and disadvantages vary depending on the instrument, which is based on bullion. However, there are some that apply to each, and stand out against physical silver. Any instruments that offer are on silver are associated with easy transactions, as well as convenient storage in the account. In addition, they allow flexible response to changing market conditions. They are also not subject to VAT, and the profitability of buying them does not depend on the size of the transaction.
But on the other hand, instruments that give exposure to the price of silver do not guarantee anonymity or full control over the investment. One has to reckon with the risk of either the broker or the exchange in this case. In addition, no matter when the investor decides to sell them, he will have to pay a 19% tax on the profit earned by the investor, which is a 19% tax on the tax on the tax on the profit. However, in most cases, investors choose to invest in paper silver.
When and where to buy investment silver?
As already mentioned, due to the high demand that comes from industry, silver is seen as an industrial metal. If an investor would like to find a good time to buy or sell it, he should be particularly mindful of the situation in the gold market. This is because, although investors do not see it as an industrial commodity, silver is constantly moving in its wake, according to historical data.
An investment for times of crisis and inflation
Despite the fact that changes in the prices of gold and silver take on varying strengths, as far as the closet is concerned, investment in silver works best during periods when gold is also performing well. This is especially a time of negative real interest rates, but also of political and social unrest, as well as turmoil in the financial markets and concerns about the future situation in the economy.
Safe purchase of silver
Wanting to invest in paper silver, an investor needs to set up either a brokerage account or a Forex account, which allows trading in instruments based on this bullion (read also: Forex and Forex trading or Forex trading demo for beginners and Forex investing beginners). Brokerage offers differ in terms of available products, but also in terms of trading commissions or account fees (read also: Online trading). Choosing the right proposal is therefore important both if a person wants to engage in trading, and if he wants to engage in medium or long-term investing.
To find a favorable deal on physical investment silver, an investor also has to make an effort. He can make a deal with another individual, a company that trades bullion or a producer and dealer of investment silver. Regardless of which option an investor decides on, the best way to make a transaction is to do it online. It’s just worth remembering that when reviewing proposals and offers, it’s important to keep in mind to provide prices for bars and bullion coins, as well as reviews of the seller or investment platform. When it comes to investing in silver and more, financial considerations are important, but so is the security of the transactions carried out.
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When deciding to buy investment silver, you can also consider the offers of foreign sellers. It is worth knowing that in some countries, such as Germany, it is subject to much lower taxation than in other countries, and in some it is not subject at all, such as Estonia. However, if coins or bars are ordered by an investor to his country, due to shipping costs and security, the venture may prove profitable only if the investment amount is high enough (read also: How to invest small amounts of money). In addition, by deciding to enter into a transaction with, for example, a seller from Estonia, the investor will be able to take advantage of the tax exemption only when the investment reaches a sufficiently high investment amount. Using the offer of an intermediary, this provision can be easily circumvented.
How not to invest in silver?
It is worth knowing some useful tips on how not to invest in the white metal. First of all, buying silver jewelry is not the most effective way to invest in silver. Silver purchased in this way will have a much higher price than buying the same amount of bullion silver. Silver earrings, rings or necklaces on the secondary market have a silver scrap value. Buying the latter is also not recommended, as its prices can be as much as tens of percent lower than the price of investment silver.
It is also usually not worth bothering with various collector coins, where, in addition to the metal value, you also have to pay for the numismatic value, which is hard to estimate. Buying silver coins comes out much more expensive than buying bullion coins.
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In many countries the specialty is silver granulate, which is a raw material for either jewelry manufacturers or industry. However, from the investor’s point of view, this type of option has basically the same disadvantages. First of all, it is not easy to check the sample of the metal and it is difficult to resell it, which the lower price of the commodity does not compensate at all. It is more profitable to buy a silver bar.
It is also worth approaching with caution the various investment certificates and structured products that are offered by banks. In most cases, the bank and its intermediaries make money, and the customer himself rarely comes out ahead. This is due to the fact that the more complicated the instrument is, often with embedded barrier options, as well as other exotic derivatives. If an investor is interested in investing in paper silver, in most cases he will come out better off buying an ETF unit than a certificate, which is offered by either TFIs or banks.
What are the differences between investing in silver and investing in gold?
In particular, it is worth bearing in mind that investment silver is much less often the object of interest of counterfeiters. This is due to the much lower price of this bullion relative to gold. To come across fake silver, you have to be pretty unlucky. This, however, does not mean that investing in gold is fraught with risks that make an investor should not go into it. The best way to protect yourself from committing an investment mishap is to buy both gold and silver from a reputable dealer.
What else distinguishes investment in silver?
Another key difference that distinguishes silver from investment gold is the white metal’s wider range of industrial applications. For this reason, the volatility of the silver market is much higher than that of gold, and the price of the metal largely depends on the current demand for it by industry. Noting the development of modern technologies, which report a huge demand for silver, as well as the plans of major economies, it is likely that the fundamentals will continue to favor demand for the white metal, and with this comes an increase in its price.
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Is it worth investing small amounts in silver?
By the way, it is also worth noting another issue that differentiates the two bullions. Investment silver is characterized by a lower price, which makes it accessible to more investors. One can invest in it with as little as 100 USD. This is an important aspect for investors, especially beginners and those who adhere to the principle of entering the market in small steps, but also for young people who usually do not have a large initial capital. Both investing in gold and silver, to be effective, it is important to be systematic. By investing even small amounts in silver on a regular basis, you can protect yourself from short-term fluctuations in the price of silver, and increase your chances of making profits in the future.
Where to store investment silver?
Before making an investment decision, and the first thing to consider is the issue of bullion storage. How do you keep silver bars and bullion coins safe? There are many methods of storing silver, and the most popular are storing silver at home, at a dealer or in a bank.
Is it worth storing silver with an outside entity?
Although each of the above-mentioned methods has both supporters and opponents, it is worth remembering that by choosing to store investment silver with a third party, in a sense, the investor himself deprives himself of the greatest advantages of investing in bullion, such as the absence of ongoing fees, security, anonymity or full control over his holdings.
If for an investor such issues play a key role, the most appropriate solution will be to choose to store silver in the investor’s own home or other place known only to the investor. It is important to follow a few simple rules that will minimize the risk of losing bullion as much as possible. When deciding to invest in physical silver, in particular, one should not flaunt his possession in public places. If an investor’s silver holdings are of considerable value, it is best to think about buying a professional safe. This is good for the reason that it allows you to store various forms of valuables in a properly secured place.
Ways to invest in silver are indeed many. However, it is worth realizing that most of them carry a considerable investment risk. In most cases, for individual investors, the best choice may be to invest in physical silver, i.e. the most popular silver bars and coins. This is a very simple solution and, despite minor drawbacks, also has quite a few advantages. However, it is worth bearing in mind that physical silver investment can be mainly long-term, and if you want to make short-term investments, it is better to opt for paper silver.