Silver investing refers to the act of purchasing silver or related financial products with the expectation of generating a return on the investment over time. Investors may buy physical silver, silver futures contracts, silver mining stocks, or exchange-traded funds (ETFs) focused on silver, aiming to benefit from potential price appreciation or as a hedge against inflation and economic uncertainties. Like any investment, silver investing carries risks and requires careful consideration of market conditions and individual financial goals.
How To Trade Silver
- The Silver Market
- Silver as a Store of Wealth
- Buying and Selling Silver
- Silver ETFs
- Silver Futures
- Silver vs. Gold
- Silver vs. Stocks
- Silver vs. Bonds
- Long Term Investing in Silver
- Trading in Silver
Silver Has Long Been Associated With Money
The advent of silver as a form of currency marked a significant shift from the barter system to what we now recognize as modern money—goods that hold a specific value beyond their intrinsic worth. Prior to the use of silver, transactions relied on the exchange of goods with direct utility until the introduction of coins brought about a more flexible means of trade.
When people started using coins for transactions, these coins became interchangeable for various desired goods, allowing for universal exchange. Unlike bartering, where one had to find a direct match of wants, the introduction of coins enabled smoother and more versatile trade.
Silver has played a prominent role in the history of money, with many languages even using the same word for silver and money. The use of silver coins can be traced back to around 650 BC. As a precious metal, silver possessed the necessary scarcity to be suitable as a medium of exchange, although it was not as rare as gold. Consequently, silver was better suited for wider circulation, making it a popular choice for coins over the centuries.
Historically, the U.S. Dollar was backed by silver until the Civil War when it was later replaced by the gold standard. Numerous countries also adopted the silver standard, enabling the exchange of paper money for physical silver. The British Pound derived its name from its past equivalence to a pound of silver.
For a long time, silver dominated coinage. However, as the price of silver rose, it exceeded the face value of the coins, rendering their use as legal tender impractical. While silver coins still exist, they are no longer commonly used for everyday transactions.
Similarly, gold faced the same issue, and although the denominations of gold and silver coins could have been adjusted to reflect their higher value, this would have made them inconvenient for widespread use. Consequently, mints had to turn to cheaper metals like copper and nickel for coins intended for general circulation.
Despite its decline as currency, silver has had a rich history as both money and a store of value. It has also found extensive use in jewelry, offering a more affordable option compared to gold. Additionally, its excellent conductivity has made it valuable for various industrial applications. Even though silver has transitioned from a primary form of money, its enduring utility in various aspects of society continues to be recognized.
Silver as a Commodity
Throughout history, approximately 1.4 million tons of silver have been mined, which is about ten times more weight than all the gold ever mined. However, roughly half of this silver has been lost over the ages, whereas the majority of gold ever mined is still in existence due to its higher value, leading to a greater retention rate.
The shift away from the gold standard by the United States in 1971 had a significant impact on both gold and silver prices. Over a three-year period, the price of silver surged from under $8 per ounce to nearly $30 per ounce. In a brief period in 1980, it skyrocketed to an all-time high of over $110 per ounce when the Hunt Brothers amassed a massive position worth $4.5 billion in silver, triggering a speculative frenzy that eventually collapsed.
Since then, the price of silver has experienced considerable fluctuations, dropping below $6 in 2001 and surging above $50 in 2011. As of 2017, it has returned to below $20 per ounce.
Like other precious metals, the price of silver is influenced by market forces, and it is actively traded on commodity exchanges. While not as extensively traded as gold, silver’s volumes fluctuate more widely, and its price is notably more volatile than that of gold, making it a riskier and less stable investment.
However, this volatility also presents an opportunity for potentially higher profits when trading silver, especially with leveraged trading such as commodity futures. In futures trading, traders only need to put up a portion of the money and borrow the rest, amplifying price fluctuations in both directions.
Since many participants in futures trading don’t intend to take physical possession of the commodity but rather speculate on its future price movements, this provides additional liquidity and trading volume to the market. It allows more people to engage in trading, even if they have no interest in holding physical assets.
In addition to its potential for speculative trading, silver, like other precious metals, can be held as a store of value for those who wish to preserve wealth over time. This sets it apart from most other commodities, which are primarily useful as business inputs and typically require direct involvement in specific industries like agriculture or energy to be of practical use.
Silver as An Investment
While silver can be and is stockpiled, it is not as commonly held as gold due to its significantly lower value by weight. The cost of handling and storing silver can be relatively higher compared to gold because a larger amount of silver is needed to have the same value as a smaller quantity of gold.
Silver’s price volatility is more pronounced than that of gold because it is closely tied to changes in the global economy. It is relied upon less as a hedge compared to gold, which means that its price movements often reflect people’s outlook for the economy. Silver tends to appreciate in price during economic downturns when a hedge is sought, but it may have less demand and, therefore, be less valuable during periods of economic growth and stability.
The silver market is considerably less liquid than the gold market, making it more susceptible to price fluctuations due to changes in demand. The smaller volume of silver trading means that price swings can be more significant, especially when influenced by the herd mentality of investors.
While the gold market is about 20 times larger in volume than the silver market, this doesn’t relegate silver to a niche market; rather, it highlights the sheer size and liquidity of gold trading.
The relative size of the silver market makes it susceptible to significant influence by large investors. In the past, investors like the Hunt Brothers and Warren Buffet accumulated massive positions in silver, affecting prices. The extra volatility in silver can be both a benefit and a drawback, depending on an investor’s risk tolerance and investment strategy.
Exchange-traded funds (ETFs) based on silver provide an accessible way for individual investors to participate in the silver market. Some silver ETFs hold substantial positions in silver, which allows investors to easily buy or sell silver exposure without dealing with physical storage.
For those seeking to hold physical silver, it is possible to purchase silver bars and coins from banks or dealers. However, trading silver directly in the market or through ETFs is more efficient for short-term positions or speculative purposes.
Despite its volatility, silver has a long history as an investment vehicle due to its scarcity and desirability, making it a prominent choice for those looking to store value or profit through speculation. Investors should carefully consider their risk tolerance and investment goals before engaging in silver trading or holding.
FAQs
What Is the Best Place to Buy Silver?
The ideal place to purchase silver depends on whether you prefer physical ownership, which can be obtained from precious metal dealers who offer various options for storage and delivery, or if you’re content with owning shares in silver ETFs.
Is Silver a Good Long Term Investment?
Over time, accounting for inflation, silver has not shown any significant appreciation in value, making it less suitable as a long-term investment due to its high volatility and associated risks; however, as a hedge against inflation, it can still be considered, and short to medium-term speculation on its price can yield profits if timed correctly.
What Is a Silver Future?
Silver futures entail buying or selling contracts for the purchase or sale of silver at a predetermined price in the future, enabling investors to profit from a potential increase in silver prices by purchasing contracts or capitalize on a decline in prices by selling contracts.
Is Silver a Commodity?
Silver is considered a commodity, and as such, it is traded in a standardized manner on markets where both quality and quantity are specified. When purchasing silver bullion, each coin or bar of silver is of a standard quality and is interchangeable with others of the same quality, making them all of similar value, which is a defining characteristic of commodities.
What Is a Silver Etf?
A silver exchange-traded fund (ETF) operates by pooling money from investors to purchase physical silver. The ownership of the pooled silver is divided into shares, which investors can buy and sell on the stock market, enabling them to take a real position in silver without the need for direct ownership or storage of physical silver. This allows investors to easily gain exposure to the price movements of silver without the complexities and costs associated with purchasing and storing physical metal.
Is Silver an Asset?
Silver is indeed considered an asset because it holds value and can be exchanged for other goods or currencies. If you own a specific quantity of physical silver, its worth would be determined by its market value, which may differ slightly from the price you would receive if you were to sell it to a dealer. The value of silver ETFs, on the other hand, is generally much closer to the market value of silver since they are designed to track the price movements of the metal more closely.
What Is the Best Way to Invest in Silver?
Investing in physical silver involves less liquidity and larger spreads compared to silver ETFs, which provide greater efficiency and ease of trading with the click of a mouse.
Why Is Silver so Cheap Compared to Gold?
The higher cost of gold compared to silver is not solely due to its rarity, as platinum and palladium are rarer but often cost less; the significant factor driving gold’s higher price is the willingness of people to pay more for gold, although silver’s greater abundance does also play a significant role.
What Are the Best Silver Coins to Buy?
As silver is a commodity and its price speculation is the primary focus when investing, the future value of one silver coin should be similar to another; however, certain silver coins available in the retail market may have higher prices due to their collector value, so for investment purposes, it is advisable to choose coins with minimal markup and view them as the commodity they represent.
Is It Better to Buy Silver Coins or Bullion?
Silver coins are indeed a form of silver bullion, as bullion refers to the metal’s purity rather than its shape or form. Silver bullion can be purchased in various forms, including coins, bars, and rounds. Some investors may prefer silver coins, as they are recognizable and widely accepted, making them more readily exchangeable among the public, especially during potential catastrophic events when liquidity and acceptance may become crucial.
