Most people are compelled to invest in precious metals because there’s no counter party risk.
The value of these metals is derived from their industrial uses as well as their intrinsic value of rarity. Moreover, it won’t be wrong to say that the worse the economy gets, the more people are likely to invest in precious metals and cause a spike in their prices.
Needless to say, investing in precious metals happens to be a huge commitment and it can be difficult at times to determine which precious metal is a better investment.
Wondering if silver is a good investment for you?
In this blog, we’ll go over a few reasons why silver is a better investment than goldand how you can invest in silver the right way.
If you’d like to see a graphical breakdown of the silver investing, we got you covered:
- 1 Silver vs. Gold
- 2 Investing in Silver for Beginners
- 3 Final Words
Silver vs. Gold
So, should you invest in silver or gold?
As an investor, you may have a couple of questions you need answered before you can determine which of them is the right investment choice for you. After all, is there really that much of a difference between these precious metals other than their prices?
Both happen to be “precious” metals, which means their occurrence in the earth’s crust is quite rare. However, when it comes to investing in silver vs. gold, there are a few distinctions you must know about.
Let’s take a look at five notable differences between the two metals and what their implications are for investors.
Physical Silver is Real Money
In a world of digital trading, currency creation, and paper profits, physical silver is one of the very few hard assets that you can actually carry in your pocket wherever you go.
Moreover, it can be as confidential and private as you want. It’s also worth noting that physical silver is also protected against all kinds of cybercrime and hacking.
Even though silver isn’t part of our currency, it’s still real money. In fact, it’s essentially the ultimate form of money because you can’t create it out of thin air, unlike digital forms or paper.
However, it’s important to mention that silver ETFs or certificates are quantified as paper investments that don’t have the same benefits as physical silver.
As we’ve established previously, there’s no counter party risk when you invest in silver, which means that if you hold physical silver, you don’t need another party to fulfill a promise or contract, which is usually the case with bonds or stocks.
Additionally, there’s no default risk of owning physical silver. Last but not least, physical silver also had a long-term use as money. A scan of monetary history has revealed that silverhas been used in coin a lot more often as opposed to gold.
This just goes to show that owning physical silver, whether in coin or bar form, gives you a real asset that has basically served as currency for around thousands of years.
Silver is More Affordable Than Gold
There’s no denying that investing in silver is a lot easier than investing in other precious metals, such as gold, because it’s a lot more affordable.
You can easily buy silver for just a couple of dollars. Not only that, there are also a wide number of dealers out there who are dealing with silver.
It’s worth mentioning that most investors are interested in gold or platinum and consider them as a storehouse of wealth, even though the cost of silver is less likely to experience severe fluctuationsas opposed to other precious metals.
Smaller fluctuations may eventually result in stronger percentage gains.
If you own physical silver (not including paper investments like certificates, ETFs or futures contracts), you’ll get to enjoy the same benefits that come with investing in gold, except at a much lower price.
This means that your financial insurance becomes a lot more affordable, especially for the average investor, which just goes to prove that silver is indeed ‘poor man’s gold’.
Silver is More Practical for Small and Everyday Purchases
Silver isn’t just more affordable to purchase, it’s also a lot more practical when it comes to small, everyday purchases.
If you don’t wish to sell a full ounce of gold to take care of minor financial needs, silver is the right investment for you, especially if you’re an investor on a limited budget.
It comes in a smaller denomination as compared to gold, so you can choose to sell what you want, depending on the need of the hour.
Since owning silver is more practical than owning gold, investors should carry some silver around in their pockets. The best part about silver coins and bars bullion is that they can be sold almost anywhere in the world.
For larger purchases like buying a car or renting an apartment, you may need to use gold proceeds, but if you simply want to purchase a new cell phone or buy groceries, you can easily sell some silver to meet those needs in no time without having to liquidate your gold.
Higher Industrial Use
Another great reason why silver is a better investment than gold is that it has a higher industrial use, which is why its price happens to be a true reflection of the laws of supply and demand at play.
Gold, however, is essentially stockpiled by major central banks across the globe. If this stockpile gets released into the open market, the price of this precious metal will experience a dramatic drop because, unlike silver, it only has an investment demand.
It may come as a surprise to you that silver is used in almost all major industries, from medical applications and electronics to solar panels and batteries. It’s practically everywhere, and you may find it hard to believe but you don’t go a single day without using a product that contains silver.
Out of all the elements, silver happens to be the indispensable metal because it’s reflective as well as electrically and thermally conductive.
Modern life, as you see it, simply cannot exist without silver, even though its value has been largely overlooked as compared to other precious metals.
Because of these rare characteristics, there’s an exceptionally diverse range of industrial applications for silver and industrial and technological uses alone accountfor more than half of annual global silver demand.
According to the Silver Institute, the use of silver in photovoltaic cells (some of the primary constituents of solar panels) was estimated to be around 75% greater in 2018 than it was just three years prior and that’s saying a lot.
Moreover, silver is also commonly used as a catalyst in the production of ethylene oxide (an essential precursor in the production of chemicals and plastics) and the growth in this industry is astounding.
The bottom line is that as an investor, you can reasonably expect the industrial demand of silver to remain robustin the distant future.
Investing in Silver for Beginners
Purchasing physical silver as an investment may not always be as straightforward as it seems. It’s quite common for investors to get confused or overwhelmed by the variety of options.
You need to evaluate the different bullion options as well as financial products like silver ETFs (exchange-traded funds) before you can decide to dip your toes into this market.
It goes without saying that the best silver investment truly depends on your needs. If you’re interested in exposure to silver as a commodity, then either silver ETFs or physical bullion may work, whether you want to trade in and out or hold the physical metal for quite some time.
Here, we’ll take a look at a few different ways you can invest in silver in addition to some of their advantages and disadvantages so we can help you determine the right kind of investment for your needs.
Buying the PhysicalMetal
The simplest way you can invest in silver is by going out and actually purchasing the physical metal.
You can find bullion silver in both bar and coin forms and a majority of precious metals dealers and coin dealers may offer them to you in a variety of formats and sizes. Generally, you’ll be able to find bars and coins as tiny as a single ounce or as large as 1000 ounces.
The benefit of owning silver bullion is that its value can directly track the market price of silver. But there are a couple of disadvantages that you may have to consider.
First and foremost, you’ll usually have to pay a slight premium to purchase silver from dealers and it’s expected that you’ll have to give a slight discount if you decide to sell it back to the dealer you bought it from.
However, if you wish to hold onto the silver for a long period of time, these costs won’t be monumental for you.
This means that for investors who wish to trade frequently, burying actual silver can prove to be quite costly. Additionally, the storage of silver bullion also involves a few additional costs and logistical challenges.
You can also invest in silver through the stock market by purchasing shares of silver mining companies. If you weren’t aware, silver mining stocks typically increase in value whenever silvers prices go up and fall when the silver market performs poorly.
In most instances, for a specific price increase in silver bullion, mining stocks tend to go up several times that amount in percentage terms.
But the challenge with purchasing shares of silver mining companies is that you have to deal with the risks that are involved in the mining processes.
Regardless of how the silver market is performing, a simple accident at a silver mine or unfavorable results can lead to the poor performance of a company. This company-specific risk can be difficult to mitigatebut owning baskets of silver mining stocks can give you some financial protection.
For people who like to trade frequently, ETFs that own silver themselves can be a great alternative to owning silver bullion directly.
Every share of a silver ETF basically corresponds to a certain theoretical amount of silver. Moreover, the prices of ETF shares tend to track silver prices relatively closely.
Some investors don’t prefer silver ETS because they don’t really allow you to actually hold silver.
Furthermore, these shares can be traded at a discount or premium to the actual market value of silver which may result in a few discrepancies depending on when you choose to trade your shares.
Still, the benefit of ETF shares is that they allow you to engage in the general movements of the silver market as an investor.
Last but not least, you can also consider purchasing shares of silver streaming companies.
Since these companies don’t carry out mining operations directly and provide financing to miners instead, you can significantlyavoid the risks that are associated with holding shares of silver mining companies.
Typically, streaming companies purchase silver production from their mining partners at a fraction of the actual market price, which allows them to earn a profit. Therefore, the quality of these financing deals plays a huge role in streaming company stocks.
Investors who seek a return should note that streaming stocks provide a better income and more stability, whereas mining stocks involve a lot more speculation and it’s capital-intensive.
It’s also advisable to consider that streaming companies often pay dividends because they’re dependent on healthy cash flow.
Investing in silver isn’t quite as popular among mainstream investors.
However, if you believe that the silver market is ripe for gains, you should definitely take a look at companies that happen to have the most exposure to this precious metal in order to protect yourself from economic instability in the future and balance out your investment portfolio.