WPM - How to Invest in Silver

How does one invest in silver given the metal’s notorious volatility? That’s the question on many investors’ minds.

Silver has long been an attractive vehicle for not only displaying and storing wealth, but generating it, too. Silver bugs rave about the growth opportunities to be had in a silver price rally. However, what goes up, must come down and the silver market is inherently prone to deep dives.

Before investing in silver, one should consider the pros and cons, the several ways to add it to your portfolio, elements that affect silver’s movements and where prices could be headed.

Factors to consider before investing in silver

Like with most investments, there are both pros and cons to silver investing. Below is a list of factors you may want to consider before adding the white metal to your portfolio.

Pros

Silver can offer protection — Investors often turn to precious metals during times of turmoil. When political and economic uncertainty are rife, legal tender generally takes a backseat to assets like gold and silver.

Silver bullion is tangible money — Silver bullion is a tangible asset that is finite. That means that, although it is vulnerable to market fluctuations like other commodities, physical silver isn’t likely to completely crash because of its inherent and real value.

It’s cheaper than gold — Between gold and silver, the white metal is not only the less expensive of the two products, and therefore more accessible to buy, but it’s also easier to convert silver coins rather into currency.

Silver offers higher returns than gold — Because silver bullion is worth around 1/79th the price of gold bullion, it is affordable and stands to see a much bigger percentage gain when silver prices go up.

History is on silver’s side — Silver and gold have been used as legal tender for hundreds and hundreds of years, and that lineage lends the metal a sense of stability. When individuals invest in physical silver, whether that be through silver bars, fine silver, coins or other means, there is a reassurance that its value has and will continue to persist.

Cons

Lack of liquidity — There is a chance that if you hold physical silver, it may not be immediately liquidatable . In order to make common purchases such as groceries, you are not able to use bars of silver, so you will need to convert that to currency first, and the ability to sell in a hurry can be an issue. Due to this factor, you may want to consider silver stocks.

Danger of theft — Unlike most other investments, such as stocks, holding silver bullion can leave investors vulnerable to theft. Securing your assets from looting with methods such as a safety deposit box in a bank or a safe box in your home can incur other costs.

Weak return on investment — Although silver may be a good safe haven asset, it may not perform as well as other investments — for example, real estate, or even other metals.

What factors most affect silver?

Geopolitical issues

Like gold, silver prices often increase when geopolitical issues are at play.

Continual clashes between the United States and China with both nations imposing tariffs on each other is one current geopolitical concern that has influence over the silver market. Growing social unrest over Covid lockdowns and vaccine passports is another.

These issues seem to be supporting the white metal in the near-term. Investors will be closely watching these trends and any other geopolitical events that bring a higher level of uncertainty.

Interest rates

In general, higher interest rates tend to put pressure on non-interest-bearing assets like gold and silver; conversely, when interest rates are lower, precious metals tend to perform better.

However, there are times in which silver has remained relatively flat in the face of rate hikes, such as in 2018.

Thankfully for the white metal, the Fed has kept interest rates incredibly low in recent years which has since positively affected gold as well.

Further rate cuts remain front and center in many investors’ minds — and for good reason. The Fed continues to have a dovish tone when it comes to interest rate hikes. Market participants who are looking to invest in silver and are wondering, when silver will go up will want to watch what the Fed and other central banks do in regards to interest rates and gold buying.

Gold’s movements

Where gold goes, silver will follow. Many silver analysts will tell you that one of the main catalysts behind a potential uptick in silver prices is the value of gold.

It’s helpful to look at gold price drivers when trying to understand silver’s price action, which often trades in relative tandem with gold.

Sometimes it might take silver a bit of time to play catch up, and the white metal has been known to overtake gold in its rally gains as well.

EB Tucker, director at Metalla Royalty & Streaming (TSXV: MTA ,OTCQX:MTAFF), shares this sentiment, stating, “At some stage silver wakes up and plays catch up. That’s a move worth owning.”

Similarly, Lobo Tiggre, CEO of Louis James LLC, has told INN , “It’s well known … how silver tends to lag gold. Gold moves first and then silver more than catches up.” He also stated, “If gold goes bananas, silver will go bananas — no question in my mind, and it will go more bananas than gold.”

With a focus on the long-term picture, Chris Blasi, president of Neptune Global, gave INN his perspective on the gold-silver relationship in a recent interview. “I’m really in alignment with most analysts in our community that silver does pose some excellent upside potential,” he said. “It will probably outperform gold on a percentage basis when this secular bull run is finished — but you’ve got to wear your seatbelt.”

Different ways to invest in silver

Physical silver is sold on the spot market, meaning that in order to invest in silver this way, buyers pay a specific price for the metal and then have it delivered immediately. There are two popular ways to go about investing in silver. The first is through purchasing bullion products such as bullion bars, bullion coins and silver rounds.

The second is accomplished through paper trading, which is done via the futures market, with participants entering into futures contracts for the delivery of the white metal in the future at an agreed upon price. In such contracts, two positions can be taken: a long position to accept delivery of the metal or a short position to provide delivery of the metal.

Many silver investors are also involved in mining stocks. Like all publicly listed stocks, silver companies issue shares that are available for investors to trade. When you purchase shares of a silver mining stock, you are essentially purchasing a stake in the company, making financial returns or losses from its profits.

There are two main paths to take when purchasing from companies with silver mines. One direction of silver stock investing is by making purchases from major mining companies. The other way of trading on the stock market is by investing in silver mining stocks through a junior miner. While both avenues have their pros and cons, it’s worth noting that investing in a junior stock can be risky. Since these companies often fail due to the risks associated with exploration and development, you stand a greater chance of also taking on a loss when you buy silver this way.

Finally, market participants can obtain silver shares through investing in silver streaming and royalty companies, such as Wheaton Precious Metals (TSX: WPM ,NYSE:WPM).

It is also worth noting that many market participants could also opt to invest in silver through an exchange-traded fund (ETF). Investing in a silver ETF is similar to trading a stock on an exchange, and there are several silver ETF options to choose from. For instance, some ETFs focus solely on physical silver bullion, while others focus on silver futures contracts.

Where is the silver price headed?

After flirting with the US$30 level at the start of the year and once again in May, the silver price fell to the US$23 level in mid- August 2021. Where are silver prices headed in the rest of 2021 and beyond?

In a mid-2021 interview with INN, Collin Plume, CEO of Noble Gold Investments, said that he wouldn’t be surprised to see silver break through the US$40 level in the next 12 to 18 months on rising investment demand and industrial supply shortages.

That same month, David H. Smith, senior analyst at the Morgan Report, shared those bullish sentiments in an interview with INN . Smith said in his opinion silver’s days below US$30 are likely coming to an end and people in the know think the price of silver could rise above US$50 — its record high — in 2021.

But first the precious metal will have to break past the all-important US$30 level.

Want to know more about the top silver stocks? Don’t forget to check out INN’s lists of the best silver stocks on the TSX and TSXV that have seen the biggest share price gains year-to-date.

This is an updated version of an article first published by the Investing News Network in 2019.

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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.