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How to Invest in Silver: Unearthing the Potential of Silver Investing

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Adam Koprucki
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Silver’s intrinsic value and widespread uses as precious and industrial metal makes investing in silver can provide an excellent opportunity to diversify your portfolio and hedge against economic uncertainties.

silver bar

Silver, often dubbed the “poor man’s gold, is a precious metal and investable commodity that has been used as a form of currency and a store of value for thousands of years.

But beyond its utility in coins and jewelry, silver has a variety of industrial applications, particularly in electronics, that keep its demand stable. Due to its intrinsic value and widespread uses as precious and industrial metal, investing in silver can provide an excellent opportunity to diversify your portfolio and hedge against economic uncertainties.

In this blog post, we’ll guide you through what you need to know to start investing in silver.

Best Ways to Invest in Silver

Silver, like other precious metals, is subject to the laws of supply and demand. Silver’s demand originates not only from investors but also from its many industrial applications such as electronics, solar panels, and medical devices.

Its supply is determined by mining and recycling operations, along with reserves held by governments and other institutions. These factors combined determine the market price of silver at any given time. Therefore, understanding these dynamics is key to making informed investment decisions.

Silver Stocks

Investing in silver stocks generally means investing in companies involved in silver mining or exploration. Like other stocks, when you buy silver stocks and you purchase shares of a silver mining company, you are buying a portion of the company. You can invest in silver stocks through almost all traditional and discount brokerages.

Let’s delve into the key points you should consider when investing in silver stocks:

PROs: Investing in Silver Stocks

  • Profit Potential: Silver stocks can offer significant profit potential. If a company strikes a rich vein of silver, the stock could increase substantially.

  • Leverage: Silver stocks can provide leverage to the price of silver. When the price of silver rises, the profits of silver mining companies can rise exponentially, leading to potentially larger gains.

  • Dividends: Some silver mining stocks pay dividends to shareholders. This provides an income stream, in addition to any potential capital gains.

  • Diversification: Investing in silver stocks can help diversify your portfolio, especially if you are heavily invested in other sectors.

CONs: Investing in Silver Stocks

  • Company-Specific Risks: Unlike investing in physical silver or silver ETFs, investing in silver stocks exposes you to risks specific to the individual company, such as management performance, operational efficiency, cost control, and mining risks.
  • Market Volatility: Silver stocks are subject to the volatility of the stock market, in addition to the volatility of silver prices.

  • Environmental and Regulatory Risks: Mining companies are subject to environmental regulations and can face significant cleanup costs in the case of a spill or other environmental disaster.

  • Country Risk: Many silver mining companies operate in countries with unstable political situations or weak rule of law. This can add an additional layer of risk to your investment.

Popular Silver Mining Stocks:

  • Pan American Silver Corp. (PAAS): Pan American is one of the world’s largest primary silver producers. The company has operations throughout the Americas, including in the United States, Canada, Mexico, and South America.

  • Hecla Mining Company (HL): Hecla Mining is a leading low-cost U.S. silver producer with operating mines in Alaska and Idaho.

  • First Majestic Silver Corp. (AG): First Majestic owns 100% of three silver-producing mines in Mexico. They are strongly focused on silver, though they also produce some gold.

  • Coeur Mining, Inc. (CDE): Coeur Mining has operations in the United States, Mexico, and Canada, and produces silver, as well as a more significant amount of gold.

  • Wheaton Precious Metals Corp. (WPM): While not a mining company per se, Wheaton is a “streaming” company that provides upfront financing to miners in exchange for the right to buy their silver production at a pre-agreed price.

Silver Exchange Traded Funds (ETFs)

Buying Silver Exchange-Traded Funds (ETFs) are a popular method of investing in silver without physically owning it. They track the price of silver and can be bought and sold on the stock market. They are easy to trade, but their management fees can eat into your profits.

However, not all silver ETFs and silver mutual funds are the same. Some aim to track the spot price of silver, while others might invest in silver futures or silver mining companies. Before you buy, make sure you understand what you’re investing in.

To buy and sell Silver ETFs, most traditional online brokerage and discount brokerags offers access to Silver ETF trading.

Popular silver ETFs include:

  • iShares Silver Trust (SLV): This is the largest silver ETF, and it aims to track the price of silver. The ETF physically holds silver in a trust.

  • ETFS Physical Silver Shares (SIVR): This ETF also aims to track the price of silver and physically holds the metal.

  • Aberdeen Standard Physical Silver Shares ETF (SIVR): This ETF is designed to track the price of silver, and it physically holds the metal.

  • ProShares Ultra Silver (AGQ): This ETF seeks to provide returns that are 2x the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

  • Invesco DB Silver Fund (DBS): This fund seeks to track an index of futures contracts on silver, rather than physically holding the metal.

PROs: Investing in Silver ETFs

  • Accessibility: Silver ETFs can be bought and sold like stocks through a brokerage account, making them accessible to a wide range of investors.

  • Diversification: Silver ETFs allow investors to diversify their portfolio with a commodity without the need to buy and store physical silver.

  • Lower Costs: While there are fees associated with silver ETFs, they are often less expensive than the costs of buying, storing, and insuring physical silver.

  • Liquidity: Silver ETFs are traded on major stock exchanges, meaning they are more liquid than physical silver or silver futures contracts.

CONs: Investing in Silver ETFs

  • Management Fees: Silver ETFs charge management fees, which can eat into your returns over time.

  • Indirect Ownership: When you own a silver ETF, you own shares in a fund that owns silver, not the silver itself. This means you can’t take physical possession of the silver.

  • Tracking Error: Some silver ETFs may not perfectly track the price of silver due to fees, regulatory restrictions, or other factors. This is known as tracking error.

  • Counterparty Risk: If you invest in silver ETFs that use futures contracts or other derivative instruments, you could be exposed to counterparty risk. This is the risk that the other party involved in the contract will default on their obligations.

Physical Silver Coin or Bullion

Investing in silver directly involves buying actual silver in coins, bars, or buying silver bullion, directly. Owning physical silver provides a tangible store of value. However, it requires secure storage, has higher transaction costs, and may be harder to sell quickly.

How to invest in Physical Silver:

  • Silver Bullion

  • Silver Bars

  • Silver Coins

PRO TIP: If you are buying physical silver coins or bullion be sure to purchase from a reputable dealer. The U.S. Mint provides a list of authorized U.S. Mint Bullion Dealers.

PROs: Investing in Physical Silver

  • Tangible Asset: Physical silver is a tangible asset that you can hold, and has intrinsic value. It can’t go bankrupt or become worthless, which isn’t true for other types of investments.

  • Hedge Against Inflation: Silver, like other precious metals, can act as a hedge against inflation. As the cost of goods rises, so too often does the price of silver.

  • Industrial Demand: Silver has numerous industrial applications, including in electronics, medicine, and solar energy. This continued industrial demand continues to support the price of silver.

  • No Counterparty Risk: Owning physical silver means you don’t rely on another party to fulfill a contract or obligation, which is not the case with stocks, bonds, or futures contracts.

CONs: Investing in Physical Silver

  • Storage and Insurance: Owning physical silver means you’ll need a secure place to store it. Storing large amounts can be problematic, and you may need to insure it, which adds to the cost.

  • Liquidity: While silver is generally quite liquid, if you need to sell physical silver quickly, you might not get the best price, especially if it requires a rapid sale at a local pawn or coin shop.

  • No Passive Income: Physical silver doesn’t generate passive income. While you might make a profit when you sell, the silver doesn’t produce income while you hold it, unlike stocks (which might pay dividends) or bonds (which pay interest).

  • Purity and Authenticity Concerns: When buying physical silver, you need to ensure it’s genuine and verify its purity. Buying from reputable dealers can help mitigate this risk.

Silver Futures and Options

Silver Futures and Options are sophisticated financial instruments that allow you to speculate on the future price of silver. They can provide high returns, but they’re also very risky and require an in-depth understanding of the market.

Silver Futures require you to buy or sell silver at a specific price at specific date, while silver options give you the option but not the requirement to buy or sell silver at a specific price and at specific date.

PROs: Silver Futures and Options

  • Leverage: Futures and options offer leverage, which allows traders to control a large amount of silver with a relatively small amount of capital. This leverage can magnify profits if the market moves in your favor.

  • Hedging Capabilities: These instruments can be used to hedge against adverse price movements in physical silver holdings. This can provide a level of risk management for those with exposure to the silver market.

  • Liquidity: Silver futures and options markets are quite liquid, meaning you can enter and exit positions relatively easily.

  • Price Transparency: Futures and options prices are readily available in real-time throughout the trading day, providing clear price transparency.

CONs: Silver Futures and Options

  • Complexity: Understanding futures and options requires a learning curve. They are complex instruments and may not be suitable for novice investors.

  • Potential for Significant Losses: The same leverage that can magnify profits can also amplify losses. If the market moves against your position, you could lose more than your initial investment.

  • Margin Calls: Futures are traded on margin, meaning you only put up a fraction of the contract’s value. If the market moves against you, you may need to deposit additional money to maintain your position, known as a margin call.

  • Time Decay in Options: Options have an expiration date, and their value decreases over time – a phenomenon known as time decay. If the price of silver doesn’t move in the direction you anticipated quickly enough, you could lose the entire premium paid for the option.

Futures and options trading isn’t available with every online brokerage, and it often requires approval due to the complex nature and higher risk associated with these types of trades. Below are several online brokerages that do offer futures and options trading to individual investors:

  • TD Ameritrade: TD Ameritrade allows trading in futures and options, including silver futures. Their platform, thinkorswim, is known for its comprehensive trading tools and features.

  • Interactive Brokers: Known for its broad range of offerings, Interactive Brokers allows trading in futures and options, including those for commodities like silver.

  • E*TRADE: E*TRADE allows trading in futures and options, including silver futures, and provides a platform with various tools for analysis.

  • Charles Schwab: While primarily known for its stock and ETF offerings, Charles Schwab also allows for futures and options trading on various commodities.

  • TradeStation: TradeStation offers futures and options trading on commodities like silver. They offer a powerful platform for active and professional traders.

Is Silver a Good Investment?

As an investment, silver can play a role in portfolio diversification, serving as a hedge against inflation and currency fluctuations. However, like all investments, its returns can vary, and there are certainly risks involved.

Let’s explore below.

bull vs. bear

Historical Performance:

The price of silver can be quite volatile. For instance, in 2011, silver prices rose to nearly $50 per ounce, only to drop to around $13 per ounce by the end of 2015. As of 2020, however spot silver prices rose again, driven in part by increased industrial metal demand and economic uncertainty due to the COVID-19 pandemic.

That said, the average 10-year return for silver, according to a 2020 analysis by CPM Group, was around 4%, compared to about 10% for the S&P 500.

It’s also worth noting that silver’s return is not typically correlated with stock market returns, making it a potentially useful tool for diversification.

Future Outlook:

According to an analsysis by the World Silver Institute rising silver mine production in 2023 is expected to be followed by continued growth over the medium term, however mined output for the next four to five years is expected to decline, which could also impact the silver market.

That said, there are also several other factors that could impact the silver price and prices over the long term:

  • Mine Production:The ongoing growth in silver mining is fueled by increased production from existing mines and the initiation of new projects. However, projections suggest a downturn in mined output over the next four to five years, as declining grades and reserve exhaustion at present sites will likely outpace the expected production from new projects in the pipeline.

  • Industrial Demand: Silver has many industrial uses, from electronics to solar panels. As these sectors grow, so too could the demand for silver.

  • Economic Uncertainty: Precious metals like silver often perform well during periods of economic uncertainty. If such conditions persist or intensify, this could potentially bolster silver prices.

  • Monetary Policy: Low interest rates and expansionary monetary policies can also support higher silver prices, as investors look for hard assets as a hedge against inflation and currency devaluation.

Whether silver is a “good” investment depends largely on your individual financial goals, risk tolerance, and investment horizon.

The Bottom Line

Investing in silver and other precious metals can be a useful way to diversify a portfolio, hedge against inflation, and potentially benefit from their industrial uses and market demand. However, these investments can also be volatile, rising silver prices being subject to market speculations and affected by a variety of global economic factors. Therefore, it’s important to do your research and consider your risk tolerance before investing. Moreover, like any investment, silver and other precious metals should not make up the entirety of your portfolio, but rather be a part of a diversified investment strategy.

Adam Koprucki

Expertise: Fixed-income investing, Macroeconomics, Personal Finance, Derivatives, Options, Index Funds

Professional Experience: J.P. Morgan, Deloitte Consulting, Societe Generale, The Vanguard Group

Education: Loyola University: Bachelor of Business Administration, University of North Carolina, Chapel Hill: Certificate in Capital Markets

Adam Koprucki is the founder of Real World Investor, an investing website dedicated to reviewing the newest and latest investing tools and providing unique market insights for beginner to intermediate investors.

Before starting Real World Investor, he spent over a decade working at some of the world's largest investment banks and investment managers, such as Citibank, J.P. Morgan, Societe Generale, Deloitte, and The Vanguard Group.

His experience includes working with complex financial products such as exotic interest rate derivatives, structured products, and structured credit.

A dedicated and enthusiastic investor, he is passionate about macroeconomics and options trading. His work has been published in Nasdaq, Yahoo Finance, GoBankingRates, and Seeking Alpha. He is also a contributing author at LendStart.