With the instability of the economy and financial markets due to the coronavirus pandemic, interest in precious metals such as silver has increased. Just like gold, silver has been on the rise since last March. Precious metals can act as a great alternative to any investment portfolio and thrive even more when other investments become unstable and decline.
Silver has value in its own right, both as a precious metal and as an industrial metal. It is more speculative than investment. If you choose to invest in silver, you should approach it with a speculative mindset. This is not easily discernible, especially when the price of silver appears to be very expensive.
Is silver a good investment?
Throughout history, silver has never been an investment. People used silver as real money. People used it in their daily transactions, while gold was primarily used by the rich. Some refer to silver as “the gold of the poor.” Because it is a monetary metal, its value has remained relatively stable.
Until the 1960s, the price of silver remained below $1 an ounce. This was one of the main reasons why the US government routinely set up silver coins. However, when the price of silver began to rise, the United States government withdrew silver from American currency under the Coinage Act of 1965.
After it was canceled, silver prices rose. When the price increase became more severe, it began to take on the characteristics of an investment.
In the early 1970s, the price of silver was $1.80. By 1980, the price of silver reached an all-time high of $49.45 an ounce. This represents an incredible price increase of more than 2700% in a decade. But in just five months, the price has fallen below $11.
Ironically, silver only regained this price level after 39 years and could not maintain it for long. Over the years, silver has seen periodic and exciting increases that maintain its investment reputation.
However, more than anything else, silver seems to be a commodity that either works amazingly or disappears and does nothing.
Silver movement from 1995 until now
- The price of silver fell to about $5 an ounce from 1995 to the end of 2003. If you had owned silver in those eight years, you would get almost no profit from it.
- However, in 2004, silver started to rise, rising to nearly $16 an ounce during the 2007 financial crisis. But even with the onset of the crisis, the price had fallen by almost 50% by the end of 2008.
- Then the second significant increase in prices began, which confirmed that silver is a legitimate investment in crises. From a price level of less than $9 at the end of 2008, it reached nearly $50 an ounce in 2011. This represents a return of more than 500% in less than three years.
- By the end of 2014, the price had fallen to the $16 range and even dropped to $12 in early 2020. But it now appears to be at the beginning of another possible historic price increase, which has risen to more than $22 per ounce in less than six months.
Investing in gold vs. investing in silver
Because they have similar history and price performance, generally, Monday’s prices go up and downside by the side. Traditionally, gold has been considered the most popular metal for investment, perhaps because it is still considered a monetary asset. After all, the world’s major central banks hold large reserves of gold.
In recent decades, silver has become more of an industrial metal than a metal. The gold/silver ratio has traditionally been between 50-1 and 80-1, but increased to nearly 115-1 in early 2020.
How to invest in silver
There are several ways you can invest in silver, including buying and holding the metal itself. Or invest in silver-linked paper assets such as stocks, funds, and even silver streaming companies.
- Buying silver bars.
- Buying silver mining shares.
- Buying silver flow companies.
- Buying silver mutual funds and ETFs.
Benefits of investing in silver
The price of silver has remained relatively stable throughout history. But, like the price of gold, it tends to rise in times of economic or financial instability. This happened in the 1970s and during the financial crash of 2008. It seems to be happening again now with the coronavirus pandemic.
Silver is highly speculative and usually only grows when traditional investments, such as stocks and bonds fall. For this reason, we consider it an alternative (or speculative) investment to offset losses from traditional assets in times of financial turmoil.
One thing is for sure; silver should not be considered a long-term growth asset, such as being held in a retirement portfolio. Although it tends to do well when stocks are down, the long-term outlook for silver does not align well with long-term investments.
silver investment risks
The main risk of investing in silver is price instability. The price of silver can rise significantly, but it reverses course just as quickly.
If you buy silver over a long price period – which, unfortunately, is what the average investor does – you may be preparing for a significant drop. However, another risk factor is that, unlike gold, the price of silver is heavily influenced by industrial demand. Silver prices may underperform if industrial demand is suppressed by the same factors that cause instability in financial markets.
Silver is undoubtedly one of the most difficult commodities to invest. It’s hard to know when to buy and when to sell. Most importantly, silver is not an investment type that provides a reliable estimate of capital or even income such as interest or dividends.
The bottom line
If you choose to invest in silver, the best way is probably through silver ETFs. This allows you to participate in the metal itself at low fees, the ability to buy and sell quickly and can be easily managed by low-fee brokers such as Axia Investments.