Investing in Silver: A Beginner’s Guide
If you are considering buying silver bars and coins, there are a few things you need to know first about one of the world’s most valuable and accessible precious metals.
When it comes to precious metals, gold and silver often go hand-in-hand.
While both are tangible assets, gold usually first comes to mind when talking about investment coins and bars or when looking for a hedge against inflation, and silver only as a close second.
But its large variety of unique industrial and technical applications, along with its more accessible price compared to its yellow cousin, have made silver an interesting metal to invest in for a growing number of savers and investors.
In this article we explain:
- What is silver
- Where silver is used
- What drives silver prices
- What silver products you can get
What is silver?
Silver is a lustrous, brilliant white metal that is extremely ductile and malleable. It is one of the main precious metals, along with gold, palladium, and platinum.
💡Did you know?
Silver is extremely shiny! Polished silver is the most reflective metal because it reflects 95% of the visible light spectrum. As a result, many mirrors are coated in it.
Peru, Bolivia, Mexico, China, Australia, Chile, Poland, and Serbia are home to the majority of the world's silver mines. Silver is rarely found in its pure form, but rather in alloys (a natural mix of metals), mineral deposits, or trace amounts in other ores.
Actually, one of the oldest ways of finding silver was in an alloy with gold, known as electrum, which was widely used in ancient times in jewelry, coins, or as an ornament on top of pyramids.
Where is silver used?
Of course silver is what is called an investment metal. It is used by savers and investors as a way to diversify their portfolio with a precious metal that has different properties and uses than gold.
One that is also often used as a short-term investment because of its higher volatility, as we’ll see in a minute.
As a very conducive metal, silver has many industrial uses and is an indispensable element in electric cars and electronic devices we use every day, from touch screens to microwave ovens and computer keyboards.
Let’s take a look at 3 major industries using silver:
🚗Electric cars: Silver is used in nearly every electrical connection in an electric vehicle. The auto industry consumes 55 million ounces of it each year.
⚡Solar energy: The photovoltaic, or solar energy, industry is rapidly adopting silver's light sensitivity. Photovoltaic cells convert sunlight into electricity by using silver as conductive ink.
💊Medicine: Silver has the most powerful antibacterial action of any chemical element while being the least toxic to animal cells. That’s why silver is widely used in creams, wound dressings, and as an antibiotic coating on medical devices.
What does it mean for investors?
Due to its exceptional characteristics as a precious metal, an industrial metal, and a green metal, silver can be an interesting investment for those who want to increase their exposure to precious metals.
What drives the price of silver?
When you ask yourself if it’s better to invest in gold or silver, there are few things that you need to know.
Investing in silver may come with a little bit of turbulence because the price of silver is much more volatile than that of gold.
That's why silver is sometimes referred to as "gold on steroids" or "gold with a little bit of a rocket attached," as Ole Hansen, Saxo Bank's head of commodity strategy, puts it.
This is in part due to the smaller size of the silver market compared to gold’s.
Here are the main factors driving the price of silver:
Industrial demand: because of its widespread industrial use compared to gold, silver is much more affected by its industrial demand. This means that growing silver industrial demand tends to make the price of silver go up, which is likely to happen as silver’s industrial demand from electric cars and solar power is expected to grow exponentially in the coming years.
Investor demand: much like with industries, demand for silver by investors can move silver prices up or down depending on if investors are looking to buy or sell physical silver.
The price of gold: The price of silver often tracks the price of gold. When gold demand goes up and pushes its price higher, silver tends to rise as well. On the other hand, when the gold price drops, the price of silver tends to fall too.
What does it mean for investors?
A change in one or more of these factors could be a good predictor of possible future silver price movements. So if you're looking to add silver to your investment portfolio, keeping an eye on these key drivers is always a good idea.
What silver products can you buy?
Now that you know the basics of silver, how it is used, and how its price is determined, it's time to look at the most popular silver products available.
Should you buy silver bars, coins or silver ETFs?
If you feel like adding some silver to your investment portfolio, there are two ways to do it:
- Buy silver bars and coins.
- Buy silver exchange-traded funds (ETF).
Because silver ETFs, like gold ETFs, have slightly different drivers, risks, benefits and specificities than physical silver bars and coins, they are best suited to more experienced investors.
You can read our article on gold ETFs if you want to learn more about precious metals ETFs.
For most beginner investors, physical products, such as bars and coins, are the most secure and direct way to buy silver. Let's take a look at what's available on the market.
Silver bars come in different shapes and sizes including 1 g, 5 g, and 100 g bars. Some minted bars can have an artistic design, like the famous Lady Fortuna range produced by MKS PAMP, a global bestseller among investors.
Here are some examples:
Silver is subject to VAT in almost every country.
You can buy VAT-free silver if you store it in a Swiss Free Port, a free economic zone where VAT doesn't apply.
Many silver investors start with coins as an often affordable way to enter the silver market.
If you want to invest in silver coins, you can buy legal tender coins issued by official mints, including the famous Krugerrand or Britannia silver coins.
In general, physical silver products tend to be less expensive than gold. One of the reasons for this is down to the scarcity of gold:
There is far less gold available in the world than there is silver, and their price difference is primarily due to supply and demand imbalances.
So, for example, if we magically discovered a slew of unknown new large gold ores next week, or if gold suddenly became more abundant than silver, gold's price would almost certainly drop, and silver could become the more expensive of the two.
Is Silver a good investment in 2022?
Of course, like with any other investment, it all depends on your goals, investment or savings strategy, and risk appetite. But, in general, there are a few reasons why silver could be an interesting investment:
- It's more accessible to small investors: silver is frequently the first choice for investors with a limited budget who want to begin investing in precious metals. Silver is roughly 60 times cheaper than gold, making 1 kg of silver much more affordable than 1 kg of gold.
- Silver can be a good diversifier for your portfolio, especially if it's used as a natural complement to gold holdings. But remember that silver is more volatile, which can mean bigger gains, but also bigger losses, so be sure to take your risk appetite into account.
- Finally, the fact that silver is a key component in green technologies is likely to boost demand for the metal and potentially lead to an upward trend in the price of silver in the near and not-so-near future!
Want to know more about investing in silver? Check our SPOTLIGHT: Is silver a good investment in 2022?
Prefer to stick with gold? Check our SPOTLIGHT: Is gold a good investment for 2022?
Interested in buying platinum? Read our Beginner’s Guide: Investing in Platinum.