Why Buy Silver 10 Reasons To Invest In Silver
Jeff Clark, Senior Analyst, GoldSilver
Is silver a good investment? Why should someone buy it?
Its natural and even prudent for an investor to wonder if a particular asset is a good investment or not. Thats especially true for silver, since its such a small market and doesnt carry the same gravitas as gold.
But at this point in history, there are very compelling reasons to add physical silver to your portfolio . Here the top 10 reasons why every investor should buy some silver bullion
Put Gold & Silver In Your Ira
Most investors don’t know that you can actually put gold and silver into your retirement account. This is possible by doing a rollover of a 401 or IRA to a self-directed IRA.
This type of IRA allows you to manage your own investments, while also investing in different asset classes besides stocks. Many retirees are taking advantage of these types of accounts because of their ability to diversity their retirement portfolios.
Silver Performs Worse In Crashes
We mentioned previously how silver seems to perform much more in tandem with the economy as opposed to gold which rises in price during a crash. The simple reason for this is that silver is used abundantly in industry. Over half of the silver mined every year is utilized in industry.
When the economy collapses, factories often reduce their output or shut down entirely. As such, the demand for silver falls massively. This leads to silver often falling in price during a crash, despite many investors flocking to it as a safe asset.
Its properties as a conductor of heat as well as electricity, along with its reflective nature, make it ideal for many industries. Until a better alternative is found, silver will always be more volatile than gold.
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Silver’s Industrial Uses Make Gold The Hedge Of Choice
Gold and silver prices tend to move in the same direction, but gold is a better recession hedge.
More than half of the demand for silver is driven by its countless industrial uses. It’s widely used in electronics, automobiles, solar panels, medicine and manufacturing, to name a few.
Because it’s so vital to industrial activity, demand for silver tends to rise and fall with the overall economy. When production picks up, silver prices are likely to increase. If it slows, silver often tumbles.
Gold usually surges when stocks are down. From December 2007 to May 2009 — aka, the Great Recession — the S& P 500 fell 37%, but the price of gold rose by 24%.
Not only do investors drive up gold prices in a bear market, but the yellow metal is relatively insulated from slowdown in economic activity because industrial uses are so limited. In the long term, though, S& P 500 returns have historically crushed returns on gold.
Question #: How Much Do I Need To Make A Difference
I shorted the stock market in October 2008, when the S& P fell as much as 33% in one month.
It was great timing! Id bought shares in SDS , an ETF that rose twice as much as the S& P fell. It was a short-term trade, and I personally booked a profit of over 50% in three weeks.
You probably think I made a lot of money. But it made almost no difference to my overall portfolio!
Thats because I didnt buy enough shares relative to the size of my total assets. My position was too small to make any difference to my portfolioit was so small, in fact, that my net worth still ended the month lower.
I made the correct investment call. My timing was great. But my small position kept me from benefitting.
- You cant buy one Gold Eagle or one tube of Silver Maple Leafs and expect either to provide much benefit.
So how much will make a difference? Heres some solid, long-term research that can help answer the question
CPM Group conducted a long-term study into the ideal risk/reward ratio for gold in a portfolio. The research spans 53 years, and includes stocks and bonds.
The chart may look confusing, but basically the further to the right the greater the risk, and the higher on the chart the greater the return. Heres what it showed:
The research showed that the sweet spot for the percentage of gold in portfolio is 20%. On a long-term basis this provides the best balance between risk and reward.
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Difference #: Silver Is More Affordable Than Gold
This looks like an obvious statement because this is one of the first things you will notice when you look at the silver price.
Why silver is less expensive than gold?
Silver is less expensive, mainly because of its bigger supply: nearly 1.74 million metric tons of silver have been mined throughout history, compared with around 198,000 metric tons of gold, the World Gold Council says.
But silvers lower price actually comes with many of the same benefits you will get with a purchase of gold or other precious metals.
Here are some of the benefits silver has in common with gold:
- Just like gold, silver works as astore of value and is a hard asset that you can see and touch unlike some other forms of investment .
- Silver also hasno counterparty risk, which means that you dont depend on any third parties to hold your physical silver.
- Like gold, silver is money that cant be created out of thin air like many paper currencies. Oh, and by the way, history shows that silver has been used as money even more often than gold coins.
- Finally, silver has never been defaulted on. So if you own physical silver, you have no default risk, which is not the case for almost any other investment you can make.
What does it mean for an investor?
For these reasons then, buying silver offers several of golds key benefits but for a much lower and more affordable price.
Silver is roughly 60 times cheaper than gold, which makes it way easier to buy 1 kg of silver than 1 kg of gold.
Investing In Silver Bullion Coins
Coins certainly offer more interest than bars. There are many different gold and silver designs available, but if you want to make sure they are not subject to Capital Gains Tax , then you will need to choose coins that are British legal tender, with a UK face value. This means buying coins from the Royal Mint’s range: in silver, the Queen’s Beasts series, Lunar Series and Silver Britannias.
The Silver Queen’s Beasts coins are minted in a series of ten heraldic designs, in 2oz. or 10 oz. silver. The 2oz. coin has a face value of £5, whilst the 10 oz. has a face value of £10. The Silver Britannia from the Royal Mint has a face value of £2, but of course the market value of all these coins is much higher.
As prices for small amounts of silver say a 1oz. Silver Britannia are relatively small, you could even treat it as fiat currency, i.e. like banknotes but with the reassurance that it will have more buying power than paper money, if a government’s currency is devalued.
Remember that if you buy silver coins and keep them yourself, you will have to pay VAT on them. Some dealers will sell them to you as VAT-free, on the basis that they store your coins however, if you ever ask to have them delivered to you, the VAT will become payable.
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Gold And Silver Affordability
Gold and silver values change all the time, but generally speaking, silver is more affordable than gold by weight. As noted above, many factors impact the value of gold, but there are usually more factors that impact the value of silver. Technological innovations, like batteries and microcircuits, have created more demand for silver and pushed its value up. Growing markets for appliances and medical products, which are often dependent on silver, also impact silver values. If this demand was to decrease, the value of silver would likely fall.
Both gold and silver prices also rely on market sentiment and their status as stores of value. One way to look at the affordability of gold and silver is to consider the state of the economy in relation to the precious metal. When economies begin to struggle, the value of gold tends to rise. Thats because demand increases as investors turn away from paper assets that may be seeing increased volatility.
Gold Vs Silver: Inflation Hedge
Gold is often touted as an inflation hedge, helping to protect investors from rising inflation. So when markets get rough, many investors flee to gold to ride out the storm.
Gold is a safe haven asset, says Mahesh Agrawal, assistant director of specialized solutions at Acuity Knowledge Partners, a provider of business intelligence. High inflation creates market uncertainties and brings larger investments into gold to protect the value of money, he says. But he notes that the marriage between gold and inflation may sometimes break in the short term, as interest rates react to higher inflation, diverting investments to the debt market.
The correlation between silver and inflation is also high, says Agrawal, but not as solid as with gold.
Silver has natural traits that keep its value relatively steady amid inflation uncertainties, he says. During high inflation, industrial demand for silver wanes, largely offset by robust demand from the investment segment. When inflation is low, the situation reverses.
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The Verdict: Should You Invest In Silver Or Gold
As you can see, there are clear benefits and drawbacks to investing in both silver and gold. So, how do you make the decision? Which is better?
Consider your investment objectives, the amount of money you have to invest, and the amount of risk youre willing to take on the safer side of your asset allocation.
What Do We Mean By Inflation
Inflation is an increase in the prices of goods and services or a decrease in the currency’s value. It occurs when more money is circulating in an economy than there are goods to spend it on, thereby increasing demand for those goods. Prices rise because buyers can offer more money for fewer goods, but that’s not necessarily good news: It means your purchasing power has fallen. To understand how inflation works, let’s simplify things. In 1980, for example, a movie ticket cost on average $2.89. By 2019, the average price of a movie ticket had risen to $9.16. Another example of inflation is in the figure below.
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Best Time Of Year To Buy Gold And Silver
We calculated the average gain and loss for every day of the year since 1975 and put it in a chart. Heres what it shows.
You can see that on average, gold tends to surge during the first couple months of the year. The price cools down through the spring and summer, then takes off again in the fall.
This means that on a historical basis, the best times to buy gold are early January, March and early April, or from mid-June to early July.
You can also see the price does not historically revisit its prior-year low. The low of the year is indeed in Januarybut its the low of that year, not the previous year. Obviously, there were years when the gold price did fallbut there were also years it soared. Smoothing out all those surges and corrections and manias and selloffs, investors will get their best price at the very beginning of the year, or the year before.
We ran the same data for silver and heres what we found.
Its easy to see silvers higher volatility. What also sticks out is that historically, silver doesnt revisit its January lows. The only other best times to buy, on average, is in March or late June.
As with gold, youll notice silver typically doesnt come close to revisiting its prior year price . The historical data says that on average, investors will get their best price in early January or the prior year.
Investing In Gold Bullion Coins
British legal tender gold coins also include the Queens Beasts and Lunar series, Gold Standard, Royal Arms and Gold Sovereigns and Britannias.
Face value denominations range from £10 for the 1/10 th ounce Gold Britannia, to £100 for the 1oz. flagship version, for which you should expect to pay at least fifteen times its face value. With a wide choice of sizes, these coins represent a relatively affordable route into gold investment.
They are minted in limited numbers and many are quickly snapped up by savvy investors, so you may need to consider alternative coin ranges or years of issue, to create the investment you want. Remember that unlike other gold investments, these gold coins are VAT and CGT-free, and represent a reliable, easily stored and enjoyable basis for starting or building your investment strategy.
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Real Time Apps For Gold & Silver Investors
Gold Price Live gives users access to real-time data on gold in the form of charts and graphs. Users can also view historical prices to track how the precious metal has performed over time. Users may view the data on a monthly, half-yearly, and annual basis. Gold prices are also displayed in various currencies which makes it easy for users across the globe to use.
The OneGold Mobile app gives real-live data of gold prices globally. The app covers futures, commodities, and spot prices of gold. It also provides new features so that investors can get real-time information on the gold market.
Investing In Gold Vs Silver
While gold and silver are often mentioned interchangeably, the two seem to be parting ways in recent years. For example, the historic value ratio of gold to silver was 20:1 for centuries.
That is, one ounce of gold was worth 20 ounces of silver. More recently, with the price of gold trading at close to $1,500, and silver down around $16, the ratio has expanded to about 90:1.
Though silver may have seen its dollar price rise significantly in the past 20 years, its value relative to gold has declined substantially.
This may be due in part to silvers much lower price, making it less suitable as a store of value. And since there arent too many places in the world where silver is used as a medium of exchange, the monetary value of the metal isnt as firmly entrenched as it has been in the distant past.
In addition, while large amounts of gold are held by major central banks around the world, the same cant be said of silver. That doesnt mean silver isnt worth investing in.
However, in recent years its been primarily used for industrial purposes, not monetary. For that reason, its possible that silver will continue declining relative to gold even in an economic or financial crisis.
At this point in time at least, silver should be seen primarily as a speculation, while gold functions as the traditional safe haven monetary asset.
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Future Ev Market Demand
There is one new emerging market for silver industrial demand that could have a significant impact and that is the electric vehicle market. Right now, the electric vehicle market is still quite small, but it is set for dramatic growth in coming years. The trend is for most cars and large vehicles to move to a fully electric model in the near future and this will largely benefit silver demand, but not so much gold.
Almost every component in an EV requires some amount of silver, and demand from the EV sector is estimated to grow to over 90 million ounces of silver each year by 2025. This is almost 10% of the total silver market demand in a given year. Given there is currently a very tight supply of new silver coming from mines at the current price, the EV market could be enough to send silver into a consistent supply deficit over several years.
As we move towards a future focused on sustainability of the planet, silver will arguably play a much more important role than gold. A future which has electrical efficiency and net-zero emissions as major goal will likely require much more physical silver than todays current environment.
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Numismatic Vs Bullion Coins
If youre considering purchasing gold or silver bullion coins, youll need to understand the difference between numismatic and bullion coins.
The value of bullion coins is determined by the gold or silver content in the coin. But numismatic coins are more like artwork. Though they contain bullion, their primary value is determined by their rarity.
The older and more rare a coin is, the more valuable it will be. Put another way, numismatic coins dont function exactly like bullion coins.
They may rise in value along with rising gold prices, but their values tend to be subjective. Thats because the value of numismatic coins is determined by their mint state, which is the grading process used to value the coins.
Theres a bit of a problem with mint states however. The grading of a numismatic coin can range between 60 and 70, with a rating of MS70 offering the highest value.
But this is where subjectivity enters the equation. You may purchase a coin graded as MS65. But when you go to sell it, the buyer may determine it to be MS63.
That difference of two points can result in the loss of hundreds or thousands of dollars in the value of your coin. Numismatic coins may be of interest to you if youre a knowledgeable coin collector.
But if your primary purpose is to purchase gold or silver for the bullion value, numismatics are best avoided in favor of the bullion itself.
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