As commodity prices rise across the board, silver will likely benefit from greater interest.
The gray metal has several fundamental factors in its favor, including a combination of reduced supply and strong demand. Global silver supply is down after companies shut mines to contain the coronavirus, says Peter Thomas, senior vice president of Zaner Precious Metals. Supply fell at a time of heightened investor demand for precious metals, a scenario that continues into this year.
“It’s a perfect storm,” Thomas says.
Silver’s industrial demand waned in 2020 when the global economy sputtered, yet investment demand more than made up for the dip in industrial use. Last year, silver exchange-traded funds saw record inflows, according to a research note by consultancy Metals Focus, rising to more than one billion ounces for the first time. Sales of physical coins and bars rose 8% to a four-year high, according to a report from the Silver Institute.
Negative real interest rates and yields — when the inflation rate exceeds the benchmark interest rate — drove investors to precious metals, the Metals Focus research note said, as investors grew concerned about fiscal stimulus increasing government debts.
Strong silver interest comes at a time of rising demand for nearly all commodities as the global economy rebounds and investors worry about potential inflation. Hard assets such as silver are often considered good stores of value in inflationary periods — and it’s unique because of its dual nature as both a precious metal and an industrial metal. Aside from coins and jewelry, the metal is used in solar panels, electric vehicles, medical devices and other products.
There are many ways to buy silver. Coins and bars are the most traditional way, but there are also ETFs backed by physical silver, or investors can buy ETFs or mutual funds that hold mining stocks.
Silver is sometimes called the “poor man’s gold,” but investing in silver isn’t just a cheap gold proxy. Silver is about 1.5 times more volatile than gold, says Frank Holmes, CEO and chief investment officer of U.S. Global Investors (ticker: GROW), because of its lower price and the fact that it can act as both an investment and an industrial metal.
If you’re thinking of investing in silver, here are a few points to keep in mind:
— How to invest in silver.
— How to buy silver stocks and ETFs.
— Silver has multiple uses.
— Is silver a good investment?
How to Invest in Silver
Investing in silver coins and bars is the traditional way to own silver.
To find baseline silver prices, Thomas says investors should look at the London Silver Fix. This price is updated twice daily and is carried on most precious metals dealers’ websites. Dealers use that price to set their bid and offer prices on physical metals.
Thomas says metals websites such as Golden State Mint or Upstate Coin show the premiums that dealers put on physical silver to deliver. Buyers can subtract the price of the London Silver Fix from the dealer price to find transparent pricing.
The easiest way to buy silver coins or bars is online through reputable dealers, says Terry Hanlon, president of Dillon Gage Metals, a metals trading firm in Dallas.
A good sign is if the dealer is a member of metals industry groups such as the Industry Council for Tangible Assets or Professional Numismatists Guild. When researching prices, Hanlon says you should check a few dealers to get a sense of prevailing prices, as most dealers should be competitive with their buy or sell offers.
Silver dealers also sell bags of junk silver, which are pre-1965 U.S. currency that contains 90% silver, such as Mercury dimes. Investors can buy bags of junk silver in quantities of $100 or $1,000 in face value, according to Asset Strategies International, which notes that a $1,000 bag of silver dimes or quarters nets about 715 ounces of pure silver when melted.
While buyers of junk silver don’t get much value for the total weight of the bag, it’s easily divisible since owners can sell off individual pieces.
When it comes to pricing, bullion bars have the least amount of dealer premium, Thomas says, because these products are simply silver poured into a mold. “It’s not really labor intense,” he says.
Bullion coins have a higher premium over bars because of the labor that goes into making blanks, stamping them, inspecting and sealing them in a case, Thomas says. The most popular bullion coins with the most consistent premiums are the 1-ounce Silver American Eagle from the U.S. Mint and the 1-ounce Canadian Maple Leaf from the Royal Canadian Mint.
Silver can be included in individual retirement accounts, or IRAs, Hanlon and Thomas say. That said, the IRS has strict requirements on how these assets are stored and the type of coins — American Eagles and Maple Leafs are permitted. Silver coins must be sent straight from the dealer to an approved custodial depository.
Hanlon says most investors focus on bullion bars and coins, while numismatic coins are for collectors. Numismatic coins have a market value separate from bullion, he adds. For example, when the U.S. Mint offered a commemorative 2019 proof silver dollar to celebrate the 50th anniversary of Apollo 11’s moon landing, those coins were sold at a high premium over the silver bullion price, he says.
Physical bullion can be stored in a home safe, but for quantities of more than 1,000 ounces, which weighs about 70 pounds, investors should consider depository storage, Hanlon and Thomas say.
How to Buy Silver Stocks and ETFs
Investors who want exposure to silver prices but don’t necessarily want to own physical metal can buy silver ETFs. The biggest ETF by assets under management is the iShares Silver Trust ( SLV), at nearly $15 billion. Investors can buy silver stocks and ETFs through a brokerage and sometimes directly from a company.
Adrian Day, chairman and CEO of Adrian Day Asset Management, prefers to buy individual silver miner stocks versus a mining company ETF because there are few pure-play silver miners left. He points out that SSR Mining ( SSRM) and Wheaton Precious Metals Corp. ( WPM) changed their names because they were branching out to other metals.
Even so, he says, miners who have silver production in their portfolio will benefit from silver price rises. After recent run-ups in prices, Day says most global equities are expensive, but he likes Wheaton Precious Metals and Fortuna Silver ( FSM), especially for investors who don’t have any exposure to the gold and silver sector.
Just recently, Fortuna announced a friendly share bid for West African producer Roxgold, which he calls opportunistic and well-timed.
Silver Has Multiple Uses
Silver, like gold, can be viewed as a safe-haven investment during the end of a long bull run because it’s a hard asset and a store of value. It can also be viewed as an alternative currency to fiat currencies such as the U.S. dollar or euro.
Unlike gold, which is largely used for investments and jewelry, silver straddles both the investment world and the industrial sector. In terms of industrial demand, it’s used in solar panels, electrical switches, medical equipment and more.
About 70% of silver production is a byproduct of base metal mining, Day says.
Industrial use and supply affect silver’s value. It’s one of the reasons why silver production depends on the health of the economy and the industrial sector. Because silver is a byproduct, base metal miners are unlikely to ramp up production if silver demand suddenly spikes.
“This is why silver can have such dramatic moves because the supply doesn’t always respond to the price,” he says.
Thomas says silver will likely benefit from continued strong investment demand and growing industrial usage, especially in solar panels and electric vehicles.
Is Silver a Good Investment?
Like any investment, people should do their due diligence and understand their risk tolerance before investing in silver.
Silver prices can swing significantly more than traditional stocks and bonds. In general, silver and commodities can offer portfolio diversification from equities and bonds, and a good rule of thumb is to have about 5% of a total portfolio allocation to commodities overall.
For investors who want to own physical metals, Thomas says to buy silver regularly, which lets investors take advantage of dollar-cost averaging. Buying a set amount each month can help to temper silver’s sometimes-volatile moves.
Giles Coghlan, chief currency analyst at HYCM, says some of silver’s gains could be related to President Joe Biden taking office in November.
“This is connected to the Democratic leadership now firmly in place. Significantly, the silver market had one of the best runs in history during the last blue sweep back in early 2009,” Coghlan says. “At the time, silver rose by over 300%, and I would anticipate that it may show the same potential again, with the precious metal offering further appeal from its solar panel usage, which will prove to be another demand factor.”
Coghlan also suggests that silver could do better than gold if the Federal Reserve starts to modify its ultra-loose monetary policy, judging by the way gold ETFs fell in early May after U.S. Treasury Secretary Janet Yellen suggested that interest rates may need to rise.
“Investors should take note, and consider this a dry run for what will happen when the Fed announces bond tapering,” he says.
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Update 05/14/21: This article was published previously and has been updated with new information.