How to Invest in Silver as an Inflation Hedge

Silver is popular with investors as one of the most traded precious metals on the market. The metal has several fundamental factors in its favor, including a combination of reduced supply and strong demand. Plus, interest in silver is strong amid rising demand for nearly all commodities, inflation worries and a rebounding global economy.

Silver and other hard assets are often considered good stores of value in inflationary periods — and silver’s dual nature as both a precious metal and an industrial metal makes it unique. Aside from coins and jewelry, the metal is used in solar panels, electric vehicles, LED lighting, medical devices and other products.

If you’re thinking of investing in silver, here are a few points to keep in mind:

— How to invest in silver.

— Silver stocks and ETFs.

— What makes silver special as an investment.

— Is investing in silver a good idea?

How to Invest in Silver

There are many ways to buy silver. Coins and bars are the most traditional way, but some exchange-traded funds, or ETFs, are 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 it 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 Inc. (ticker: GROW), because of its lower price and the fact that it can act as both an investment and an industrial metal.

To find baseline silver prices, investors can 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.

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, 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 is pre-1965 U.S. currency that contains 90% silver, such as Mercury dimes. Investors can 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, because these products are simply silver poured into a mold. The larger the quantity of silver bullion, the cheaper the cost. This may leave room for counterfeiting the precious metal. That is why the industry advises purchasing physical silver in smaller amounts.

Bullion coins have a higher premium over bars because of the labor that goes into making blanks, stamping them, inspecting them and sealing them in a case. 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 says. That said, the IRS has strict requirements for how these assets are stored and the type of coins that are permitted — such as American Eagles and Maple Leafs. 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, investors should consider depository storage, Hanlon says.

How to Buy Silver Stocks and ETFs

Investors who want exposure to silver prices but don’t necessarily want to own the physical metal can buy silver ETFs. The biggest ETF by assets under management is the iShares Silver Trust (SLV), at nearly $13 billion.

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 Inc. (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 increases. After recent run-ups in prices, Day says, most global equities are expensive, but he likes Wheaton Precious Metals and Fortuna Silver Mines Inc. (FSM), especially for investors who don’t have any exposure to the gold and silver sector.

What Makes Silver Special as an Investment

Silver, like gold, can be viewed as a safe-harbor 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.

Also similar to gold, silver can be viewed as a hedge against inflation. In 2021, the U.S. economy experienced 7% inflation, and prices continue to climb in early 2022. Holding a commodity like silver can protect your wealth in the event of continued elevated inflation or currency devaluation and is a viable option for investors concerned about losing their purchasing power due to gradual increases in the prices of goods and services.

Unlike gold, which is largely used for investments and jewelry, silver straddles the investment world and the industrial sector. In terms of industrial demand, it’s used in solar panels, electrical switches, medical equipment and more.

Is Investing in Silver a Good Idea?

As with any investment, do your research and understand your risk tolerance before investing in silver.

Gold and silver are often compared to each other because both precious metals serve similar purposes in an investment portfolio and their prices tend to move together. However, historically, gold has been more expensive than silver. An ounce of gold is roughly $1,880, while 1 ounce of silver is only about $24.

The amount of silver that lays in the earth’s crust is plentiful and exceeds the supply of gold. Couple that with high gold demand, and that results in gold being a rarer and thus more valuable asset relative to silver. For investors, though, silver can seem like a more affordable precious metal alternative.

One characteristic of silver that may appear to be a drawback is that it is volatile. This is because the silver market is much smaller than the gold market, which subjects silver to more price swings compared with gold. Over the long run, silver price fluctuations should be less of a concern. But investors who decide to hold silver must be prepared for its short-term volatility.

In general, silver and commodities can offer portfolio diversification from equities and bonds. A good rule of thumb is to allocate about 5% of your portfolio to commodities overall, but this can vary depending on your long-term investing goals.

For investors who want to own physical metals, a popular strategy is dollar-cost averaging, which involves buying a set amount of a metal each month to help temper sometimes-volatile moves.

Taking a look at the broad economic backdrop, growth projections have declined and the Federal Reserve is expected to raise interest rates to manage the high rate of inflation. This is a recipe for stock market volatility throughout the year, making silver attractive now. Additionally, demand for silver is expected to rise in 2022 with the expansion of industrial, automotive and 5G applications.

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How to Invest in Silver as an Inflation Hedge originally appeared on

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