Silver seems to play second fiddle to its precious metal counterpart gold. This leaves many investors wondering — is silver a good investment? From coins and jewelry to electric cars and solar panels to medical equipment, silver’s versatility makes it a strong contender in the commodities market. Thanks to its dual nature as both a precious metal and an industrial metal, silver is both a strong hedge against inflation and a strong store of value.
Investing in silver is possible through investing in the physical metal itself and derivatives that use the precious metal as the underlying asset. The best way to invest in silver will vary depending on which investment type can best be leveraged according to each individual’s fiscal goals. This guide will outline the best silver to invest in based on convenience and risk as well as silver’s investment vehicles.
How to Invest in Silver
As one of the most traded precious metals on the market, silver can be found in investment portfolios across the globalized market. Its multitude of applications makes it one of the most sought-after metals. With the disparity between supply and demand, silver has the potential to fetch a significant return on investment.
Before investing, interested buyers should be aware of silver’s current spot price. This is the price most dealers use to set their prices. Spot price refers to silver’s current market price — as a security, currency, or commodity — with immediate deliverability. It is the price at which the sellers and buyers value an asset right now. Most dealers use a spot price to set their bid, so investors should know that figure to ensure they're getting a fair price on their investment. It will also reveal any red flags for shady dealerships.
Let’s take a look at the main ways you can invest in silver in its more traditional physical forms and its derivative forms, like ETFs and mutual funds, stocks in silver miners as well as futures and options contracts.
Investing in Physical Silver
Investing in physical silver includes bullion bars and coins, rare, collectible coins, jewelry, and more. There are several aspects apart from spot price investors will want to consider before making their silver purchase:
Purity. In its purest form, silver is very soft. As a result, other metals like copper, zinc, or nickel are usually added to give it strength. Sterling silver has a purity of 92.5 percent. For investment jewelry, make sure the piece has a stamp indicating this percentage expressed as .925 or just 925. Bullion and coins on the other hand can come in a range of purity types. Prior to 1965, silver coins circulated from a national treasury or officially recognized mint contained 80% to 90% of the metal. These days, bullion, which includes ingots, bars, and silver coins circulated from a national treasury contains fine silver and has a purity of .999. Because of its fineness, silver bullion is too soft to use for purposes beyond its value on trade markets. When it comes to buying silver bullion, make sure you look for the stamp with a 0.999 purity mark.
Timing. Investors will want to time their silver investment when buying or selling for optimal returns. Checking spot prices to get a sense of market trends is one option to do this so you can decide when to throw your hat into the silver-gilded arena. The same applies for investors when they want to sell their silver. It’s better to sell with a plan of action in mind rather than succumbing to a quick sale during a period of market turmoil to ensure the full inherent value of your physical silver is received.
Safeguarding. Like all physical assets, silver is subject to the degradation caused by the elements. This means you’ll need to plan how you'll safeguard and insure your investment. For smaller collections, an at-home storage solution like a personal safe may provide adequate protection. For larger collections — quantities of more than 1,000 ounces — investors may want to consider storing their silver in a secure depository. Finally, because it is cheaper to produce silver in larger quantities, the precious metal is susceptible to counterfeiting. Per the industry advisory, investors may want to purchase physical silver in smaller amounts and, of course, to source from a reputable dealer.
Investing in Silver Bullion: Bars, Ingots, and Coins
Investing in silver bars — or ingots — is a more efficient way to invest in physical silver. It also comes with lower dealer premiums. This is because silver bars and ingots are produced by pouring fine silver with the highest purity into a mold. Bulk purchasing a larger quantity of silver bullion means getting a more cost-effective deal for the investor.
The process to produce bullion coins is more labor-intensive, resulting in higher dealer premiums. While bullion is simply poured over a cast, coins must be stamped, thoroughly inspected, and then sealed in a protective casing. The 1-ounce Silver American Eagle from the U.S. Mint and the 1-ounce Canadian Maple Leaf from the Royal Canadian Mint are two of the most recognizable silver coins with the most consistent premiums.
Note: for investors who want to leverage their silver coins investment using their tax-advantaged IRA account(s), the IRS has strict rules governing how these assets are stored and the type of coins that are permitted. Silver coins must be sent straight from the dealer to an approved custodial depository.
Purchasing bags of “junk” silver from a dealer containing pre-1965 coins, like Mercury dimes, is another method for investing in silver coins. With a purity of 90%, a $1,000 bag of silver dimes or quarters nets about 715 ounces of pure silver when melted. Although junk silver doesn’t fetch a premium value based on the total weight of the bag purchase, owners can boost their return on investment by selling off individual pieces.
Investing in Collectible Silver Coins
Numismatic coins serve a different investment purpose than bullion coins, and as a result, have a market value separate from bullion. Bullion coins are valued purely for their metal content, whereas collectors value numismatic coins based on rarity and condition. Their value is determined based on their socio-historical or cultural significance. When investing in rare silver coins, you’ll want to consider the metal content, rarity, grade (or condition), age, popularity, and mintmark.
Investing in Silver Jewelry
Silver jewelry, and similarly silver utensils, are sold as alloys of silver with a purity of 92.5%. A secondary hard metal, like copper or nickel, is added to fortify pure silver, which has a fineness that would otherwise make it too soft to maintain its shape. While the value of sterling silver is tied to the market value of pure silver, the overall value is reduced by 7.5% because of its lower purity. This means for your silver jewelry investment to be worthwhile, investors will want to purchase this commodity in high enough quantities.
Silver jewelry can be purchased from in-person and online dealers or other jewelers. Make sure you’re checking licensing and reviews to ensure that you are working with a reputable dealer. Pay attention to the purity stamp on any piece of jewelry you buy, which must read .925 to be considered sterling silver. Plated or "silver-plated" jewelry, coated in silver for appearance, is not sterling silver. Instead, it is usually a piece made of nickel, copper, or another metal with a silver coating that will eventually wear away. Check the condition of the piece you are buying and be aware of jeweler premium markups, which can increase anywhere from 20% to more than three times the precious metal’s raw value depending on where it was designed and manufactured.
Purchasing Stock in Silver Miners
Investors can leverage stock in silver miners based on the process of mining silver in a couple of ways. First, as the price of silver rises, company earnings should also increase, adding to your overall return on investment. Second, by raising silver production over time, miners can increase profits.
Many investors like to go with larger, more reputable company names as a risk management method. Some like to go with riskier junior miners for a potentially larger return on investment. Whichever investment route you take, investing in any individual stock inherently comes with a higher risk. Be sure to conduct a thorough fundamental analysis of the company you want to invest with to hedge your investment. Keep in mind that silver mining stocks can be vulnerable to volatility as their profits depend on the fluctuating price of silver.
Silver miner ETFs are a type of pooled security that can help investors manage their risk when it comes to investing in silver miner stocks. The collective security provided by an ETF decreases the risk of investing in an individual stock through built-in diversification. These are the silver miner ETFs to look into according to ETF Database:
- Global X Silver Miners ETF (SIL)
- iShares MSCI Global Silver Miners ETF (SLVP)
- ETFMG Prime Junior Silver Miners ETF (SILJ)
Investing in Silver ETFs and Mutual Funds
Silver ETFs and mutual funds are pooled investment securities offered on the commodities market wherein actual silver serves as the underlying asset. The silver or silver-related derivative products, like Exchange Traded Commodity Derivatives (ETCDs), must guarantee a 95% backing by the underlying asset.
These options offer more risk management by providing investors with greater diversification. Greater diversification acts as a hedge against market volatility. Long-term stability, higher liquidity, and a lack of a physical storage option are a few reasons why investing in silver ETFs can be a more convenient trading option compared to physical silver.
Instead of a secure depository, a silver ETF is kept with a third-party custodian who must be compliant with IRS regulations and pass a statutory auditing process. Silver ETFs can be passively or actively managed using index funds that track the price of silver in the market. The two main ETFs owning physical silver are iShares Silver Trust (SLV) and the Aberdeen Standard Physical Silver Shares ETF (SIVR).
Investing in Silver Futures and Options Contracts
Futures are another type of derivative investment that use silver as the underlying asset. Futures contracts work by locking in the desired spot price of a commodity set for a future date. This allows investors to hedge their portfolios against market volatility caused by fluctuations in supply and demand. Futures contracts appeal to investors because they do not require a substantial amount of startup capital. There is a high risk, high return ratio for investors who choose to wager on the rising or falling price of silver. Strategically savvy investors have the potential to gain a generous return on investment. Conversely, the drawback is that you could lose your investment just as easily.
For speculative investors who can stomach more risk and enough bandwidth to actively monitor their investment, options provide another silver-backed alternative asset class. Options contract-buyers can buy or sell a security at a chosen price at some point in the future, but they are under no obligation to do so. However, options investors have the flexibility to sell the underlying asset in the future at a predetermined price.
Here are some key takeaways investors will want to consider before investing in futures and options:
- They are highly liquid, making them convenient to trade. This convenience means trading can be frequent and optimized.
- They require active monitoring. In some cases, online brokerages may offer futures and options trading.
- Novice investors will need to familiarize themselves with market trends before throwing their hat in the ring. Fundamental and technical analysis skills should also be developed.
- Celebrate your wins; anticipate potential losses. If the market moves against what you put in the pot, your broker will close out your position and you’ll be stuck with a loss.
The U.S. Gold Bureau: Your Reputable, Licensed Dealer
Investors need a precious metals dealer that brings integrity, trust, and professional expertise to the investment acquisition process. Since 2003, Precious Metals Specialists at the U.S. Gold Bureau have continually raised the bar on what customers grow to expect from their investing experience. We provide our customers with stellar customer service, offering investors a variety of high-quality, investment-grade, and bullion precious metals products.
As bulk purchasers of numismatic coins and bullion approved by the U.S. Mint, we can guarantee the origin, authenticity, purity, and quality of your silver investment. We also provide investors with a secure storage option through the Texas Bullion Depository — the only state-administered precious metals storage facility in the country. Contact us today for more information on how to get started with investing in silver.