o3 BLOG | Investing
How to Invest in Silver — Growing Demand in EV
How to invest in Silver — Silver is a precious metal that investors often group among other commodities such as gold, platinum, and palladium. The white metal is prized for its use in many applications, from jewellery and silverware to industrial and medical equipment. Due to its excellent conductivity, it is the preferred metal for anything electrical, such as circuit boards, switches, televisions, smartphones, and appliances.
Investing in Gold and Silver
Investing in gold and silver as well as other precious metals is the usual go-to as an alternative to standard assets such as stocks and bonds. Federal Reserves resort to printing more money during economic and political uncertainty, driving many investors to turn to silver to hedge risks or invest more defensively. Over the long term, the demand for silver has been consistent throughout the years, and like gold, it is an effective hedge against inflation and falling markets.
The Gold-Silver Ratio and Its Importance for Investors
Investors following the gold and silver markets are unlikely to go long without reading about the gold-silver ratio. The gold-silver ratio demonstrates the price relationship of gold and silver and how many ounces of silver are needed to equal the value of one ounce of gold. For example, if gold costs $1,000 per ounce and silver costs $20 per ounce, the gold-silver ratio is 50:1. The technique of trading the gold-silver ratio is common among gold and silver investors. Hedging a long position in one metal with a short position in the other is a common way investors trade using the ratio.
Why is Silver a Bad Investment?
Silver is actually not a bad investment at all! While gold will always be more valuable, silver investing still offers a lot of possibilities. Though it rarely receives the same level of public attention as gold prices, silver prices tend to rise in lockstep with gold prices but with more significant momentum. Silver is also an excellent supplemental investment when paired with gold. Given the substantially lower cost per ounce, it is more economical and easier to buy larger quantities for investors who want physical bullion. While silver investment products have a relatively low entry-point, they fluctuate more than gold and tend to rise in response to investor demand vs market conditions.
Silver Mining Industry
The majority of silver is extracted from ores and is a byproduct of manufacturing gold, copper, lead, and zinc. When it comes to annual supply, primary silver output is the exception rather than the rule. Only about 28% of output comes from primary silver mining, while the remaining 72% comes from byproduct mining ventures.
Silver’s modern-day all-time high was $50.36 per ounce in 1980 when the Hunt Brothers attempted to corner the market. However, the metal’s price plummeted after they missed a margin call on March 27, 1980. Investors now refer to that day as “Silver Thursday.” After years of low pricing, silver reached a somewhat lower peak of $49.82 per ounce in 2011, when gold was at $1800. Silver saw its most recent high in February 2021, when it reached $30.35 per ounce. Since then, silver has experienced lower highs and lower lows, but remained around $20 during the second half of October, 2021.
Silver mining in South America has gained the attention of many investors. Peru’s mining industry, for example, is a crucial part of its economic growth, contributing to 10% of its GDP and 60% of its exports, making minerals the country’s top export industry. Peru is the largest producer of silver in South America and the second-largest producer of silver in the world.
While silver bullion prices fluctuate, silver miners tend to outperform the metal’s price during rallies. Investors draw their attention to precious metals as inflation hits an 18 year high in Canada, along with rising concerns surrounding government debts south of the border. While gold is the best safe-haven asset, it is also wise for investors to include silver products as part of a diversified portfolio.
5 Ways to Invest in Silver
While there is no one-size-fits-all when it comes to the best way to invest in silver, this list can help point you in the right direction.
1.) Investing in Silver Coins and Bullion
Whether in coins or bullion, physical silver is a tangible asset that you can keep in your possession and sell or liquidate if necessary. You can easily buy silver bars from a bank or a precious metals dealer. American silver coins minted before 1964 are approximately 90% silver, and their value reflects their silver content. If the price of silver rises, you can profit from selling your silver coins and bullion. Unlike stocks, this method of investing does not provide cash flow.
Keep in mind that when you buy collectible silver coins, you spend more because their price implies that they are limited collector’s items and are not reflective of the actual silver content.
2.) Silver Futures Contracts
Silver futures are a straightforward way to speculate on the growing or decreasing price of silver without the hassles of owning physical silver. Because of the significant degree of leverage available in futures contracts, silver futures are a popular investment vehicle among seasoned investors. Futures contracts allow buyers to speculate on the price of a commodity or other securities in the future. In other words, you can acquire a relatively substantial position in the silver market at a lower cost. If silver futures move in the right direction, you can gain a significant profit.
3.) Silver-Related Exchange-Traded Funds (ETFs)
If you don’t want to hold physical silver but want a lower-risk alternative to futures, you can invest in silver through an exchange-traded fund (ETF). You’ll benefit from the potential gain of holding silver if the price rises, but without the drawback of storing bullion. An ETF that invests in genuine silver will deliver the return on silver prices less the ETF’s expense ratio.
ETFs have another advantage. You will be able to sell your silver at market value, and the funds are highly liquid. As a result, you’ll be able to sell your funds at the best possible price, and you’ll be able to do it on any day the stock market is open.
4.) Silver Mining Stocks
Just like gold mining stocks, you can also profit from a growing silver market by investing in silver mining companies. Investors can gain from owning silver mining stocks in two ways. First, if the price of silver rises, so should the company’s earnings. Typically, the profits of silver miners will climb faster than the price of silver. Second, if a silver exploration company moves into production, the stock will inevitably increase, boosting earnings. That’s an additional technique to win with silver, in addition to simply betting on the price.
5.) ETFs That Invest in Silver Mining
If you don’t want to research silver miners but still want the benefits of owning a mining company, you can invest in silver through an ETF that holds silver miners. ETFs that hold silver mining shares will give you exposure without having to purchase individual stocks.
Why is silver a good investment?
Silver is popular among investors for many of the same reasons that gold and other precious metals are. We’ve listed a few of the top benefits:
Silver and Silver mining stocks have outperformed widely recognized asset groups, especially during times of financial uncertainty.
Silver Holds its Value:
Silver can keep its worth and even increase in value over time, allowing investors to profit over the long term.
Like gold, silver is a relatively liquid market compared to other assets.
Generally Does Not Move With Other Markets:
One of silver’s appeals is that it is less associated with other markets, such as stocks, making it a good hedge against such markets.
High Demand for Silver in Many Industries:
Silver is used in many applications, and aside from its monetary value, the bulk of modern electrical equipment contains silver. Silver’s versatile industrial application indicates its strong demand, which will only increase and make it a valuable asset in our lives.
Electric Vehicles and Renewable Energy:
With the rise of electric vehicles and the need for renewable energy comes a strong demand for silver. Silver is not only used in circuitry, but also in lithium ion batters. Also, silver is prized for its use in photovoltaic cells (solar panels) — silver’s contribution to the shift to solar energy and other forms of renewable energy can make a significant impact on the current climate crisis.
Because silver’s association with other markets is minimal, it can diversify a portfolio, lowering risks while potentially enhancing returns.
Investing in Gold and Silver — Bottom Line
Ultimately, the choice to invest in silver is yours. However, investing in silver stocks is worth exploring and is an excellent complementary investment to gold. The demand for silver will continue to grow and with new technology in the mining space, silver mining stocks can offer significant rewards if you act quickly.
To learn more about precious metals investing and adding long-term value to your portfolio, contact our Investor Relations team today.
To learn how O3 Mining can add long-term value to your portfolio, contact us today.
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