How to Invest in Silver

Like gold, silver is a precious metal many investors flock to during economic turmoil.

Silver prices tend to track gold’s upward trajectory when market uncertainty abounds. However, with silver’s rise in the high-tech industry, understanding how to invest in silver can be challenging, especially since the signals to buy and sell might not be as clear as with gold.

This guide will explain how to invest in silver and discuss its pros and cons.

Is Silver a Good Investment?

Once considered the poor man’s gold, silver shares many valuable features and market characteristics with gold.

Investors turn to silver during economic uncertainty. The shiny gray metal, once used as currency, is prized for its ability to store value and preserve wealth and purchasing power.

Silver has remained valuable against the U.S. dollar over time. As such, it can be a helpful hedge against inflation when the economy is running at full speed and the price of goods and services is rising.

After the 1979 oil crisis set off an economic recession, sent prices soaring and sapped consumer spending power, the price of silver climbed to more than $139 per ounce. It likely would have shot up in 2022 after the COVID-19 pandemic had it not been for monetary intervention by the U.S. Federal Reserve.

Among the precious metals, pure silver is in the greatest demand for industrial use because of its appearance, reflectivity, and thermal and electrical conductivity. It’s used in mirrors, electronic devices, and photography tech, among other things.

Silver has also historically had health care applications due to its antibacterial properties. It’s a requirement for many new technologies, such as solar panels, electric vehicles, and windmills.

This high industrial demand is expected to continue to support silver prices, but it also exposes silver investors to risks from typical business changes, such as economic slowdowns.

How to Invest in Silver

All investing requires careful research. But once you’re ready, there are many ways to invest in silver. Here are four common avenues.

Physical Silver

Owning physical silver, known as bullion, can be a good way to begin investing in silver since it offers a tangible asset. Physical silver can be purchased from reputable dealers of precious metals and banks in bars, coins, rounds, or junk silver.

You can buy bars in quantities ranging from one ounce to 100 ounces. Governments mint coins, which are considered legal tender.

Knowing the difference between silver bullion coins and numismatic silver coins is important. Silver prices drive the value of bullion coins, while numismatic coins get their value from their rarity.

Coins should also be distinguished from rounds, which are not legal tender and have a smaller premium above the spot price of silver.

Lastly, junk silver is a coin that was once in everyday circulation as currency but has limited value because of its lower purity or wear and tear.

Silver Futures or Options

You also can invest in silver futures, a contract that obligates a holder to buy or sell a specified amount of silver at a certain time and price. Investors often use futures to hedge portfolio risks by taking positions opposite the ones they have in a given commodity.

Futures trading is best left to experienced investors with advanced trading knowledge and often requires permission from a broker.

Leverage — holding a large contract with a small amount of capital, known as margin — is used in futures trading and can magnify your gains or losses. The risk is that a small change in the spot price of silver could result in a big win or a big loss.

Additional risk comes from rolling over contracts, selling a contract before it expires and buying one further out. New contracts are often more expensive.

Silver ETFs or Mutual Funds

Investing in silver exchange-traded or mutual funds can help you avoid the risks of holding a single silver mining stock or the costs associated with transporting, storing and insuring physical silver.

Mutual funds primarily invest in a group of companies that mine silver, so investors are not subject to the risks of a single company. Silver ETFs hold physical silver in a trust, and investors buy a share of that ownership without physically owning the silver.

The following are the best silver ETFs as rated by Benzinga:

• abrdn Physical Silver Shares ETF (NYSEARCA: SIVR)
• iShares Silver Trust (NYSEARCA: SLV)
• ProShares Ultra Silver (NYSEARCA: AGQ)
• Global X Silver Miners ETF (NYSEARCA: SIL)
• ProShares Ultrashort Silver (NYSEARCA: ZSL)

Any of these could be a solid option if you’re interested in learning how to invest in silver.

Silver Mining Stocks

You can invest directly in silver mining stocks. Owning shares of a silver mine offers the potential of a higher return than owning bullion. That’s because the margins of a mine widen faster than the fixed costs. Mines can also ramp up production to take advantage of silver price increases.

However, silver mines come with risks, such as global disturbances, environmental accidents, regulation, labor disputes, and currency fluctuations. Mines also have typical business risks, such as high capital costs, oversupplying the market, and potentially finding little or no silver.

Pros of Investing in Silver

Here are some of the possible advantages of investing in silver:

• Affordability
• Availability
• Potential haven during economic uncertainty
• No counterparty risks
• Low correlation to other assets

Holding silver can also hedge against inflation, and its demand for industrial uses is rising.

Cons of Investing in Silver

On the other hand, the downsides of investing in silver include:

• Price volatility
• Having to store physical silver
• No income while holding
• Capital gains taxes
• Research required
• Experience needed for trading futures

Selling your physical silver could prove more time-consuming than offloading a stock. Silver's speculative nature can also present the risk of prices dropping unexpectedly.

Should You Invest in Silver?

As a precious metal, silver can offer a versatile means of hedging against inflation. At the same time, its nature as a commodity and many applications could have benefits and drawbacks as businesses ebb and flow with the economy.

If you’re willing to do your homework, keeping a small percentage of your investment portfolio in silver — say, 5% or less — might help you take advantage of its perks and minimize your exposure to possible pitfalls.

Frequently Asked Questions