Is Silver a Good Investment in 2021?

Is Silver a Good Investment in 2021?

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When it comes to investing in precious metals, silver is often overlooked due to it’s more popular cousin, gold. That said, silver can be a great option to consider depending on your investing style and needs. In this article, we will cover the pros and cons of investing to determine is silver a good investment in 2021, as well as how to get started. Let’s begin!

Silver Historically

Throughout history, silver has been used as a form of currency, first as money itself, then as a material for minted coins. When the price of silver began to rise in the 1960’s, the cost of the silver in minted coins became higher than the value of the coins themselves, resulting in countries like Australia and the US removing silver from their coins altogether.

Following that, investors began to look at silver in a new light. In the 1970’s, a pair of billionaire brothers, Nelson and William Hunt, attempted to corner the silver market. This resulted in the all-time high silver spot price of $49 USD/per ounce in January 1980. That price didn’t last long, dropping by 50% in just four days. In 1997, Warren Buffet bought 3,500 tonnes of silver, which would be worth over $3 billion USD today. Prices rose at the start of 1998, but only by a small amount. Buffet went on to state that the eventual sale wasn’t overly profitable.

Prices once again increased following the economic crash of 2007-08, as confidence in the stock market and banks fell. This resulted in a second-time high spot price of $46.47 USD/ounce. Although prices fell again, a new normal was established in silver pricing which hadn’t occurred previously, and since March 2020, prices have only continued to trend up.

Gold vs. Silver

Gold and silver are often lumped together due to their similarities. Not only are they two of the most common precious metals to invest in, but they also have a history of weathering economic storms in a way that paper investments can’t.

While the price of gold has historically performed better than silver, silver’s upward trend is likely to continue that way. This is in part due to the current global demand required by technological advancements that gold isn’t facing.

The benefits of investing in silver

Low barrier to entry

Due to it’s low price (especially in comparison to gold), silver is an affordable option when it comes to investing in precious metals. On the day of writing this article, one ounce of gold could instead get you 67 ounces of silver! As silver often comes in smaller units than gold, it’s easier to sell off in chunks if need be.

Silver is a tangible asset

Stacking silver, which is the process of accumulating silver bullion, provides you with a physical store of value that can’t be diminished or defaulted on. With the threat of cyber attacks increasing each year, you can trust that your silver supply is safe from being hacked, stolen and erased (provided that your silver is stored safely). This is why many view silver as a safe haven asset.

The world’s silver supplies are falling

According to the CPM Silver Yearbook 2020, while half of the world’s mined silver has been recycled, the other half is now in landfill, never to be used again. Global stockpiles are also reaching record lows with only 3-weeks worth of silver being held by governments worldwide.

The sudden onset of covid-19 had a significant impact on silver mining in 2020, with mines around the world shutting down for months at a time, resulting in an overall decline in global output. Global output has been decreasing since it’s ten year high in 2016, which in turn has affected global supply, which reached a ten year low in 2020. 

Increased industrial demand

While silver is viewed by many as a metal used in jewellery making, it has become increasingly popular in the production of electronic goods like mobile phones and computer chips due to it’s high conductivity. Silver’s use in emerging fields such as solar energy and electric vehicles could result in an increased demand in the years to come.

…and the risks

Price instability

Having a smaller market than gold, as well as being driven by speculation and supply and demand, silver tends to be more volatile, with it’s biggest spikes resulting in sharp falls.

Returns on investment have been historically low

In comparison to other investments, whether they’re tangible or intangible, silver’s historical performance has been modest at best. Silver bullion doesn’t provide you with interest or dividends, meaning your only chance for monetary gain is to sell while prices are high. If you invested in the S&P 500 five years ago, your returns would be 105% in comparison to silver’s 10.5%.

Changes to industrial demand

Although the industrial use of silver can be a benefit to investment, it also means that the price of silver is prone to fall if that demand is suppressed. If the production of goods containing silver was to decrease at any point, the price of silver would decrease along with it. There’s also a chance that silver could be replaced by a better material in the long run.

How to start investing in Silver

There are two main methods of investing in silver – either directly or indirectly. Investing directly is the act of purchasing physical silver bullion, which you can then store in your own home (preferably in a safe), in a safety deposit box or in a third party vault. Depending on the third party vault, you can often purchase bullion from the same company, and their vaults are insured, providing peace of mind.

If the idea of your investment sitting idle and not “working” for you deters you from taking the plunge, perhaps investing indirectly is best for you. You can buy shares in a silver mining company, invest in silver EFTs or purchase silver futures/options.

So, is buying silver a good investment?

Determining if you should invest in silver is a personal decision that should be made after thorough research. That said, there are a number of factors that are working in silver’s benefit now and potentially in the years to come. Due to it’s affordability, silver is a great option for those that are looking to diversify their portfolios and be prepared for future economic downturns. At the very least, a silver bar makes for a nice decoration!

References

  1. https://blog.perthmint.com.au/2012/03/23/how-much-are-your-old-silver-coins-worth/
  2. https://investorjunkie.com/investing/how-to-invest-in-silver/
  3. https://goldsilver.com/blog/top-10-reasons-to-buy-silver/
  4. https://silverprice.org/silver-price-history.html
  5. https://sdbullion.com/blog/how-much-silver-gold-is-there
  6. https://www.gold.org/goldhub/data/demand-and-supply
  7. https://www.silverinstitute.org/wp-content/uploads/2021/04/World-Silver-Survey-2021.pdf
  8. https://www.finder.com.au/invest-in-silver

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