There is no doubt about the value of silver metal but despite its high value it’s not wise to invest in it. One of the main reasons is the large supply of silver. Unlike gold, silver has a large supply therefore it won’t be able to hold the high price. Moreover, the silver investing market is too small and the number of people investing in silver is also small. So, unless there is a surprising demand for silver outside of investment purposes, there will be a huge risk in investing in silver.
- Silver is a precious metal with the symbol Ag and atomic number 47
- There are many ways you can invest in Silver like Bars, Coins, Exchange-Traded Products, etc.
- Silver is sensitive to recession and it is one of the biggest risks of investing in silver
- There are chances of replacing silver with other metals, this is what Silver is vulnerable to technological shifts
Types Of Silver Investment
There are many ways you can invest in silver. Some popular silver investment types are –
1. Bars: This is the most common way people can invest in silver. People can buy silver bullion bars. This type of bar is flat and rectangular in shape. You can easily store the silvers bar at home or a bank in a safe deposit box.
2. Coins: The silver coin is another convenient silver investment type. People can buy silver coins and store them in their houses. There are two types of silver coins available fine or junk silver coins. When buying silver coins make sure you buy a new and fine silver coin because junk silver coins are older coins and the percentage of silver is lower.
3. Exchange-Traded Products: Here, the investors have access to the silver markets and they don’t have to win physical bars. Many people prefer this type of silver investing because it is hassle-free and you don’t have to worry about storing the silver.
4. Certificates: People can buy a Silver certificate of ownership instead of a silver bar. It is also a convenient investment type because using the Silver certificate of ownership people can continue to trade in the market without having to transfer actual physical silver.
5. Mining Companies: This is an indirect investment in silver because you won’t directly deal in silver. Here you will be dealing with the shares of silver mining companies. It’s like investing in the stock market.
Silver Investment Risk Factors
Every investment has risk and silver investment is not an exception. There are some risk factors available in Silver investment. They are –
1. Sensitive To Recession: One of the main risks of investing in silver is that the price of silver is uncertain. Usually, the price of silver depends on industrial growth. So, if there is an economic slowdown then the price of silver will drop significantly. In fact, the value of silver largely depends on its demand. If the demand is high then the price of silver is also high. If the demand is low then the price of silver is also low.
2. Vulnerable To Technology Shifts: There are chances of replacing silver with other metals. Or, if they use of silver declines then it also hurts the price. For example, the decline of photographic film had a huge impact on the silver price.
3. Limited Income: Silver doesn’t offer any interest like a bond, or dividend like a stock. So, the income is limited to Silver. You can only make a profit if the price of silver increases than the buying price.
4. Unpredictable Rise In Price: Silver has worth in various categories; therefore its price can fluctuate wildly. So, you might mind it very difficult to invest in Silver. In fact, if you are a beginner investor then you might not be able to find the right point of investment for silver and end up buying silver at a high price.
Reasons Why Silver Is A Bad Investment
There are two groups of people available when it comes to silver investment. One group thinks that silver investment is good while the other group thinks that silver investment is bad. But, what are the reasons people consider silver investment is bad? Well, if you are also wondering about the same question and looking for an answer then below are some legitimate reasons people think silver is a bad investment.
1. Price Fluctuation
This is not a surprising fact that precious metals are volatile and the price can fluctuate wildly. So it is a 50-50 chance that the result might work in your favor or against. Investing in a precious metal can be hindered by emotional investing. Therefore, you have to be more careful while investing in silver and try to make sure that you buy at a low price and then sell at a high price to make some profit.
2. Buy Fake Silver
One of the major problems with investing in silver is there are huge fake silver available and not many people have the skill to differentiate a fake and genuine silver. So, many people end up investing in fake silver and gain huge losses. Moreover, not every silver dealer is honest. Therefore, it is much harder to find the right dealer and buy genuine silver.
3. The Effect of Deflationary Events
Silver investment is a fragile investment because precious metal like gold and silver has a positive relationship with implied volatility. If the value of each dollar goes down (inflation) then the value of silver will increase. On the contrary; if the value of each dollar goes up (deflation) then the value of silver will decrease. Therefore, inflation might be good but it needs to be balanced. Silver is oppositely correlated to inflation so deflation will hurt your investment very badly. Moreover, we can’t control inflation or deflation so investing in silver to make a profit totally depends on fate.
4. Storage Fees
Most of the silver investor considers buying silver bars as the safest way of investing in silver. Well, it might be a safe investment type but definitely not a convenient one. One of the major problems of buying silver bars is the storage problem. If you buy lots of silver bars then you will need huge storage space. Moreover; the security of the bars is also a big concern for the investors. One solution is renting a safe or a safe deposit box at a bank. But, it will cost you money because renting a safe box can cost you from $20 to $200 per year.
5. Chance Of Loss, Theft, Or Damage
Silver is a physical item, so there is a chance of losing the silver bar. Moreover, there is also potential for someone to steal it and with it, you lose your investment. Apart from that, the silver bar might get damaged, it’s also a possibility. So it’s clear that there are many risks involved in silver investment.
6. No Price per Ounce
Silver is a commodity therefore, there is no fixed price available per ounce. Moreover, you can’t research the price of silver based on income, expenses, and how much profit it can generate. It means, silver’s price is only influenced by outside events. Therefore, when you are investing in silver, you have to depend on many factors that you can’t control.
7. Value Can Change Based On Fear
In the precious metals market, fear is considered the biggest enemy for investors. According to many experienced investors, fear can dramatically change the price of silver which is sometimes completely illogical. Because of fear people can sell their silver to protect the investment or invest more in silver to protect the money. A prime example of fear in silver investment is COVID – 19 situation. In this pandemic, the price of silver dropped along with the total silver market. People were badly in need of money therefore they liquidated stocks and holdings.
8. Doesn’t Pay Dividend
If you invest in physical silvers then you won’t get any dividend. This is a very big drawback of silver investment. This is because; sometimes investment that is solely relying on the increased price can dismal the appeal of investing. So, it means if you invest in silver then you only have one income stream and that is selling the silvers if their price is higher than your buying price. Therefore, if you are planning on investing your retirement money then the silver investment is not the right option.
9. Invest In Right Time
Unlike any other business or investment, you only have one way to make a profit from silver investment and that is buying the silver at the right time! So, you have to look for the right top and bottom prices for buying or selling opportunities. There is no way you can predict the right time to buy and sell the silver which makes this investment even worse.
Finally, the silver investment might not be as bad as it looks but certainly, there are some major drawbacks to silver investing. Therefore, if you want to invest in silver then first you should address the risk factors of this investment and then decide whether it is a good idea for you to invest in silver.
Last Updated on October 22, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.