How to Invest in Silver

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Contributor, Benzinga
Updated: August 4, 2022

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Silver has traditionally been used as a protection against inflation, U.S. dollar depreciation, geopolitical risks and market turmoil. Investors usually kept it in their portfolios as insurance from such events.

It's similar to gold, but there are some differences: Silver has a lower price per ounce and is more volatile than gold. It's not just a shiny object: a large part of its supply goes into industrial use in solar energy, medicine, and electronics.

You can buy it using the following methods.

1. Buy physical silver.

You can get exposure to silver with jewelry, coins or bullion. To buy physical silver, you'll pay a premium over the spot price. The premium is higher for silver coins and jewelry than for silver bars due to the artistic value of jewelry and coins.

To get the best price for physical silver, it's a good idea to speak with more than one dealer. You don't have to do your business with only one silver dealer; you can diversify and lower your risk of getting a fake product. Choose a highly reputable dealer that has been around for a while to lower that risk. Most of the dealers have websites so you can check their offers online.

For example, you might try Lear Capital, which allows you to invest in coins and international-grade bullion, using state-of-the-art storage for every physical precious metal you purchase.

Silver bars come in different sizes, from 1 oz. to 1,000 oz., but the majority are between 1 and 100 oz. For larger bars, you will have to pay a smaller premium, but if you purchase a 1,000 oz. bar, you'll have to sell the whole thing when you decide you'd like to sell.

Owners of physical silver also have to worry about storage. You can store it at home, but if you want less risk, it might be better to use a vault service or a bank deposit box.

2. Buy silver futures.

The size of a silver futures contract is 5,000 troy ounces, so when you buy it, you get an obligation to purchase that much silver at your purchase price on a specified date in the future.

Most brokers don't offer physical delivery of commodities. Instead, they use a cash settlement.

To buy a futures contract, you need to:

1. Deposit an initial margin.

2. After you make your purchase, your position is going to be marked to market, which means that every time silver declines your account would be debited for the loss. Every time it appreciates, your account would be credited for the gain. A decline in the price of silver of $1 would mean that you have lost $5,000. If your account drops below maintenance margin, you have to deposit additional cash.

Brokers charge commissions for trading futures contracts and they can vary, depending on the broker. There is also a spread between bid and ask and when liquidity is lower the spread can be a bit higher than usual. A futures contract is a levered instrument because the initial margin is lower than the value of the actual commodity you want to buy with a futures contract. If a standard silver futures contract is too big for you, you can check E-mini silver futures contract, whose size is 2,500 troy ounces.

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3. Consider silver ETFs.

If you aren't comfortable with trading leveraged instruments, you might consider exchange-traded funds (ETFs) instead of futures. iShares Silver Trust (ETF) (NYSE: SLV) is an example of an ETF that reflects the performance of the price of silver. It owns silver futures contracts with different expiry, so its performance will not always reflect the spot price of silver or the front-month contract price.

Some of the ETFs might also have leverage, so you'll need to check the basic characteristics of the ETF before investing. You should also check the expense ratio of your ETF, which is a measure of its cost. Depending on the broker that you use, you might also have commissions and fees for trading ETFs.

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4. Trade silver stocks.

Silver miners can also give you exposure to silver. You can pick stocks of individual companies or you can buy ETFs that invest in the mining sector. If you don't know where to start, you can check Benzinga's Best Silver Stocks guide.

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Final Thoughts on Silver Investments

Although silver is considered a safe haven asset, it is not always the most profitable investment. After 2011, its price has been in a downtrend and it was not very rewarding to own silver. There are also other instruments that can be used as protection. VIX, or a fear index, trades higher in case of a market decline. You can also invest in major currency pairs ETFs or the U.S. Dollar Index ETF.

Frequently Asked Questions

Questions & Answers

Q
When is the right time to invest in silver?
A

The best time is when silver is coming off its lows and entering an uptrend.

Q
What is a good strategy to invest in silver?
A

The best approach is to buy silver through ETFs. It allows you to diversify and decrease risks.

Continue reading: BEST LITHIUM STOCKS

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