How to Invest in Silver

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Contributor, Benzinga
August 11, 2023

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

Silver investment is 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 with sentimental allure — a large part of its supply goes into industrial use in solar energy, medicine and electronics.

4 Best Ways to Invest in Silver

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 because of 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.

You can also look to Augusta Precious Metals (APM) to purchase physical silver. APM delivers physical silver to your home in such a secure fashion that drivers don’t even know what they’re delivering. You can begin a collection of physical silver bullion or coins, hedge against risk and plan for the future. Additionally, you can visit APM if you would like to set up a Gold or Silver Self-Directed IRA as part of your overall retirement plan.

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 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 silver price 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 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, with a size of 2,500 troy ounces.

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 (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 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 pay commissions and fees for trading ETFs.

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.

Safe Haven Status

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. The VIX, or fear index, trades higher in case of a stock market decline. You can also invest in major currency pairs ETFs or the U.S. Dollar Index ETF.

Frequently Asked Questions

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.

Q

How is the price of silver determined?

A

The market price of silver is determined by factors such as supply and demand, economic indicators, investor sentiment and geopolitical events. Supply and demand, economic indicators and investor sentiment all influence the market price, while geopolitical events can also impact it. Ultimately, the price of silver is determined through market forces.

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