Is Silver a Good Investment?

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Contributor, Benzinga
August 15, 2023

Investors have historically turned to gold and silver as a hedge against inflation and investment losses in uncertain economic times. But silver also attracts heavy investor demand for a number of other reasons. For example, its spot price is often more affected by fluctuations in its supply and demand, so investors trade it when they see major events in the market like miner strikes.

Silver has the same attributes as other precious metals but possesses unique strengths and weaknesses that can motivate a different type of investor behavior. Take a closer look at Benzinga’s guide to see whether silver is a good investment for you.

Is Investing in Silver Risky?

There’s no such thing as a guaranteed investment. Any time you commit assets for an expected outcome, you enter a risk-reward situation. Even investments often considered extremely safe like bonds can be risky, as proven by the recent collapse of Silicon Valley Bank.

Many people believe that investing in silver is wise because it holds its value in financial hard times. However, 56% of the silver supply goes to industrial use, so it’s more volatile in down markets than gold. In a bearish silver market, investors generally regard silver as a hold investment, meaning you should hold onto it for its future growth potential.

Silver tends to hold its value during market lows and increases in value during bull markets. On the other hand, gold tends to hold its value during good times and increases in value during tough times.

But this doesn’t mean that silver is immune to a sell-off during a financial crisis. Here are the risk factors for investing in silver:

  • Demand for silver: Since silver is a top industrial commodity, it is vulnerable to the whims of demand.
  • Random price fluctuations: Global demand affects silver prices. It’s more difficult to keep track of world commerce than oversee local financial events. This could lead to surprise losses.
  • Supply of silver: A surplus of silver can put downward pressure on the price.
  • Inflation rates: When inflation goes up, the value of silver follows it.
  • Government policies: The U.S. Mint consumes a large percentage of the world’s silver supply. Changes in government policy could affect silver prices.

Silver is not as risky as other commodities, but its volatility is a factor. If you seriously consider a silver investment, read as much as you can about how to invest in silver.

Where to Invest in Silver

You can invest in silver in several ways. You can buy physical silver in the form of bars, coins, bullion, silverware and jewelry. Some dealers sell bags of junk silver.

The most practical and convenient way to invest in silver is to purchase silver-based securities. On the exchange, you can buy silver-related stocks, futures contracts and silver exchange-traded funds (ETFs).

Purchasing contracts for difference (CFDs) is a simple way to invest in silver. A CFD gives you the opportunity to benefit from a change in the price of the asset without assuming ownership of it. However, CFDs are sophisticated and risky. The leveraging aspect of these instruments can cause you to lose a lot of money in a hurry. Proceed with caution with CFDs.

Though traditional brokers still exist, online brokers offer you a better environment for researching, purchasing and tracking your silver investments. If you’re ready to look into online brokers, see Benzinga’s rundown of some of the best online brokers to consider for your possible silver investment.

Silver has some distinct advantages as a tradable investment:

Wealth Preservation

Silver is often considered a store of value and a hedge against economic uncertainties. During times of market volatility, economic downturns or currency devaluation, the value of silver tends to hold up well, helping investors preserve their wealth.

Affordability and Accessibility

Silver is more affordable than other precious metals like gold, making it accessible to a wider range of investors. Its lower price per ounce allows investors with various budget sizes to participate in precious metals investing.

Industrial Demand

Silver has a significant industrial demand, as it is used in various industries, including electronics, green technologies and medical equipment. This industrial demand provides fundamental support for silver prices and can contribute to long-term price stability.

Portfolio Diversification

Adding silver to an investment portfolio can enhance diversification. It often shows a lower correlation with traditional financial assets like stocks and bonds, which means that it can act as a counterbalance during market fluctuations, reducing overall portfolio risk.

Liquidity

Silver is a highly liquid asset, meaning it can be easily bought or sold in the market. This liquidity allows investors to convert their silver holdings into cash quickly, providing flexibility in responding to changing financial needs or investment opportunities.

Disadvantages of Silver Investments

Price Volatility

Silver prices can be highly volatile, experiencing significant fluctuations in short periods. Market forces, economic conditions and geopolitical events can influence silver's price movements. Such volatility may lead to potential losses for investors if they sell during downturns or panic-driven market reactions.

Industrial Demand Dependency

While industrial demand can support silver prices, it also means that the metal's value is sensitive to changes in economic conditions and industrial output. During economic slowdowns or reduced industrial activity, demand for silver may decline, impacting its price negatively.

Lack of Income Generation

Unlike some investments, such as dividend-paying stocks or bonds, silver does not generate income. Investors primarily rely on capital appreciation for potential returns. As a result, holding silver may not provide regular income to supplement living expenses or cover ongoing financial needs.

Is Silver Right for You?

Silver is like any other investment — there are no guarantees and it’s risky. An investment in silver can help you offset losses in a financial crisis.

Decide whether you are looking for a solid long-term investment with safeguarding features. If that’s your aim, silver may be right for you.

Identify your priorities and compare the services of Benzinga’s recommended online brokers. The right brokerage can help you diversify your investments today.

Frequently Asked Questions

Q

What are the risks of investing in silver?

A

Several of the risks include changes in supply and demand, government policies and inflation.

Q

What are the advantages of investing in silver?

A

Silver offers faster appreciation and affordability.

Q

How do I know a silver coin is authentic?

A

To determine the authenticity of a silver coin, one can check its weight, examine markings or engravings, use a magnet to test for magnetism, consult a coin expert or conduct research on the coin.