1. Introduction to silver
Silver, as any other precious metal, can be used as an investment. Actually, for more than four thousand years, silver has been used as a form of money and it provided value. So, what good silver investing advice do I have today? Read on and find out.
However, when the silver standard ended, silver has lost its role as a legal lender in most developed countries but some countries mint bullion and collector coins. One good example would be American Silver Eagle that has nominal face values.
In 2011, the global silver reserves were around 530,000 tonnes.
2. Price of silver
Like most investments, the price of silver is driven by the forces of supply and demand and speculation. If you would compare silver to gold, you would notice that silver is extremely volatile because of two things; market liquidity and demand fluctuations between industrial and store of value uses.
From September 2005, the price of silver has risen fairly steeply being around at $7 per troy ounce and it reached $14 per ozt. for the first time by late April 2006.
On the other hand, the price of silver spiraled down in October 2008 by 58%, along with other commodities, mainly due to the effects of the credit crunch.
3. Why does the price of silver change?
3. 1. Because of large traders/influencers/investors
Comparing the silver and the gold market, the silver market is much smaller in value than the gold market. For example, the London silver bullion market turns over 18 times less money that gold. Since silver has physical demand od $15.2 billion per year, it is possible for a larger trader or an investor to influence the price of silver positively or negatively.
Here are some examples:
There was a famous attempt to corner the market in 1979 by the Hunt brothers who have accumulated over 100 million troy ounces of silver causing the price to go from $6 to $48/ozt.
Also, in 1997, Warren Buffet purchased 130 million troy ounces of silver at approximately $4.50 per troy ounce. And on May 6, 2006, Buffet said to his shareholders that his company no longer held any silver whatsoever.
Moreover, in April 2006, iShares launched a silver ETF that is called iShares Silver trust and it is traded at Wallstreet by the NYSE Arca: SLV which as of November 2010 held approximately 344 million troy ounces of silver as their reserves
3. 2. Short selling silver
It is interesting to say that four or fewer traders held approximately 90% of all short silver futures contracts totalling at 245 million troy ounces, which is equivalent to 140 days of production.
3. 3. Industrial and commercial demand of silver
Since silver is being used in the photographic development and it is known that photographic development has been dropping since 2000 due to the decline of film photography. On the other hand, silver is also used in electrical appliances, clothing, photovoltaics and it has medical uses. Silver is also used in RFID tags, wood preservatives, water purification, etc.
The majority of silver is being used for industry, jewelry and as investment vehicles. Fun fact; approximately 500 ounces of silver are used in every Tomahawk missile.
4. Fundamentals of investing in silver
It is pretty simple actually, here is how; buy and hold silver. You will automatically reduce the amount of silver in the global supply chain and over the years, your bullion can only increase in value.
Why is that? Because whenever a commodity is in demand and lacking supply, there is a shortage of that commodity. People who are holding that in-demand commodity are basically guaranteed to realize gains.
So the plan is to sell everything and invest into silver? Of course not, any investor in their right mind would take a rational approach and diversify their portfolio with silver. You can read more about the basics of investing here.
5. Silver comes in many forms
When you are investing in silver, you have multiple possible forms.
You can invest in physical silver that comes in forms of bullion or coins. You should seek to buy and hold coins based purely on their silver content.
It would be wise and stick to the proven method. Buying silver bullion, or pure silver coins from renowned mints.
A big advantage of physical silver is the “joy” of ownership because, in the times of crisis, those silver bars or coins will have much greater spending value that paper currency won’t have.
On the other hand, paper silver is a great alternative often used when it’s impractical to own large quantities of bullion. However, you should not jump into things and put all of your money into paper silver. If things turn out bad, you’ll need to liquidate your paper silver as fast as you can.
6. Silver investing advice
Some experts recommend that you purchase silver regularly to aggregate it. The process is simple, buy hold and repeat as often as you can.
In the case of silver investing, let’s say you commit $150 per month.
- In the first month, the price of silver is $30 per ounce so your $150 buys you 5 ounces of silver.
- In the second month, let’s say the price of silver drops to $25 per ounce and you buy 6 ounces.
- In the third month, the price skyrockets to $50 per ounce and you can buy only 3 ounces.
So, you have invested $450 and you purchased 14 ounces of silver. The price per aggregated ounce is $32.
Of course, this is a dramatic example, and prices of silver don’t move that rapidly, but then again, some silver analysts predict that the price of silver will become more and more volatile.
DISCLAIMER: Since I am not a certified investment professional, you must not consider any of this content as a professional investment advice.