How to Buy Silver: Best Methods for Investing in Silver
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How to Buy Silver: Best Methods for Investing in Silver

6 Min.

Investors have several options to diversify and protect their portfolios with silver. They can choose to buy physical silver, invest in silver futures contracts, consider precious metals ETFs, or purchase stocks of silver mining companies for potential future gains.

Basics

In times of economic downturns or periods of anticipated instability, investors frequently turn to precious metals as a haven, seeking their stability and security. These assets act as a hedge against inflation and market uncertainty, offering diversification from equities while possessing tangible value. Among the various precious metals, silver is widely regarded as one of the most popular choices. In this document, we will explore the best and most popular methods for purchasing silver.

Ways to Buy Silver

Outlined below are the methods for purchasing silver that are considered the best and most popular.

Physical

Traditionally, owning silver involves physically possessing it, often in the form of coins or bullion. You can buy physical silver online, through local dealerships, or pawn shops. If you seek larger quantities or non-coin forms, consider specialized dealers. Note that certain silver coins may have additional value due to factors like rarity, but investors focused on silver's investment value should avoid collectible coins.

  • Pros: Investing in physical silver, like coins or bullion, offers a straightforward and tangible form of ownership, eliminating the need for internet access or third-party management. Beyond its value as an investment, silver's versatility in industrial applications across sectors such as automotive, electronics, solar energy, photography, and emerging technologies like batteries and healthcare applications underscores its enduring significance.

Through Silver Mining Equities

Indirectly invest in silver by buying shares in silver mining companies. This type of investment doesn't represent silver ownership but offers ownership in companies involved in extracting the precious metal. You can benefit from mining production and industry performance through these investments.

  • Pros: Investors can achieve a partial diversification strategy, different from owning silver directly, by investing in silver mining companies. This approach allows investors to potentially hedge some risk. The price movement of mining company equity typically differs from the commodity due to various factors influencing stock prices.

Through ETFs

Another common way to invest in silver is through Exchange-Traded Funds (ETFs). ETFs typically hold physical silver, and investors buy shares in these funds, simplifying ownership. Notable silver ETFs include iShares Silver Trust (SLV) and Aberdeen Standard Physical Silver Shares ETF (SIVR). ETFs offer liquidity, allowing for quick selling at market prices.

  • Pros: Silver prices are volatile due to industrial demand and react to manufacturing data. ETFs tracking silver prices or futures offer easy liquidity, making them suitable for quick divestment. They can be traded easily, often with free options through online brokers, eliminating physical security concerns. ETF managers provide regular performance reports, enhancing investor confidence and control without the need for physical ownership.

Through Futures Contracts

Silver futures contracts are derivatives providing the right to buy or sell silver at a future price. They suit investors speculating on silver price movements without owning the physical metal. Many investors engage in speculative trading without taking physical possession. Leverage is often used, requiring minimal upfront capital but potentially involving higher losses or gains.

  • Pros: Futures contracts offer the advantage of leverage, allowing investors to commit a small amount of capital with the potential for significant returns if prices move favorably. They also provide a unique way to gain ownership of silver at a preferred price. Investors can enter contracts to buy at a specific price, which only executes if prices decrease. However, if prices increase beyond their comfort level, ownership is not mandatory as it would be with an ETF where shares are bought at market prices.

What Are the Drawbacks?

Physical

There are advantages and disadvantages to investing in physical silver. While it offers tangibility, selling it quickly can be challenging due to potential discrepancies in market prices. There are hidden costs, too. Investors often pay 5% to 6% in commissions when buying silver coins and bullion. Popular coins like the American Eagle come with a premium, and third-party vendors also charge extra.

Storage expenses further add to the costs. Bank safety deposit boxes and home safes can be pricey, and precious metals IRAs and custodial accounts have annual storage fees. An alternative is investing in a silver ETF, which closely tracks spot prices and has lower annual expenses, typically around 0.50%.

Silver Mining Equities

While owning a silver mining company has its advantages, it's crucial to understand that it doesn't equate to direct ownership of silver. The success of such a company hinges on its operational efficiency. If the company faces financial difficulties or a significant equipment failure, investors may incur losses unrelated to silver prices.

Moreover, silver mining companies can be influenced by external factors that don't align with silver's price movements. For instance, government interventions that restrict silver mining could negatively impact these companies, even as silver prices rise due to reduced supply and increased demand. Thus, investing in a silver mining company may not offer the same benefits as owning physical silver.

ETFs

A significant concern regarding ETFs, particularly ETNs, revolves around the risk associated with counterparties. When you own physical silver, it's yours outright, providing a store of value you can access directly. This is why many investors turn to precious metals for insurance.

The risk of counterparties causing problems was evident during MF Global's 2011 bankruptcy. Investors who had silver bar receipts in the firm's accounts received only 72% of their holdings, losing 28%. Some even suspect market manipulation by ETF/ETN sponsors. This makes owning physical silver more attractive. Moreover, ETF fees can gradually eat into their value. These funds often sell some of their silver to cover expenses, causing share prices to lag behind the spot price over time.

Futures Contracts

Two primary disadvantages exist when it comes to investing in silver futures contracts.

  • First, these contracts don't grant direct ownership of silver. Unlike ETFs, which represent a claim to actual silver, a futures contract may never become profitable, meaning you might not benefit from favorable pricing.
  • Secondly, futures contracts are complex and not suitable for beginners. Unlike more straightforward options like ETFs, they require a deeper understanding and experience. Additionally, investors may incur fees without ever owning physical silver.

Is It Worth Investing in Silver?

Silver has a long-standing historical track record as a viable investment option. Over the years, it has been chosen by many investors for its potential to generate favorable returns. The decision to invest in silver is a subjective one, influenced by individual preferences and risk appetite. While silver may not be the ideal choice for those seeking higher returns with increased risk, it does offer unique advantages.

One of the key reasons to consider investing in silver is its practical real-world applications. From industrial uses to its role in various technological advancements, silver holds intrinsic value beyond its monetary worth. This makes silver a suitable option for those who prioritize a relatively safe investment with tangible benefits. Therefore, when evaluating your investment options, it is worth considering the historical significance, versatility, and practicality that silver brings to the table.

Conclusion

Investors have several options to access the silver market: physical owning, purchasing ETFs, investing in futures contracts, or buying shares in a silver mining company. Each method has its pros and cons, offering different ways to engage with the silver industry.

Precious Metals
Silver
Exchange-Traded Fund (ETF)
iShares Silver Trust ETF (SLV)
Silver ETF
Exchange-Traded Note (ETN)
Commodities
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