Many people are starting to see silver as a lucrative investment because of the growing industrial demand for the metal, particularly in photovoltaics and automotive electrification. And while demand is increasing, supply is declining. Silver inventories are projected to drop by 5% in 2020 which would reduce global supply to 978 million ounces. This would be the lowest level in more than 10 years. These developments are likely to have a positive effect on the price of the white metal.
There are several ways to invest in silver depending on the investor’s preferred exposure to the metal. We will discuss four of them here as well as their advantages and disadvantages. They are investing in physical silver, silver exchange-traded funds (ETFs), silver mining stocks and silver streaming companies.
Different Ways to Invest in Silver
Buying actual or physical silver is the clearest way to invest in the white metal. Investors can purchase silver in various forms including bars and coins, and in different sizes from one ounce to 1,000 ounces. This type of investing has several disadvantages. Investors have to pay a slight premium in buying silver from dealers, they often need to sell it back at a slight discount and storage involves additional costs and logistical challenges. This is ideal for those who want to hold on to their silver investment for a long time.
Investment in silver ETFs is a substitute for physically owning silver because each ETF share corresponds to a certain amount of the metal. This form of silver investing has several advantages. It allows investors to participate in the general silver market and the charges are fairly modest. For example, the iShares Silver ETF charges only an annual expense ratio of 0.5%. However, some investors do not like ETFs because of the discrepancies in the trading value of ETF shares.
Another way of investing in silver is through investment in the stocks of silver mining companies. This is somewhat risky because investors need to monitor not only the prices of silver but also the performance of mining companies. An accident or a bad result of exploration potential could negatively affect the stock value. It is hard to hedge against company-specific risks, though investing in several mining stocks can provide some protection.
The fourth way of investing in silver is through investment in the stocks of silver streaming companies. These firms are not involved in mining operations but only offer financing to miners. This allows them to purchase silver at a fraction of the current market price. These stocks are affected by the changes in silver prices and by the quality of financing deals streaming companies are able to arrange.
The best way to invest in silver depends on the investors’ needs. Those who want complete exposure can choose either investing in silver ETFs of physical bullion. The choice depends on the duration of the investment. Those who want to trade in and out should choose ETFs, while those who plan to own the metal for a long time should choose physical bullion.
For investors seeking higher returns, they can choose either mining or streaming stocks. The latter offers greater income and more stability. Streaming companies also pay dividends while mining firms usually do not.