What are the pros and cons of investing in silver bullion? Read on to learn why now may be the time for investors to enter the market.
As with anything in the market, investing in silver bullion has both pros and cons, and what’s appealing to one investor may not be a good choice for another.
Whenever the silver price rises, investors’ interest in the silver market grows, with many wondering if it is the right time to buy physical silver and make it part of their investment portfolio.
While silver can be volatile, the precious metal is also seen as a safety net, similar to its sister metal gold — as safe haven assets, they can protect investors in times of uncertainty. With tensions running high, they could be a good choice for those looking to preserve their wealth in these difficult times.
With those factors in mind, let’s look at the pros and cons of buying physical bullion in the form of silver.
Pros of investing in silver bullion
1. Silver can offer protection — As mentioned, investors often flock to precious metals during times of turmoil. When political and economic uncertainty are rife, legal tender generally takes a backseat to assets like gold and silver. While both gold and silver bullion can be appealing to investors, the white metal tends to get overlooked in favor of individuals investing in gold, even though it plays the same role.
2. It’s tangible money — While cash, mining stocks, bonds and other financial products are accepted forms of wealth, they are essentially still digital promissory notes. For that reason, they are all vulnerable to depreciation due to actions like printing money. Silver bullion, on the other hand, is a finite tangible asset. That means although it is vulnerable to market fluctuations like other commodities, physical silver isn’t likely to completely crash because of its inherent and real value. Market participants can buy bullion in different forms, such as a silver coin or silver jewelry, or they can buy silver bullion bars.
Chris Duane, an investor and YouTube figure, has said he puts his metal where his mouth is by liquidating his assets and putting the money into silver bullion when prices get low. He believes that our money system, and indeed our entire way of life, is built on unsustainable debt, and the purpose of investing in silver bullion and the silver market is to take yourself out of the mathematically inevitable collapse of that system.
3. It’s cheaper than gold — Between gold bullion and silver bullion, the white metal is not only less expensive and therefore more accessible to buy, but it’s also more versatile to spend. That means if you are looking to buy silver in the form of a coin to use as currency, it will be easier to break than a gold coin because it is lower in value. Just as a US$100 bill can be a challenge to break at the store, divvying up an ounce of gold bullion can be a challenge. As a result, silver bullion is more practical and versatile than physical gold, making this type of silver investment more appealing.
4. Silver offers higher returns than gold — Because the white metal is worth around 1/79th the price of gold, buying silver bullion is affordable and stands to see a much bigger percentage gain if the silver price goes up. In fact, in the past, silver has outperformed the gold price in bull markets, according to GoldSilver. GoldSilver claims that, from 2008 to 2011, silver gained 448 percent, while the gold price gained just 166 percent in that same period. It’s possible for an investor to hedge their bets with silver bullion in their investment portfolio.
5. History is on silver’s side — Silver and gold have been used as legal tender for hundreds and thousands of years, and that lineage lends the metal a sense of stability. Many find comfort in knowing that this precious metal has been recognized for its value throughout a great deal of mankind’s history, and so there’s an expectation that it will endure while a fiat currency may fall to the wayside. When individuals invest in physical silver, whether that be through buying a silver bar, pure silver, a coin or other means, there is a reassurance that its value has and will continue to persist.
6. Silver offers anonymity — Whether you value your privacy or not, silver has the same benefit as cash in that it gives users a degree of anonymity with regards to spending. Not everyone wants all of their transactions to be part of the public record, and privacy is a necessary component of democracy, as per Glenn Greenwald’s TED Talk. That is another benefit for investors who want to buy silver bullion.
Cons of investing in silver bullion
1. Lack of liquidity — There is a chance that if you hold physical silver, it may not be immediately liquid. In order to make common purchases such as groceries, you are not able to use silver bullion bars or a silver bullion coin, so you will need to convert that to currency first, and the ability to sell in a hurry can be an issue. In a jam, pawn shops and jewelers are an option, but not necessarily the best-paying one.
2. Danger of theft — Unlike most other investments, such as stocks, holding silver bullion can leave investors vulnerable to theft. Securing your assets from looting by using a safety deposit box in a bank or a safe box in your home will incur additional costs. Additionally, the more physical assets, including silver jewelry, that reside within your home, the more at risk you are for burglary.
3. Weak return on investment — Although silver bullion may be a good safe haven asset, it may not perform as well as other investments — for example, real estate, or even other metals.
Mining stocks may also be a better option than silver bullion for some investors. As Randy Smallwood, president and CEO of streaming company Wheaton Precious Metals (TSX:WPM,NYSE:WPM), has said, “Streaming companies will always outperform bullion by itself.” He attributes this to organic growth and dividend payouts that bullion doesn’t provide. Other options for investors interested in silver include investing in an exchange-traded fund or silver futures.
4. High silver demand leads to higher premiums — When investors try to buy any bullion product, such as an American silver coin known as a silver eagle, they will quickly find out that the physical silver price is generally higher than the silver spot price due to premiums put in place by sellers. What’s more, if demand is high, premiums can go up fast, making the purchase of physical silver bullion more expensive and a less attractive investment.
This is an updated version of an article originally published by the Investing News Network in 2016.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.