This article will talk about investing in precious metals, namely the prospects for investing in silver. In itself, investing in precious metals is considered a reliable type of investment, because it is an asset that always has a price and, unlike money, cannot fall to zero or sharply depreciate as a result of inflation or hyperinflation or other economic shocks. But when considering this type of investment, for some reason people are primarily focused on buying gold. However, investing in silver currently has higher upside potential. Why? We read about all this in the article.
Current silver prices
First, you need to look at the price of silver today to further understand the growth potential.
Currently, the cost of one troy ounce of silver is $17.75. As can be seen from the graph, silver reached its maximum value over the last ten years at the beginning of 2011—almost $43. Then the quotes went down, a downward trend began that lasted 5 years. And at the beginning of 2021, silver began to slowly rise.
And as you know, the best investments of money occur when prices for the investment object are at the bottom. After all, the value cannot decrease indefinitely, and after the fall there is necessarily an increase. And the larger and longer the decline occurred, the higher the potential for growth in the future.
For those who are familiar with technical analysis, looking at the chart you can also draw certain conclusions. The silver chart has broken through the resistance level. And the upward trend began. Which means now is the time to buy.
Apart from silver prices, there are several other preconditions for further growth of silver in the future. Which? Let's look at them.
Note to fashionista: why silver jewelry should be expensive
Silver is the jewelry trend of the year; it is increasingly preferred by celebrities for red carpets. So if you see silver jewelry that costs more than gold jewelry, don’t be surprised. There may be several reasons for this.
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Prices are dictated by growing fashion
I want these earrings made of silver with topaz and cubic zirconia! >>>>>
In recent years, the fashion for silver has been steadily growing. This is understandable: silver jewelry is more universal - it suits any age and can be combined with any clothing: it can be worn to the office, on a date or at a formal reception.
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Cool metal harmonizes with any type of appearance, emphasizing the aristocracy of light-skinned blondes and contrasting with the brightness of dark-skinned brunettes. Finally, it is ideal for creating sets in classic black and white. You can be sure: silver fashion is a long-term trend. And those silver jewelry that you buy today will be relevant years later.
High-grade silver is more expensive than low-grade gold
I want such a ring made of silver with jewelry crystals and cubic zirconia! >>>>>
There is several times more silver on Earth than gold, however, it is considered a rare precious metal. Despite the fact that gold is less common in nature, in its pure form, like silver, it is not used for making jewelry. To give precious metals ductility or strength, impurities are used: copper, titanium or aluminum.
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To determine how much of the alloy contains precious metals and how many impurities, a system of samples is used - a kind of quality mark. 925 silver is considered the most expensive and high-quality. It contains 92.5 percent precious metal and 7.5 percent copper. Jewelry made from 925 sterling silver may cost more than accessories made from 375 gold.
Jewelry with a precious stone cannot be cheap
I want these Peacock earrings made of silver with sapphires, topaz and cubic zirconia! >>>>>
The price of a piece of jewelry is determined not only by the metal from which it is made, but also by the presence of precious stone inserts. A gold ring with an inexpensive ornamental mineral will cost less than a silver ring with a natural diamond, emerald or sapphire. There is a stereotype that precious stones require a gold setting. However, jewelers are confident that often it is silver that best emphasizes their advantages.
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For example, a diamond has a high degree of dispersion - the ability to refract light and shimmer in different colors. Therefore, if the stone is placed in a piece made of yellow gold, it will acquire a slight yellowish tint, while white metals will fully reveal its splendor. Cold blue-blue minerals also harmonize perfectly with silver: topazes and sapphires.
The price is affected by the complexity of the product
I want such a feather brooch made of silver with micropearls, marcasite and blackening! >>>>>
In addition to inserts, the price of a silver item is influenced by its complexity. Therefore, you should not be surprised to see that an intricately designed silver brooch costs more than a simple gold pin brooch. Especially in price are accessories with blackening, stylized as antique. Blackening is a rather complex process. First, small grooves are made in the base metal, then sulfur, lead or copper is melted into it, then heated, and then the decoration is decorated with small stones.
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Not every jeweler can create an unusual piece with blackening and microcrystals. This requires a lot of time and special skills. However, such an accessory looks like a handmade item, so its price is quite justified.
Branded silver jewelry is more expensive than regular gold jewelry
I want such a flower ring made of silver with cubic zirconia! >>>>>
The more famous and promoted the manufacturer’s brand is, the higher the price of the product will be. This also applies to silver jewelry. Such a haute couture accessory costs and, by the way, looks more expensive than gold from the mass market.
See also: Girls are like stars - jewelry that looks like a million >>>>>
If you want to emphasize your style with unique details, but don’t want to overpay for a brand, choose accessories from Russian manufacturers with a good reputation. In addition to the sample on the metal itself, a reliable seller must also have a certificate confirming the quality and authenticity of the product.
Alena Yarkova
Ratio of gold and silver prices
Historically, the price ratio of gold and silver has depended on how common each is in nature relative to the other, or simply on its current supply. Let's look at how this ratio has changed throughout history.
In Ancient Rome, the ratio of gold to silver prices was 12 to 1, in the USA in the 18th century it was 14: 1. In the modern world in the early 80s of the last century it was 17 to 1. That is. throughout the history of mankind, this ratio was approximately the same and gold was 12-17 times more expensive than silver. This is exactly close to the truth, because the current ratio of the world's unmined reserves of these metals in the earth's crust was 17.5 to 1.
What now?
World gold reserves are currently estimated at 100,000 tons, and world silver reserves at 570,000 tons. The ratio is 5.7 to 1.
The current gold quotes are $1,318.90 per troy ounce. Silver price is $17.75.
The current ratio is 74.3:1.
This happens very rarely. And every time such a ratio was reached, silver prices “shot” upward, significantly outpacing the growth of gold.
For example, in 2008, the difference between the prices of silver and gold reached 80 to 1. Then, over a six-month period, silver prices grew 6 TIMES FASTER than gold prices. And over a 2-year period, the growth rate for silver exceeded gold by 2 times!!!
Gold and silver prices have been falling over the past 5 years. But silver prices fell more sharply relative to gold. Gold fell in price by 14%, and silver by as much as 60%.
Silver as an investment tool
The fall in silver prices in recent years has created the impression of its unreliability as an investment. But since 2011, gold has also fallen in price. The circumstances that contributed to this subsidence should be taken into account.
Prices were significantly influenced by two main factors that determine the quotes that the market exhibits.
Firstly, the decline in demand associated with the global financial crisis. A fifth of the silver produced on the planet is spent on jewelry. More than half is consumed by industry, and industry has learned to replace precious metals with other materials with similar properties in years of high cost (not everywhere, but in many products).
Secondly, mining and refining volumes have increased in the last decade. Supply outstripped demand, causing prices to decline.
These circumstances led to the undervaluation of the asset. As for gold, the demand for it did not decrease so much, and the supply almost did not increase. This led to relative “prosperity”.
Further forecasting of the dynamics of quotations of the white precious metal is difficult. As the experience of previous decades shows, having reached the bottom, they will go up, but how much is a big question. Some experts even predict the onset of a “silver age”: mining experts claim that the planet’s reserves of Ag are close to depletion. The need, in their opinion, will grow in those areas of the industry where there is nothing to replace it yet or in the near future.
It is likely that gold will also rise in price, since a resource famine is quite possible in relation to this metal. The investment potential of Au is assessed more reservedly.
Comparing the prices of gold and silver leads to the idea that the latter is more accessible to people of modest and average income.
Finally, there are opinions that the cost of the two main “coin” materials may be almost equal precisely because of the depletion of Ag reserves. Today, these predictions belong more to the realm of fantasy, but history knows examples when the most unrealistic predictions came true.
In any case, one should not forget that all metal investments are long-term and cannot serve as a tool for obtaining quick income.
Where is silver used?
Silver as a metal has unique characteristics, namely: high thermal conductivity, light reflectivity and is used as a catalyst in chemical processes. Therefore, it is widely used in radio electronics, mechanical engineering, medicine and the production of many other goods, including jewelry. Separately, it is necessary to say about the military-industrial complex. It is used everywhere here.
The share of silver in the finished product is negligible and has virtually no significant effect on the final price of the product. This means that with a multiple increase in silver prices, the price of “silver-containing” goods will remain virtually unchanged. And producers will still buy silver at high prices. Moreover, it is currently impossible to replace silver with another metal with similar characteristics, due to the uniqueness of this metal.
Ways to invest in silver
Like any investment in precious metals, investing in silver is possible in physical and “paper” form. However, each of these options can be implemented differently.
Any citizen has the right to purchase bullion bars, investment coins and jewelry made from this material. No one forbids buying numismatic copies of tsarist and Soviet (1924–1931) coinage - they represent not only “weight”, but also collection value. In this case, hoarding takes place, since the invested funds will simply be stored without participating in the general financial turnover.
Another way to invest is to open an impersonal metal account (OMA). In this case, the funds “work”, but the dividends are small or not paid at all.
Finally, the most advanced method is capital funding. Purchasing shares of companies whose activities are related to silver promises good profits, if, of course, the financial result of business activities turns out to be positive.
Now let's learn more about each of the options for investing in silver.
Buying coins and bars
First, you need to decide whether or not to invest in silver. There are other investment objects, perhaps more profitable and bringing profit much faster. If the decision is made, then it says a lot about the psychological type of a person - he is conservative, not prone to risk and makes far-reaching plans for the future.
Buying a physical item that can be touched and seen is the choice of serious people, but not accustomed to trusting “pieces of paper”.
Silver bars and coins are sold in several banks, including Sberbank of Russia. Their purity means an impurity content of no more than 0.01%. The nominal weight may vary; it is indicated on the surface and does not exceed a thousand grams.
Coins can be selected from the catalog available on the website of the Bank of Russia and some financial and credit institutions.
The process of purchasing a silver bar includes the issuance of a certificate, which indicates the parameters of the product (weight, fineness 999, number). Banks offer a paid storage service.
Sales are possible at the same or another financial institution that has a license to operate with precious metals. The redemption price is affected by the condition of the ingot's surface, so damaging it is not recommended. The same applies to coins, investment and collectible.
Open an impersonal metal account (OMS) at a bank
A metal account, in this case a silver account, is essentially similar to a deposit account, but has its own specific features.
Firstly, it is not monetary units that are used as currency, but grams of the material in which it is discovered.
Secondly, in some institutions the terms of the agreement provide for a zero interest rate, and among them is Sberbank. Compulsory medical insurance is opened by the client solely based on the price difference between purchase and sale, and in certain periods it can be negative.
Thirdly, the prices for metals are set by the bank itself, and they are obviously higher than those existing on the market at the time of opening the deposit.
The investor cannot reliably know whether it is profitable for him to have non-cash silver. This unpredictability is both a disadvantage and an advantage of the purchase. If the optimistic forecasts come true, he will receive considerable profit, and if not, let him rest. Compulsory medical insurance is unlimited, so you can make money on silver at Sberbank or another financial institution. It's like a lottery, but with high chances of success and almost guaranteed winnings, but you don't know when it will happen.
Another disadvantage of metal bank accounts is that they are not insured.
Buy shares of silver mining companies
Despite the decline in the price of silver, the situation of the companies mining it cannot be called dire. The cost of production per ounce is on average approximately six US dollars, and the total cost of refining and production of measured ingots is no more than $10.50. At the same time, the world price exceeded $15.60 and is slowly but moving upward.
Analysts claim that the total world reserves of silver amount to 570 thousand tons. In a couple of decades they may run out, which will cause a global shortage of the material, which is extremely valuable for electronics and other promising industries.
The conclusion is that the securities of silver mining companies represent a profitable investment. There are quite a few such companies in Russia, but the most significant are five:
- Polymetal;
- Chukotka Mining and Geological Company;
- Highland Gold Mining;
- Amur Gold;
- Nordgold
Together they provide every eight out of ten ounces of silver mined in Russia.
Securities should be purchased on the Moscow Exchange through brokerage houses specializing in shares of “silver” companies. Now they are quoted at approximately 1000 RUB (Polymetal International plc) and continue to rise in price.
However, it is recommended to consider this investment as a long-term one, and not to rush into implementation.
Buying Silver ETFs
Another “paper” way to invest in silver is to become a shareholder in a metal exchange-traded fund. This scenario can be implemented in exactly the same way as in the case of gold ETFs - the methodology is similar. The managing and actually brokerage company representing the interests of foreign fishermen in Russia is FinEx, which operates on the Moscow Exchange.
In practice, investing in ETFs can be done through the Quik terminal, which provides access to world exchanges.
The principle of the fund is to work with securities of companies specializing in the mining and processing of silver. Unlike other types of investments, investments in ETFs can be considered as a short- to medium-term object. A share can always be sold if the need arises or such an operation is considered appropriate.
The ruble yield of the funds fluctuates within 20% per annum and is ensured by the wide diversification of their portfolios. In conditions of slow growth of quotations, futures are used, that is, purchase contracts at a pre-agreed price.
The disadvantage of this investment method is that all activities take place abroad. Russian legislation does not regulate the activities of ETFs.
Current stocks
Silver is constantly consumed in industry and, unlike gold, is practically not stored in the form of reserves. Gold, of course, is also used for production, but its main purpose is the gold and foreign exchange reserves of countries. Almost every country has such reserves. And he strives to increase them.
For example, a list of countries with the largest gold reserves:
- USA - 8,133 tons
- Germany - 3,380
- Italy - 2,551
- France - 2435
- China - 1762
- Russia - 1414
- Switzerland - 1040
- Japan - 765
- Holland - 612
- India - 557
Now remember if you know about the silver reserves of countries. I personally don't. The bulk of silver is spent in the production of goods, either jewelry and silver coins. Every year, the consumption of silver in industry is only growing, and its reserves are constantly decreasing. Accordingly, if there is a shortage of silver, the price, according to market law, will increase.
Areas of application
Few people know that the use of silver goes far beyond the jewelry industry. It is used in the following areas:
- Medicine. The metal has bactericidal properties, and therefore is widely used in medicine: applied to catheters and breathing tubes, contained in bandages and ointments, etc.
- Air and water purification. Silver ions are added to water purification systems in hospitals, spas, swimming pools, and are also used in the production of antimicrobial filters.
- Solar panels. The silver powder is turned into a paste and applied to solar cells that generate electricity.
- Electronics. The electrical conductivity of silver allows it to be used in a wide variety of industries, from printed circuit boards to TV screens.
- Automotive industry. For example, using a silver membrane switch, the engine is started, the trunk is closed, the power windows are opened, the electric seats are adjusted, etc.
Silver is also used in the aerospace industry, air conditioning systems, and as a catalyst in the production of chemicals - formaldehyde and ethylene oxide.
Why is silver so cheap?
At the moment, a paradoxical situation has developed on the market, where the price of silver depends not on the balance of supply and demand, but on speculative actions in the stock market, where derivatives play a key role, i.e. contracts (futures) for the supply of silver.
Moreover, most of them are not covered with real silver. No one is going to supply it to you. The profit of contract owners is formed due to exchange rate differences on silver. And given the opportunity to make transactions with high leverage, silver contracts of 10, 20 and 50 more are bought (sold) for the same money. This creates the illusion that there is a lot of silver on the market. However, this is not real (physical), but paper silver.
Conditions for rising and falling silver prices
The decline in the price of silver is due to several economic and production factors. First of all, this is the discovery of new deposits. Millions of tons of ore can significantly reduce the overall value of this precious metal on the market. This has already happened when in 1986 a huge batch of processed silver from the USSR and Eastern European countries was released onto the world market.
The next most important condition for a price drop may be a decline in industrial production. One day, the demand for household appliances, computers and mobile phones may decline, and industrial silver will also lose value.
In turn, any significant financial crisis can become a growth factor. In order to get free funds out of harm's way, they are invested in precious metals, which have not gone out of fashion for two thousand years.
Increasing production capacity, high-quality chemical production, and the production of fundamentally new electronics - all this stimulates the growth of the silver rate.
Where to buy silver
For a private investor, there are 3 options for investing in silver.
- purchase of bullion and silver coins. But here you need to keep 2 things in mind. Firstly, you won’t buy a lot of silver. After all, it must then be stored somewhere in a place protected from thieves. At home is not an option, and if you rent a safe deposit box, then this is an additional expense. Secondly, when buying bullion, you will significantly overpay, because the price is determined by volume, i.e. the price for a 100 gram ingot will be significantly higher than for a 10,000 kg ingot. And upon sale you will be charged a tax of 18%.
- Compulsory medical insurance - impersonal metal accounts. Here you can buy silver from 1 gram. Although the quotes differ from the world ones, they are very close to them. Here, first of all, you need to pay attention to the difference between buying and selling (spread). The lower it is, the better for you. Read more about this here...
- ETF - Buying silver through an ETF, while reliable, is not as easy as the first 2 methods. It is not yet possible to invest in silver through ETFs on the Russian market (there is only gold). Therefore, it remains to buy through foreign brokers.
Silver Trading Options
Now let's move on to the last aspect of investing in silver, which is defining our goals. After the highs of 2011, almost all precious metals have become speculative instruments, with short-term investors and speculators making a significant contribution to trading. That is, the price can rise by 5% without any news background, and then also slowly return back. Analysts will subsequently explain why this happened, but in fact it is simply the result of the activity of short-term traders. Therefore, we choose our own option:
1. Investment in silver for the long term . The best option that will allow you to have a good position for a long time.
The main advantage is that if a crisis breaks out, the movement can be very, very large. On the one hand, we have a minimum value of $14, on the other – unlimited potential. It will be the same as with Bitcoin - a large increase in percentage value and a subsequent sharp reversal. In general, we can say that an increase in value by at least 25-30% can already be considered an excellent result, because at the same time, investors are suffering losses all over the world.
The strategy is simple - as it grows, sell little by little until the price makes the final push and reverses. At this moment, sell everything that is left.
2. Short-term investments . Again, we return to our hypothetical minimum of $14, which kept the price from falling for many years. Every time the price approaches it, we buy and sell after it moves away. Sometimes reversals in this area take entire months, you can’t guess.
The advantage of this type of speculation is that we can receive a stable profit, have essentially a protective asset and can always leave such an initially short-term position for the long term. That is, we wanted to hold it for a short time, but when there is good movement, we decide to keep it and sell the purchased metal in parts. Acceleration of price growth will confirm the start of a powerful movement.
3. The same can be said about shares of mining companies, ETFs and mutual funds . Only in this case we have one more variable - dividends, which may soon be legally established at a fairly large level in percentage terms. This will, of course, add to the popularity of investing in silver in 2021 in the stock market, and we can expect growth across all sectors.
Let's remember #silversqueeze
The famous silver short squeeze that has occurred twice this year is a good example of how retail investors are getting excited about silver.
In late January and early February 2021, retail investors, encouraged by comments on Reddit, rushed into the market and managed to drive the price of silver to an eight-year high.
The second #silversqueeze took place in early May. However, this time the idea was to purchase physical silver bars and coins, which ultimately drove up the price of silver, but at a slower pace than the first round.
It looks like demand for physical silver is only going to increase in the near future, with Nicky Shiels predicting that retail demand for silver coins could hit a 5-year high in 2022.
