2020 was the best year for gold and silver price increases since 2010. Gold rose 25.12% and silver rose 47.82% last year. Gold prices could spike higher long before 2025.
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While gold frequently dominates discussion as a safe haven investment, silver is another precious metal worth noting.
Compared to gold, silver is considered second best – gold’s poorer cousin. But is it?
In May 2021, silver was trading for around US$27 an ounce, a significant 70% rise from a year ago when the spot price was hovering at US$15.5 an ounce. In that time, gold rose by only 6.4%.
As a precious metal, silver has historic monetary value like gold but it also has more industrial applications. The greater industrial demand for silver is a big reason why the metal has outperformed gold lately.
Why Invest in Silver?
We should never lose sight of silver as a potential investment. Like its richer cousin, it is used as a form of money. But it is also a true commodity.
Estimates indicate that around 50% of demand for silver is industrial, with the rest coming from investors. The industrial demand is even more pronounced in recent years as industrial metals like copper surge on the back of strong demand from recovering economies.
What accounts for silver’s industrial demand?
Silver’s high electrical conductivity and durability lend themselves to many applications from electronics to photography.
Almost every computer, mobile phone, vehicle, and appliance contain silver.
For example, Radio Frequency Identification Device (RFID) chips – which use paper-thin antennas of sprayed-on silver – are replacing bar codes on many items in our supermarkets and inventories.
Just like other commodities, silver’s value at any given moment depends on multiple factors. Whether it be industrial utilisation and the business cycle or independent monetary factors like inflation, deflation and interest rates.
It should be noted that the silver market is more volatile than gold. Silver prices can drop just as fast as they rise. Like any market, there’s risk involved.
But when the price dips, it can provide the perfect point of entry for an investment. And then it’s just a matter of jumping off the train just as it’s reaching the top of a hill. Easier said than done of course.
This means, just like gold, silver can be a great means of protection against inflation and economic turmoil.
One reason this is the case is the theory that a commodity like silver should carry a constantly-growing intrinsic value since silver has a finite supply but – ideally – constant demand.
Silver can easily absorb the changes of the market, no matter how drastic. So silver can potentially be a versatile, yet steady, asset in a long-term portfolio.
Breaking Down Silver Stock Price Movements on the ASX
The price of silver is usually reported in US dollars.
A silver spot price is the amount a buyer pays to purchase a single ounce of the metal for immediate delivery.
A spot price contrasts with a futures or forward contract price.
A futures price of silver designates the price for future delivery of the metal. Futures contracts may help producers, end users, and other investors mitigate price risk.
Futures contracts can extend a month out or even a few years out.
If you would like to track the price of silver futures, you can check out sites like CME Group.
Interestingly, the spot price of precious metals like gold and silver is determined by the front month futures contract with the most volume.
Spotlight on ASX-Listed Silver Stocks: Who's Leading the Charge?
Although price movements of precious metals are frequently reported by the major newspapers, the coverage is not extensive.
For dedicated coverage of gold and silver, you can check out sites like Kitco.com, and Metals Daily.
The reality for Australian investors is that many of the world’s major pure silver producers are based overseas.
And even though a large ASX company like South32 Ltd [ASX:S32] does have a world-leading Cannington silver mine in Queensland, the mine only accounts for 6.5% of the miner’s total revenues – not enough exposure for a silver investor.
There are, however, some ASX stocks that have silver exploration and production front and centre of their strategy. These include Silver Mines [ASX:SVL], Thomson Resources [ASX:TMZ], Red Metal [ASX:RDM], and Investigator Resources [ASX:IVR].
Silver Bullion in Australia: Current Market Insights and Analysis
If you decide to add silver to your investment portfolio, there are several buying options available. Here is a useful summary of some of your silver investment choices from the Silver Institute:
- Bullion: silver in the form of bars that are at least 99.9 % pure.
- Official coins: silver coins issued by a government mint.
- Medallions: round pieces of silver resembling a coin but not considered legal tender. Medallions may be issued by governments or private mints.
- Certificates or storage accounts: the metal is kept in storage but you can take possession within a few days if desired.
- Accumulation plans: enables investors to accumulate silver on an average basis, similar to dollar cost averaging. The investor does not own the physical silver.
- Futures and derivatives: agreements made on an exchange to take or make delivery of silver at a set date in the future.
- Options: the right, but not an obligation, to buy or sell a given amount of silver, or financial security linked to silver, on a specified date in the future.
- Exchange Traded Fund: a basket of equities linked to silver, which could be the physical metal itself or silver producers and refiners. ETFs are traded on exchanges like the ASX, without the physical ownership of the asset.
- Mutual funds: open-ended funds holding a basket of silver-related equities that are priced once daily.
In terms of purchasing bullion specifically, there are many dealers across Australia selling precious metal bullion.
Here are some of them:
ABC Bullion (Sydney), KJC Bullion (Sydney), Silver Stackers Australia (Melbourne), Australian Bullion Company (Melbourne), Silver de Royal (Brisbane), Ainslie Bullion (Brisbane), As Good As Silver (Adelaide), and Perth Mint (Perth).
The best way to get started is to visit your local bullion dealer in person or via their website.
You don’t necessarily have to buy from your local bullion dealer. Most of them will ship to any address if you can sign for the delivery in person.
Bullion dealers offer silver from various mints around the world, so I recommend shopping around to see what you can find.
It’s important to note that all bullion dealers adhere to the same anti-money laundering identification and reporting obligations as banks.
This means that your identity will need to be confirmed by a bullion dealer: generally, a passport or driver’s licence will do.