Gold, gold, gold.
When inflation fears rise, we talk about gold.
When deflation fears rise, and we want to preserve our purchasing power, we talk about gold.
And when markets are tumbling, what do we do?
We talk about gold.
But what about another precious metal?
What about silver?
It’s interesting to look at the widely followed iShares Silver Trust by BlackRock, which seeks to reflect the general performance of the silver price:
Source: iShares.com
The above chart illustrates the performance of a hypothetical $10,000 invested in the iShares Silver Trust.
In the six months to January 2023, the Trust is up close to 27%.
In the same period, a hypothetical $10,000 invested in the iShares Gold Trust — which seeks to reflect the general gold price — is up just over 12%.
Looking a little further back, The Wall Street Journal reported that from 2001–11, gold rose 636% while silver rallied 904%.
And in another bull market for gold from 1993–96, gold rose 28% while silver gained 63%.
So, silver shouldn’t be regarded as gold’s poor cousin, living in gold’s shadow. As we’ve seen, it can be a solid investment alongside gold.
One could say the oft trotted out case for gold could apply even stronger for silver.
Researchers in 2014, for instance, found that in periods of market turmoil, silver and platinum offer investors greater compensation for their bond market losses than gold.
It’s also interesting to note that if gold has more eyes on it than silver, the added attention can lead to a more efficient market with fewer buying opportunities.
A greater number of participants speeds up the uptake of relevant information.
The more attention paid to gold, the more efficient the market.
In 2015, a study found that the gold market has shown the highest degree of market efficiency among the three precious metals markets.
And Google Search trends indicate that worldwide interest in the ‘gold price’ is five times that of the ‘silver price’.
In other words, the market for silver may take longer to realise silver’s fair value compared to gold, giving investors more opportunity to take advantage of the mispricing.
Indeed, as The Wall Street Journal reported in 2020, the silver market is more volatile than its gold counterpart.
Volatility? That doesn’t sound good to many investors.
Not me. I thrive on volatility! I also like to focus on upside volatility, plenty of it!
And William Rhind, founder of ETF provider GraniteShares, puts it really well — the ‘biggest advantage for silver is volatility’.
Silver’s additional volatility can be helpful because more volatility leads to larger price swings — and more opportunities.
The key is reading the market right and being disciplined when others are emotional.
Finally, it’s also important to note that silver is a valuable industrial commodity too.
Being a versatile, malleable metal, silver has desirable qualities for various industrial applications.
For example, technological innovations are making silver an important component for things like batteries, electronics, solar panels, water filtration, aeronautics, X-ray film, dentistry, and other medical instruments.
Growth in demand for these things can boost demand for silver.
However, the industrial practice of silver has potential risks.
The more a metal is tied to industrial uses underpinning the global economy — like copper — the more the metal depends on the economic cycle.
Silver is more linked to the business cycle than gold, so when the economy’s booming, there’s more industrial demand for silver.
On the other hand, if there are demand shocks to the economy, they could negatively influence silver prices more than gold via flagging industrial applications for the metal.
Deciding which silver to buy
Before you buy silver, you need to decide what type of silver you’re after. I always suggest owning at least some physical bullion.
If you have a conservative approach to diversification, I believe you should have a 10% allocation of your net wealth in gold and silver.
If you’re more aggressive in your diversification — and truly believe in the long-term value of silver — you may want to consider a 20% allocation. But that’s entirely up to you, according to your own investment strategy.
I want to make one caveat, though, about buying physical silver. The premium is much higher than gold. One ounce of silver attracts at least a 25% premium on the spot. This compares to around a 4% premium on the spot for gold.
Why?
The casting and fabrication cost for silver is a higher proportion than it is for gold.
Now, the fabrication cost for silver may be unattractive, so that paper silver could have a place in your portfolio.
Exchange-traded funds (ETFs) with 100% exposure to silver price movements can be a useful tool to trade the silver price.
Bear in mind now that precious metals can be freely traded on the market, their prices experience volatility at times, as with any other asset.
For instance, the gold price moved US$100 per ounce in a day when Donald Trump was elected as US president on 8 November 2016.
And spot silver rose 6.8% on 29 January 2021 after a Reddit-inspired short squeeze. It was the biggest jump since August 2020.
Like gold, silver reacts to geopolitical events. And it creates both wild price swings and short-term investment opportunities along the way.
And, of course, this also brings added risk, and taking advantage of short-term price movements isn’t for every investor. Yet if this is something that interests you, silver-backed ETFs have been created for this purpose.
Again, we recommend buying physical silver, which is best viewed as a multidecade investment because of its usefulness as a protection of long-term wealth.
However, if you’re looking for ways to profit from price swings in the short term, silver-backed ETFs can be a useful tool.
Investing in silver ETFs
Investing in silver-themed ETFs can be an easy way of gaining exposure to the silver price or companies in the silver sector.
What I mean is that some ETFs just track silver spot market prices while others track the performance of a set of companies in the silver mining industry.
There’s only one ETF in Australia that tracks physical silver prices — Global X Physical Silver [ASX:ETPMAG].
ETPMAG can offer investors low-cost access to physical silver without the need to personally store their bullion.
ETPMAG is backed by physically allocated silver held by JPMorgan Chase Bank.
Like iShares Silver Trust’s performance, Global X Physical Silver is up around 28% in the last six months:
Source: ASX
The ASX 200 [ASX:XJO] is up 10% in the same period.
However, unlike many gold ETFs, ETPMAG is not currency hedged.
Like BetaShares Gold Bullion ETF — Currency Hedge [ASX:QAU], many gold ETFs are — as the name suggests — currency hedged.
A currency hedge means that the value of a metal in US dollars has been automatically converted to Aussie dollars for an ETF. That’s one of the benefits of buying ETFs listed in Australia as opposed to overseas exchanges.
Gold and silver are typically priced in US dollars. Therefore, Australian investors have the double whammy of being exposed to gold and silver price movements and US dollar price fluctuations.
A currency-hedged silver ETF would already have the AUD/USD exchange rate calculated for you. Meaning you wouldn’t have to fiddle around with your calculations to figure out what the silver ETF is worth in Aussie dollars.
Unfortunately, ETPMAG is not hedged in this way, so this is a complication to note.
Investing in ASX silver stocks
As the Australian Financial Review reported in 2021, the reality for Australian investors is that many of the world’s major pure silver producers are based overseas.
A large company like South32 [ASX:S32] has the world-leading Cannington silver mine in Queensland, but the mine only accounts for 6.5% of the miner’s total revenue — not enough exposure for a silver investor.
Some of the ASX stocks that can expose investors to silver exploration include:
- Silver Mines [ASX:SVL]: SVL owns the Bowdens Silver Project in New South Wales. The initial resource estimate comes in at 275 million ounces of silver equivalent. If it receives government approval, Silver Mines could become one of the largest silver deposits in the world.
- Investigator Resources [ASX:IVR]: IVR has one of the highest-grade silver deposits in Australia. Their Paris deposit is in South Australia and has a mineral resource estimate of 18.8 million tonnes at 88 grams per tonne of silver for 53.1 million ounces of silver.
- Thomson Resources [ASX:TMZ]: TMZ became a big silver player when it acquired the Webbs and Conrad projects from Silver Mines in November 2020. As part of the deal, SVL became a cornerstone investor in Thomson Resources; meaning investors in SVL gain diversified exposure to multiple silver projects.
- Maronan Metals [ASX:MMA]: In early 2022, Red Metals [ASX:RDM] spun out its Maronan Project into Maronan Metals Ltd. The new company owns 100% of the Maronan Project in Queensland. Located about 100 kilometres north of South32’s Cannington deposit, the Maronan Project has an inferred silver resource of 106g/t or 100 million ounces of silver underground.
The above are not investing recommendations, but just some ideas for you to consider.
How to get your hands on physical silver
Getting silver in your hands can be the daunting part.
Buying physical silver is taking that step into the unknown. For you, it might be new. To your ancestors, however, silver was crucial to preserving wealth.
So, where should you start?
You may be surprised to learn that there’s a thriving silver market on eBay!
I have never personally bought bullion from eBay. And if you’re a first-time silver buyer, steer clear of eBay and stick with recognised bullion dealers. As the saying goes, if it looks too good to be true, it probably is.
There are many dealers spread across Australia that sell both silver and gold, including:
- ABC Bullion — Sydney
- KJC Bullion — Sydney
- Silver Stackers Australia — Melbourne
- Australian Bullion Company — Melbourne
- Silver de Royale — Brisbane
- Ainslie Bullion — Brisbane
- As Good as Silver — Adelaide
- Perth Mint — Perth
Please note we are not affiliated with any of these dealers. These are just the largest bullion dealers in Australia.
The best way to get started is to visit your local bullion dealer in person or through their website. You don’t have to buy from a bullion dealer in your state. Most of them will ship to any address if you can sign for the delivery in person.
So you can buy from a bullion dealer in Brisbane even if you live in Melbourne. Bullion dealers offer silver from various mints around the world, so shop around to see what you can find.
Note that all bullion dealers must adhere to the same anti-money laundering as banks.
This means that if you’re buying online for pickup in person or courier delivery, your identity will need to be confirmed by a bullion dealer, according to their own requirements. Generally, a passport or driver’s licence will do, but that can vary depending on the dealer.
In addition, the AUSTRAC Anti-Money Laundering and Counter-Terrorism Financing Act 2006 applies to transactions of more than $10,000 (including equivalent foreign currency amounts).
So if you walk in or out with amounts of cash of more than $10,000, the bullion dealer will have to report the transaction to AUSTRAC.
How to store your silver
Before you buy any physical silver, you need to think about how you’ll store it. This is very important.
You may be tempted to keep it at home. There’s a large range of web pages that come up with ideas on how to hide silver.
I understand the desire to keep your precious metals close. But storing it at home is highly risky.
For starters, you can’t insure silver kept at home.
If your bullion is lost or stolen, you’ll never be able to recoup it.
Remember, silver is money…you need to treat your silver exactly as you would cash. Once it’s gone, it’s gone for good.
If you decide to keep your bullion at home, install a top-quality safe. I’m not talking about the sort of safe you can find at Bunnings.
There are countless YouTube videos available to show you how to crack open one of these with only a little bit of force.
I know this well. With the help of a YouTube video, I cracked open my off-the-rack safe once or twice before.
If you choose to keep your bullion at home, never, under any circumstances, tell anyone where you keep it.
Another popular — and probably more secure — option is to organise secure storage for your silver.
Banks offer safety deposit boxes for hire. But then your silver would be stored with a bank. And you may decide that you don’t want to have it anywhere near the financial system.
After all, in my view, the point of converting fiat dollars into silver is to get a portion of wealth out of the financial system.
Alternatively, consider private storage companies.
Firms like Guardian Vaults, Kennards Self Storage, Custodian Vaults, and Fortis Vaults offer personal safety deposit boxes for a small fee.
Even better, they are privately owned. So, you won’t be storing your silver with a bank or government authority.
The other, and often cheaper, option is to have a bullion dealer store your silver for you. Many bullion dealers offer to store silver on your behalf.
This means that when you buy your silver, you don’t take physical delivery of it. Instead, the bullion dealer holds it for you. If you plan on purchasing large quantities of silver, this may be the best option for you.
When you ask a dealer to store it for you, there are two types of storage available: allocated and unallocated.
Allocated storage is simple. Each silver bar (no matter the size) is given a unique serial number for bullion dealers to track. If you choose allocated storage, the bars you buy go into a pooled storage unit.
In allocated storage, the serial numbers of each bar will be noted down on a ledger, and they’ll be taken off the market and ‘allocated’ to you on the dealer’s ledger.
In other words, while all your bullion bars will be stored in one collective vault, no one will be able to buy the bars you have because they’ve been allocated to you — and only you.
The alternative is unallocated storage.
Unallocated storage is also pooled. However, you don’t have serial numbers of bullion bars written down next to your name.
Instead, you have a set number of bars (or ounces) allocated to you on the ledger, with no claim on any particular bar in the vault.
Put another way; say you buy five one-ounce silver bars, giving you a total of five ounces of silver. If you select unallocated storage, you’ll have a claim to five ounces of bullion in storage. But you don’t ‘own’ any particular bars in storage.
Unallocated storage costs are often slightly cheaper on a yearly basis. However, whichever method you choose, make sure it’s right for you.
Should you buy coins or bars?
And now the fun part — deciding what type of bullion to buy.
Believe it or not, there a few different types to consider…from cast bars to minted bars to coins.
Coins are visually appealing and highly collectable. Many cultures like to give gold or silver as gifts at certain times of the year, and often they use coins.
The reason?
Gold and silver coins are attractive to the eye. They make fabulous gifts with their intricate and generally commemorative detail.
Coins are what people choose to pass on down the family line over generations as well.
Yet, their intricacy and detail come at a cost. The fancier the coin, the higher the price you pay.
The advantage of this, though, is that they come in much smaller amounts. For example, some coins are 1/10th of an ounce, giving investors a small way to accumulate silver.
Minted bars are another way to buy silver and are quite popular.
They tend to be simple — the appeal is the neat mould of either silver or gold.
Much like coins, minted bars can be bought in amounts smaller than an ounce. For example, you can buy a minted silver bar for as little as one-gram of silver (the minimum minted-sized silver bars and coins are generally one-troy-ounce).
If you buy silver for yourself to hold over the long term, minted bars may be the right fit for you.
You can buy minted bars from half an ounce up to a kilo. They make for neat, stackable storage. And because of the low casting costs (no fancy detailing), they’re relativity cheap to invest in.
Next, you have the option of buying cast bars.
If you’re after the cheapest way to access precious metals, this is the bar for you. There’s no intricate minting detail with cast bars — just a lump of precious metal with the mint’s stamp on it.
That’s it: simple, efficient, and the lowest-cost way to access precious metals.
If you buy silver in large quantities, cast and minted bars are often the way to go.
Coins make great gifts, but because of the premium that comes with buying a detailed coin, it can take longer for the purchase cost to reach the spot value of silver per ounce.
Ultimately, the reasons for owning silver always come down to personal choice and investment strategy.
For some, it’s about having an asset to pass down to their children.
Simply putting aside some cash into a bank account to earn interest isn’t always ideal for everyone as a long-term investment. Compared to silver, which has historically maintained its value, cash has come and gone repeatedly throughout history.
For others, owning physical silver ensures they have a small portion of their wealth outside the financial system. Something free from government intervention and central banks destroying their savings through interest rates manipulation.
In any case, owning silver isn’t about turning a quick buck. Instead, it’s a decision to invest in something other than a paper asset exposed to government and central bank manipulation.
So I wish you all the best in your silver-buying journey. You’ve made the right choice in choosing to safeguard your wealth for generations to come.
Welcome to Fat Tail Daily
The story of precious metals like gold and silver and their role in the global monetary system is something I track and report on in Fat Tail Daily. We cover other topics, too, of course, like the fecklessness of politicians and global elites.
Each day we look at current events to anticipate the risks and opportunities relating to the growth and protection of your wealth.
There’s a whole universe of ideas, from history to economics to geopolitics…and we explore them all to make sure we’re on the right track.
Keep an eye out for upcoming articles, commentary, and insights from myself on gold and silver and stories from other editors in the weeks and months ahead.
We’re glad to have you on board.
God bless,
Brian Chu,
Editor, Fat Tail Daily
