10 ways to invest in silver

Silver

You may be wondering why you should even consider buying silver in the first place. After all, most commercials in the United States talk about buying gold. But what about silver? Is it a good investment?

The good news is that silver has very similar properties to gold, and it also has an intrinsic value. While it is more available than gold, silver is relatively scarce on our planet. In fact, the U.S. Geological Survey has predicted that silver may be the first element on the periodic table to go extinct. Yep, even before gold.

Silver has held value throughout history and across the globe, mainly because people can see the inherent value in this precious metal. In ancient times people chose silver as a tangible option to make purchases. This was a much more efficient system than simply bartering.

Unlike many other commodities on Earth, silver is durable and can really stand the test of time. This makes it a good choice for currency as it is also portable and will not degrade during transport.

Silver is fungible, meaning a certain weight of silver will always have the same value as an equal amount of silver. It’s also cognizable which means it has a long history of being readily recognized as valuable. In other words, when people see silver, they know that it is really worth money.

In addition, silver is also an excellent conductor of electricity, and it can be used as an industrial metal, making it valued for more things than decoration or currency.  

In light of all these things, silver makes an excellent investment.

If you’re looking for a way to diversify your financial portfolio, if you’re a collector, if you’re looking for a safe haven investment, or if you simply like silver, there are a number of ways to purchase it.

Certainly buying physical silver is one avenue, but there are many other ways to invest in the silver industry.

Option #1: Buy Physical Silver

Probably the most straight forward way of purchasing silver is to buy the physical metal. Physical metal might include bullion silver like coins, bars, ingots, or rounds. It might also mean sterling silver such as the silver used to make jewelry.

Many people consider buying physical silver as a safe haven security in case something were to happen to digital or paper currency systems. In other words, if the digital or paper currency systems we currently use collapsed, silver would still maintain its value.

Owning physical silver (especially bullion silver) gives an investor the advantage of owning something that is directly related to market value.

Logistical disadvantages to buying physical silver include needing a place to store it, security issues, and insurance. It would be unsafe to store large quantities of silver in an unsecured home, so the cost to keep it safe may eat away at an investment.

Additionally, dealers will often charge a small premium when you purchase from them. This may not be a great disadvantage for investors who are choosing to keep their physical silver for a long time, but frequent traders may find these extra fees eat away too much of their profits.

Types of Physical Silver

There are several types of physical silver. Not every investor or collector is going to be looking for the same thing. Silver Coins

There are several types of silver coins, and there are specific distinctions between the two.

The first is silver bullion coins like American silver eagles and Canadian maple leaf coins.

The second is known as “junk” silver coins. They do hold quite a bit of value, but the word “junk” means that the coins are not valuable as a collector item. Because of this, these coins can usually be found with little to no premium cost. An example of this would be pre-1964 US quarters that are 90% silver.

Remember when buying silver quarters to not be cheated by people who try to inflate the amount of silver you’re buying. Always do your math, and remember that the coins are not pure silver, so don’t pay for the 10% additional metal.

Silver Bars

Silver bars are another way to purchase physical silver.  Bullion silver bars are .999 fine purity. They’re somewhat easier to store than coins, and they can be as large as 1,000 ounces. However, if you’re looking to buy silver for the first time, it’s probably better to invest in smaller silver bars that are easier to resell for a higher price.

Silver Jewelry

Silver jewelry is an option for investment, but it should be noted that silver jewelry is seldom pure silver. Instead, it’s sterling silver, meaning it has been mixed with 7.5 percent copper to make it hold its shape after daily stresses.

Sterling silver can hold investment value, but not as much as fine silver. If you’re a collector if you like to wear silver jewelry, this precious metal can be a wonderful choice.

Option #2: Buy Silver Futures

The silver market is not set at a fixed price, and those in the silver market can limit some of the price risks by purchasing silver futures.

Silver futures are standardized contracts in which a buyer agrees to take a specific quantity of silver at a set price for a future delivery. By doing this, silver producers use a short hedge, or short position, to lock in a selling price. On the other hand, consumers use a long hedge, or long position, to ensure that they know the purchase price for the silver that they need.

Outside of the producer and consumer market, there are also speculators who buy silver futures when they believe silver prices will rise, or sell when they think silver prices will fall.

As an investor, if you’re buying silver futures, your profit is set not by market value, but rather the way the value changes. Someone who is a long trader will want the silver price to increase so that they have made a profit compared to the original price set. On the other hand, a short trader hopes that the price of silver has gone down, locking them into a better rate and selling it for more than it’s actually worth based on the current market value.

Option #3: Buy Silver Options

Another way to purchase silver is through silver options. Silver options are similar to futures, though there are some key differences.

There are two types of options available -- calls and puts. A silver call option is purchased by traders who are bullish and believe they can benefit from rising silver costs. Conversely, those who believe that the price of silver will fall would purchase silver put options.

Someone who puts forth a call option puts forth an offer to buy silver at a specific price by a pre-determined expiration date. On the other hand, a put option is someone offering to sell silver at a specific price before a pre-determined expiration date.

The main difference between silver futures and silver options is a person who purchases an option has the right, but not the obligation, to buy or sell silver. The value of the option is directly connected to the price of silver futures, but it does not hold the same level of risk.

To purchase a silver option, an initial premium must be paid. However, since an investor is not obligated to follow the silver futures’ price change, the loss is limited to the original premium paid.

As silver options only grant the right but not the obligation to assume the underlying silver futures position, potential losses are limited to only the premium paid to purchase the option.

Option #5: Buy Silver CFD’s

CFD’s, or contracts for difference, is a way for traders to invest in a commodity without actually owning the physical commodity. Unlike futures, this gives the investor a no-risk way of owning a physical underlying asset.

A CFD allows an investor to speculate on the underlying asset without being physically responsible for it. Because they’re not actually buying a physical item, they are not liable for costs of ownership like management fees and commissions.

The amount of profit a trader makes on a CFD is determined by the difference between their purchase price and their selling price. There may be additional finance charges involved with this transaction that could affect the final profits from the sale.

Option #6: Buy Shares in Silver Mining Companies

Another way to invest in silver is through the stock market by buying silver mining company shares.

Stocks in silver mining are usually correlated to the rise and fall of value associated with silver prices. If the price of silver is low, the shares are likely to drop, and if the price of silver rises, the shares will also likely rise. However, stock in silver companies has value beyond the daily supply and demand of silver making it a potentially safer investment than physical silver.

One disadvantage of buying shares is the value of the mining shares is linked to the performance of the mining operation. For example, if the company has had an accident on site it may negatively affect the price of their shares.

This is more likely to apply to a specific mining company as opposed to all silver mining companies, which may make it helpful to own shares of more than one silver mining company.

Option #7: Buy Shares in Silver Streaming and Silver Royalty Companies

Another option for silver investors is to buy shares of silver streaming companies. Silver streaming companies do not run mining operations but instead finance miners and get a royalty of the production.

While the mining company will see to the hands-on collection of precious metals, a silver streaming or silver royalty company will see to it that their operation continues to be funded.

Silver is a commodity that changes value due to supply and demand, but the actual miners can’t fluctuate their costs that quickly. For instance, a miner’s salary would not change day-to-day based on the day’s market value of silver. This can make it difficult for mining companies to maintain a healthy running budget based on the whims of the market.

That’s where the silver streaming companies come in. In most cases, the mining company and the streaming company strike a deal that is mutually beneficial. That deal might include selling silver at a set below-market price in the future, or there might be a dollar amount attached. In exchange, the streaming company makes sure that the mining company has the cash flow needed for daily operations.

When it comes to investing in silver streaming companies, the value is still often connected to the market value of silver, but it’s a more conservative way of investing.

Option #7: Buy Shares in Physical Silver Funds and ETFs

ETFs, or exchange-traded funds, are an excellent way of diversifying your portfolio.

Physical silver ETFs allow you to invest in hard silver assets that are being managed by a third party such as a manager or a custodian. The holder of a physical silver ETF owns a share that represents a specific amount of silver measured in ounces.

Silver ETFs were introduced in the early 2000s alongside gold ETFs. One of the benefits of owning a physical silver ETF is it’s much easier to liquidate assets. It’s also easier to trade and more accessible than silver futures.

If you’re looking for a way to invest in silver ETFs, iShares is a common way to get started.

Option #8: Buy Shares in Silver Mining Funds and ETFs

A silver mining ETF invests in companies that mine silver, as opposed to purchasing shares of physical silver.

The beauty of an ETF is that it combines a preselected collection of stocks and bonds. If one part of your ETF is performing poorly, there’s a good chance that another portion will be performing well.

A silver mining ETF invests in several silver mining companies instead of trusting that a single company will perform well. This is beneficial if a particular mine is not producing well, or if they have a public relations issue connected to a mining accident.

Option #9: Buy Shares from ETFs with a Mix of Physical Silver and Silver Miners

If you’re looking to create an even more diverse portfolio, you can also opt to invest in an ETF that combines both direct and indirect exposure to silver.

This type of ETF would give you both physical silver and shares of multiple silver mining companies.

Option #10: Invest in Companies that Benefit From Higher Silver Demand or a New Silver Rush

Thinking outside the box, there is an additional way to invest in silver. There are many industries and companies that would perform better when silver is in high demand.

These companies may be indirectly connected with silver, but their success is still linked to it.

Examples of this would be bullion dealers and mining equipment companies. If there is a rise in demand for silver, bullion dealers would greatly benefit from the increased profits. Likewise, equipment mining companies would see an increase in equipment sales if there was a higher demand for silver.

Other businesses that would benefit are ones that search for silver. These exploring companies seek out locations for new silver mines and prove that silver exists in a certain place. As the demand for silver rises, so would their services.

Another example might be jewelry companies that would benefit if silver became more scarce and consequently more desirable.

Final Words on Buying Silver

For just about any kind of investor or collector, there are a lot of options for purchase. Silver is a commodity that will likely continue to hold value for a long time, and may potentially increase in value as the supply dwindles and the demand rises.