Investing in Silver

By far the least expensive of the precious metals, silver is sometimes referred to as a ‘poor man’s gold’. However, as bullion dealers with a reasonable amount of knowledge on the subject, we believe that this is an unfair comparison. As two rare and precious metals, it is tempting to use their price as a means of determining which of the two is a more valuable investment. However, there is much more to silver than meets the eye. Plenty of very wealthy individuals have invested large parts of their fortunes in silver bars and coins rather than gold. Of course, the wisest investors usually buy both.

The principal reason silver is considered less valuable than gold is that there is simply more of it on the planet. The rules of supply and demand usually dictate that the more available a commodity is in relation to how much people want it, the less expensive it will be. However, this does not make silver any less useful, or any less sought after.

In fact, silver’s countless industrial uses mean that demand for the precious metal comes from a huge variety of sources and one that continues to grow. Silver’s status as both an industrial and a precious metal means that it behaves differently to gold and, although they share certain qualities, they also possess enough unique characteristics to make them fairly different investments. In an ideal scenario, then, a well-balanced, diverse portfolio would consist of both metals.

Why invest in silver?

Silver’s many industrial uses should not detract from its reputation as a precious metal. For as long as gold has been traded as currency, silver has also.

In fact, silver is considered by many to be THE original monetary metal and this is something that is reflected in the language of currency. The British ‘pound’ refers to a pound in weight of silver from the historical silver standard and in almost 100 languages– both silver and money are referred to by the same word. Silver literally means MONEY.

As price charts and the gold: silver ratio demonstrate, demand for silver still rises in periods of economic difficulty, when investors look to safe-haven assets they trust to maintain a high value, even though industrial demand for silver would normally be lower.

Silver is more affordable and more flexible

Of course, the fact that silver is so much cheaper is, in itself, a reason to invest. As well as being more attainable for small investors, the far lower price per unit means that silver investments can be much more flexible. While a one-ounce gold Britannia, for example, would see little change from €1800, the same budget would buy a much larger amount of silver assets, even after VAT has been taken into account. Investing in large quantities of less expensive assets offers a level of flexibility that a single, high value investment cannot. It would be easy for the silver investor in our example to sell half of their portfolio should they want to, whereas the investor in gold could not sell half of their Britannia.

Diminishing supply vs increasing demand

While demand for silver is growing, as discoveries continue to be made about its usefulness in medicine, electronics, solar energy and countless other industries, the supply of the metal is also decreasing. For a long time, we have been using more silver than we are producing and the once plentiful stockpiles are beginning to shrink. If this trend continues, it is possible that the price might increase significantly in the future.

The Gold: Silver Ratio

Silver also has a tendency to increase by a much higher percentage in a bull market than gold, giving it the potential to be a much more lucrative investment in the long run. At the time of writing, the gold: silver ratio is at around 80, meaning that the gold spot price is currently around 80 times higher than silver. This is due to the negative trend in precious metal prices since 2011. However, while gold has decreased by around 2% since then, silver has lost about half its value. This is because of the enormous increase that silver experienced between 2005 and 2011 during a very bullish precious metals market. While the price of gold increased by around 470% in that time, silver increased by 766%.