Key factors to consider before investing in silver

When looking to diversify your portfolio you may be considering silver. But what are the factors investors may wish to consider before diving in?

Cost

It’s estimated that around eight times more silver is mined than gold. Because of this, kilo for kilo, silver is cheaper to buy than gold. Simply put, supply and demand can affect the price of silver and reviewing the cost before purchase is important.

Bull or bear?

Related to volatility and cost, bull and bear markets also have an influence on the daily buying and selling of precious metals such as silver. A bull market (when the economy and stocks are growing) has historically shown silver to be a good investment, only if it is during the upward spike of market growth.

Industrial use

As the most versatile precious metal, the increased demand for silver is largely driven by industrial use, ranging from appliances, water purification, medicine, cars, and solar panels. This technological and industrial silver use accounts for more than half of our annual global demand.

Because of the relationship silver has with the economy, the value of the metal tends to increase when new industrial innovations emerge which use silver.

Volatility

For new investors, silver can be a good alternative to gold as it’s cheaper to purchase and some investors may consider it to be more attractive when speculating on short-term instabilities in the market.

Liquidity

In terms of liquidity, silver is classed as a highly liquid asset. This means there are plenty of consistent sellers and buyers of precious metal. This may be beneficial, especially when it comes to diversifying an investment portfolio with silver.

Does investing in silver stack up?

Gold tends to get the glory when people look for an investment with low correlation to traditional assets such as stocks and bonds.

But many invest in silver as an inflation hedge and to help protect the overall value of their portfolio in times of economic turmoil.

Some investors use a method known as ‘stacking’. Simply put, a silver stacker accumulates physical pieces of silver bullion over time, quite often until it meets a predetermined percentage of their overall assets.

Silver offers stackers many of the benefits of gold, with some important extra advantages.

Both precious metals represent ‘hard’ assets they physically own, which may cushion them from the counterparty risk associated with paper investments.

Both are relatively rare, and because they cannot be created by governments, are considered to be the ultimate forms of money, as theoretically they will outlast fiat currencies which may eventually fall victim to inflation.

Inflation hedge

Even the world’s most heavily traded currency – the US dollar – is vulnerable to inflation. Between 1971 and 2021, the rate of inflation in the United States amounted to 569.2% at an average annual rate of 3.88%. This meant that USD 1.00 in 1971 was the equivalent to USD 6.69 in 2021.¹

The cost of one ounce of silver in 1971 was USD 1.54. Fifty years later, an ounce cost USD 25.14, a 1,532% increase.²

Using these numbers over this timeframe, it can be seen that silver was extremely effective at helping to preserve wealth.

Of course, the price of silver did not rise in a straight line during this period. In fact, silver had some heady surges and some dismal plunges.

Where to buy silver bullion

Before investing it’s important to find a reputable dealer – one who offers competitive prices for precisely assayed silver.

Renowned globally and owned by the Government of Western Australia, The Perth Mint refines 99.9% pure silver in the form of bullion coins and cast bars. The Perth Mint’s operations are backed by a government guarantee enshrined in the Gold Corporation Act 1987 (WA). This exclusive guarantee offers clients peace of mind in the knowledge that a state entity is fully underwriting our operations, obligations, and liabilities.

To reflect the ever-changing price for precious metals, the prices displayed on The Perth Mint website update every five minutes when the global precious metals market is open.

Key takeaways

• If you have a smaller budget and are prepared to hold on for industry spikes, silver may be a fantastic investment opportunity.
• When looking to diversify a portfolio and prepare for uncertain times, precious metals like silver can be a good choice, especially when assets equal 5-10% each.
• Silver is a trusted store of value in the long term.
• Always consider obtaining professional financial advice before purchasing precious metals for investment purposes. This publication is not intended to be a substitute for obtaining that advice.

If you’d like to know more about investing in precious metals through The Perth Mint, visit perthmint.com