Are you looking for a safe investment with downside capped by rising inflation, and upside all but guaranteed by skyrocketing demand and production that hasn't kept pace? Silver may just be the perfect option.
With silver prices at the back end of a long term correction / consolidation, sitting just about $24 an ounce, and the economy on the cusp of recession, now is an excellent time to consider investing in silver.
The current state of the silver market provides many advantages for investors, including long term supply and demand dynamics coming to a head, as well as potential protection against high interest rates and skyrocketing national debt in the US.
In this article we’ll look at factors to consider when deciding if now is the right time to invest in silver, how you can make smart investments with both physical and paper assets, strategies for diversifying your portfolio with silver investments, tips for minimizing risk, and resources for further research on investing in silver. Let’s get started!
The current state of the silver market
Silver prices have rebound over the last two months from what appears at present to be a long term low. Gold and silver both had great runs out of the Covid lows in 2020, silver more than doubling in price. What we've seen since is an era of risk on that ran stocks and cryptos to new all time highs, and less demand for security providing precious metals. That era is over.
Global demand for silver is on the rise, with notable increases in purchases by central banks worldwide for the first time in years, steep declines on bullion reserves at the exchanges, and commercial hedging (cutting shorts, taking longs) at levels not seen in two years. This seem to be reaching a critical juncture, and perhaps a point of no return for silver prices.
Advantages of investing in silver
Investing in silver now offers a variety of advantages, including strong potential for outsized gains, as well as protecting your portfolio from the effects of inflation and rising interest rates. Silver is also an excellent way to diversify your investments since it does not typically move in tandem with other assets. Additionally, silver is an attractive option for investors looking for a safe haven during times of global economic uncertainty - which, if you have a TV, twitter, or any other contact with neighboring humans, know what times we live in.
Types of Silver Investments
There are several ways to invest in silver, ranging from physical assets like coins or bars to paper assets such as Exchange Traded Funds (ETFs). Physical assets offer the advantage of being able to physically hold the asset and store it securely. For those in the guns and gold camp, it provides peace of mind in case any number of low probability, high impact scenarios play out - civil war, attack on our energy or internet infrastructure, or supply chain break down.
ETFs and individual producer stocks offer greater liquidity and convenience than physical assets and allow you to diversify your investments more easily, owning some well established miners, and perhaps a few, low market cap, potential high flyers.
Strategies for diversifying with silver investments
When investing in silver, it’s important to diversify your portfolio to ensure that you are not too heavily exposed to any one asset class or stock. This can be done by allocating different percentages of your total portfolio to different types of silver investments like coins, bars, stocks and ETFs. The future bull run in silver, if anything like the past, will be wrought with steep climbs and violent corrections. Taking profits along the way makes a great deal of sense, and for that, liquid stocks and ETF holdings can't be beat.
Additionally, it’s a good idea to spread out the timing of when you buy silver as its notoriously difficult to time. At current prices you're all but guaranteed a 5 to 10x return over the coming years, but does that mean it can't go lower short term? No. It can. And keeping a little cash handy to top up on declines of 20-50% is not a bad idea.
Long term silver supply and demand dynamics coming to a head
Silver’s strong long-term demand is due to its use in industrial applications as well as increased investor interest. The supply and demand dynamics of silver are expected to remain favorable for the next few years, with prices continuing to climb, steadily at first, and then violently into a typical blow-off top.
The gold-silver ratio: what it says about silver right now
The gold-silver ratio is a tool used to assess the relative value of gold and silver at any given time. The current gold-to-silver ratio stands at around 78, which means that one ounce of gold is worth roughly 78 ounces of silver. This ratio can be an important indicator when deciding whether or not to invest in silver. Historically, when the gold-silver ratio has been on the higher side (above 80), it may indicate that silver is undervalued and could potentially offer investors greater returns than investing in gold. Conversely, if the ratio is lower (below 70) then it could be an indication that silver is overvalued and investors may want to consider other options.
To put things in perspective, the historical low for said ratio is 2.5 - that's right, 2.5 ounces of silver could have bought you one ounce of gold. While we're not predicting a return to that, Keith Neumeyer of Majestic Silver often reminds us the current mining ration is 8 to 1 - 8 ounces of silver come out of the ground to ever ounce of gold. While this doesn't speak to market demand, it does speak to scarcity, and is worth considering.
What does the price of silver look like if we return to a gold-silver ratio of 20, which we believe is more than realistic, in the coming bull?
Tips for minimizing risk when investing in Silver
When investing in silver, it’s important to understand that there is always some level of market risk involved. To minimize this risk, it’s important to research the markets thoroughly and have an understanding of both the short-term and long-term drivers of the price of silver. Additionally, diversifying your investments across different asset classes can help reduce your overall exposure to market volatility. Two of the best strategies for mitigating risk are time horizon, and non-leveraged positions.
This market will go up. But it may take time. Having some exposure to silver that doesn't need to be liquidated until supply and demand dynamics work themselves out is the single best hedge you can have.
The second is owning a position that is sustainable. While futures and options provide greater upside potential, one may not be able to hold their position through whipsaws and corrections.
Silver mining stocks to consider investing in
Silver mining stocks are another great way to invest in silver. These stocks offer investors exposure to specific mining companies, allowing them to benefit from the company’s success or failure. Some of the most popular silver mining stocks to consider investing in include: B2Gold Corp., First Majestic Silver Corp., Fortuna Silver Mines Inc., Hecla Mining Co. and Pan American Silver Corp. Additionally, it is important to research each company before investing, as they may have different risk profiles which could affect your investment returns.
Better to invest in physical silver or stock ETFs?
The decision to invest in physical silver or stock ETFs is ultimately up to the individual investor and should take into account their particular risk tolerance, investment goals, time horizon, and other factors. Physical silver offers a tangible asset that can be held in one’s possession for long periods of time, whereas ETFs offer greater liquidity, convenience and diversification. Ultimately, it all depends on what an investor is comfortable with and suits their needs best.
For our taste, we like the combination of both. Physical for real world security, and stocks / ETF's for liquid exposure to silver prices. Further, the potential for no risk hedging and covered call writing is possible with stocks and ETF's, which is a way of both holding your long term position, and generating income when the market seems over extended or due for a multi week / month pull back.
Considerations when investing in physical silver
When investing in physical silver there are several things to consider such as security, storage costs, taxes and insurance. It is important to ensure that the silver is stored in a secure location and properly insured against theft or damage. Investors should be aware of any applicable taxes or fees associated with buying and selling physical silver.
In sum, investing in silver can be an excellent way to diversify and protect against inflation and rising interest rates. Investing in physical silver, mining stocks, or ETFs are all viable options for investors looking to add silver to their portfolio, and gain exposure to the coming, epic bull market.
Its important to do your research before investing so that you understand the risks associated with each option and can make an informed decision. Keep an eye on the gold-silver ratio as it may provide insight into whether or not it is a good time to buy silver, or whether a window of holding gold may reap better returns.
With this information in mind, it’s clear that now is an excellent time to invest in silver. Silver offers an attractive store of value as well as a way to diversify and protect your portfolio from inflation and other economic factors, and rediculous upside potential. With the right research, you can make smart decisions about investing in silver and reap the rewards for years to come. Good luck!
Learn More About Nomad Finance