Silver trading: how can you invest in silver?

Like gold, silver is a precious metal that is limited in availability and can therefore increase in value significantly. But how does the value of silver actually come about? And how can you invest in silver yourself? In this article you will read everything you need to know before investing in silver.

How can you invest in silver?

Investing in physical silver can be done through a special company where you can physically buy silver. It is also possible to actively trade in silver via the internet. We will discuss the different possibilities of investing in silver.

Method 1: Active trading using derivatives

A popular way to trade in silver is by using derivatives. You can use CFDs to speculate on price rises and falls. CFDs are only meant for the short term.

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Method 2: investing in options

It is also possible to invest in silver by using options. With options, you buy the possibility (but not the obligation) to buy or sell silver at a certain value. When you make the right decision, you can achieve a price gain with your investment in silver. You can buy options with different expiration dates, which grants you the maximum flexibility. Do you want to know more about trading in options? In our extensive article about options we will discuss everything you need to know:

Method 3: track the silver price

If you want to invest in silver in the long term, you can also choose to do this with a tracker. Trackers are securities designed to follow the price of an underlying security as much as possible. An example of a silver tracker is the ETFS Physical Silver. You can read more about trackers in the article investing in trackers.

Method 4: investing in silver stocks

You can also choose to invest in silver shares. By buying shares of silver mines, you indirectly invest in the price development of silver. When the price of silver rises, silver mines make a higher profit. Examples of companies you can buy shares in are First Majestic Silver Corp. and Coeur Mining Inc.

The price of a silver stock is not directly connected to the price of silver. When you invest in a company, other factors also play a role. For example, a company can run its business more efficiently than another company. Therefore, study the fundamental data of the company first before you buy the shares.

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Method 5: physical investment in silver

People who are afraid of total monetary devaluation often prefer physical investments in silver. There are two methods in which you can invest in physical silver: by buying ingots or by buying coins.

With physical investments in silver you have to pay attention. It is important that you take care of a good insurance and storage. With physical silver, you usually achieve a lower return than with derivatives. After all, there are extra costs involved in dealing with physical silver. Therefore, only buy physical silver if you are afraid that the world will burn in the future.

How does the demand for silver come about?

The demand for silver can be split into two parts. The first part is the demand for silver as a safe haven, and the second part is called the industrial demand.

As much as 85 percent of the silver is used for industrial purposes. Silver is used in various technological products. A good example of a technological product that uses silver is the modern smartphone. Unlike gold, silver really has a practical application. With the rise of new economies, the demand for silver in electronic products will only increase.

But the role as an industrial material alone does not explain the rise of silver in the last ten years. Silver is also seen by many people as a safe haven. Just like gold, people invest in silver to protect themselves in times of economic adversity. Silver is a good protection against inflation, for example.

The development of the silver price over the years

Investing in silver as a safe haven

Strong increases in silver prices are often driven by an economic crisis. Investors look for a good and affordable safe haven for investments during a recession. The shift of silver from industrial metal to monetary metal is therefore responsible for a large part of the current price increase.

Recently, there was a rise in precious metals again during a crisis. The corona crisis immediately caused the prices of gold and silver to rise sharply. It is therefore wise to buy gold and silver in economically uncertain times.

As an investor, you have to see silver as a precious metal separate from gold. The silver market is about 19 times smaller than the gold market. But precisely this small market size in combination with a fast-growing industrial demand for the physical silver makes buying silver attractive in these times.

Industrial demand for silver

According to The Silver Institute, about 900 million ounces of silver are used every year. At the same time only about 700 million ounces of silver are extracted from the silver mines. This means that a part of the supply of silver that is stored above ground is consumed every year. The silver stock, in other words, is shrinking drastically.

In 1950, this total supply was approximately 10 billion ounces. According to the  U.S. CPM Group, in 2010 it would only be 3.5 billion ounces. This can of course be a leading force behind the rise of the silver price. Most silver consumption took place in the West. When you consider that more and more Asians are starting to use phones, DVD players and iPods, you understand why buying silver can be a very interesting investment!

9 reasons to invest in silver

Below we discuss 9 reasons why you should invest in silver right now.

It’s affordable

Gold is too expensive for many investors. For an ounce of gold you have to deposit 1500 to 2000 dollars. If you want to protect yourself against a crisis, you have to deposit a large amount of gold in one fell swoop. Silver is often a factor 70 cheaper, which means that you can protect yourself against economic bad times for less money.

It’s tangible

Nowadays, most investments are on paper. Money, stocks, bonds and even futures are all intangible. When you buy silver physically, you can take it with you and nobody has insight in what you do with it. People who consider their privacy important or who have little confidence in the financial system may consider buying silver.

Silver has value

You can’t go to the greengrocer’s with a stick of silver. Yet silver is still seen by most people as a form of money. Physical silver always has value. This is due to the fact that it is not possible to print silver, and physical silver cannot be stored digitally. The fact that it is physical and has limited availability gives it value.

You also have the advantage that there is no counterparty risk. You do not need another party to fulfil a promise. When you have money in your bank, this works differently. The bank must then be able to continue to actually deliver the money.

Easier to sell

When we compare silver with gold, silver also provides you with more flexibility. When you physically own gold, you immediately receive a substantial amount for one ounce. With silver, you can sell an ounce for a way smaller amount of money. This makes it possible to sell silver for small expenses.

More movement

The market for silver is a lot smaller than the market for gold. Because of this you see that the silver price moves faster: both up and down. As a smart investor, you can benefit from this. When you buy silver in a bull market, you will get a better result. As a day trader you can also choose to take a short position on silver. With a short position, you can even achieve a good result in falling markets.

No stocks

Governments hold large reserves of gold. This is no longer the case for silver. Only in America, India and Mexico do governments still store the raw material. At the same time, we see that the industrial demand for silver continues to rise. As a result, we will be less and less able to meet the demand for silver. Buying a scarce raw material can work out well in the long term.

The World economy is growing

Another argument for an investment in silver is the rising global economy. The global demand for industrial goods is increasing. Silver is found in batteries and solar panels, for example. This raw material is therefore an indispensable metal for all kinds of applications. This is because silver is both electrically and thermally conductive and reflects. Economic growth seems unstoppable in the long term: the demand for silver will therefore only continue to rise.

The silver price has a limited ceiling

With many raw materials you see that a too strong rise in the price is slowed down. A high price of oil is, for example, disadvantageous for many companies. You then see that all sorts of agencies try to influence the price of oil. However, the negative effect of a high silver price for companies is limited. Each product contains only a minimal amount of silver.

The only pressing factor is the Central Banks. When the silver price has risen a lot, you often see that the banks sell part of their supply. This will put some pressure on the silver price. Yet, you see that when silver start to rise, there is a lot of room for further increases. An investment in silver can therefore yield great results.

Derivatives can raise the price further

It is also important to remember that most investments in silver are made on paper. With derivatives investors constantly speculate on price increases and decreases. However, in most cases they do not want to receive the silver and accept the profit or loss in their local currency.

When the economy is in terrible shape, investors can choose to receive the silver anyway. However, there are many more derivatives on silver in circulation than actual silver. As a result, the silver price can increase significantly.

What are the disadvantages of investing in silver?

As you have read above, there are plenty of arguments for buying silver. However, there are also plenty of reasons not to buy silver. If you buy silver physically, there is a risk of theft. However, this is not the only risk of investing in silver.

Another major disadvantage of investing in silver is its limited liquidity. Shares are often sold on the stock exchange within a few seconds. When you want to sell physical silver, you will have to put in more effort.

The return is also limited in many cases. This is because there is no company behind silver. When you buy a share, you know that there is a company behind it that makes a profit. You can then receive part of the profit in the form of a dividend. Silver is only a form of property from which you cannot get an income. Investing in silver is therefore only attractive in certain market conditions.

Another disadvantage of silver, are the higher transaction costs. Especially when you buy silver physically, you often pay higher premiums. When you use a fund to invest in silver, you avoid paying high transaction costs on your investments.

Hedging silver

You can also choose to hedge silver. This is a strategy you can use to reduce the risk of your portfolio. When you invest in risky shares, you can use silver to insure your portfolio. If the shares plummet, part of the loss will be absorbed by the profits you make with silver.

Trading in silver with leverage & short positions

You can choose to actively speculate in silver. You do this by using derivatives. When you do this you have two extra powerful possibilities. You can use leverage and you also have the possibility to take a short position.

A lever makes it possible to take a larger trading position on silver with a smaller amount of money. You can trade with an amount of $100 in $500 of silver. An increase of 10% in the silver price then leads to a profit of 50%. However, the opposite also applies. With a drop of 10% you also lose 50% of your investment. Trading with leverage therefore gives you magnified results, but that does not always have to be favourable.

You also have the possibility to take a short position. With a short position, you can speculate on a decline in the silver price. Here too, you have to be careful. The price of silver can never drop further than zero, while the theoretical rise is unlimited. This means that you can lose considerable amounts of money with a short position.

Some trading tips

Silver is in general more volatile than gold. Silver and gold prices have a strong correlation. When gold rises, silver usually rises and vice versa. Silver, however, reacts more strongly. When gold falls, silver tends to fall more strongly. It is therefore not unprecedented for silver to fall or rise by more than five percent in a day.

There used to be a fixed ratio of silver and gold of about 1:15. It is now clear that this ratio does not always hold up. The difference between the silver and gold price has increased considerably.

There is a strong correlation between gold and silver

Silver is the new gold

The demand for silver is currently high, while there are only a few silver mines. Silver is often a by-product of lead and zinc mines. Silver therefore has the potential to become the new gold. The poor man’s gold’ might still be safer than gold.

This is why more and more traders take the step to invest in silver. The biggest advantage of this is that as an investor, you are protected against inflation and economic uncertainty in this way. In addition, investing in commodities (and therefore also silver) is seen as an important part of a well-diversified investment portfolio. If you also have bonds and shares in your investment portfolio, it is also advantageous to own raw materials.

What is the current silver price?

Are you wondering what the price of silver is? Below you can consult the current silver CFD price.