Prospects for investing in silver
If silver continues to be mined in the world at the same rate as now, then the world's reserves of this metal could theoretically be exhausted within 20 years.
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- Silver as an investment tool
- Ways to invest in silver
- Buying coins and bars
- Open an impersonal metal account (OMS) at a bank
- Buy shares of silver mining companies
- Buying Silver ETFs
- Is it possible to really make money investing in silver?
- Should you buy silver in 2021?
Silver is a relatively inexpensive chemical element; it is almost 90 times cheaper than gold. It is well known that money should be invested in those assets whose prices are growing fastest. It seems that the white noble metal does not perform well in this regard. Investments in silver made in 2011 at the peak of world prices brought losses. Today there is a slow but steady increase in quotes. How will the exchange rate behave in the near future? Is it profitable to invest your savings in Ag?
Read below about how to invest in precious metals and ensure an acceptable return on your savings.
Buying bank bullion
Today, anyone who has a sufficient amount of money can purchase a silver bar from Sberbank. This 925 grade precious metal is sold in large (up to one kilogram) and small (from one gram) copies. Of course, you can invest in the purchase of several small bars, but investing a large amount of money would be best in a large piece of the precious metal. The larger the bar, the cheaper it costs an investor to purchase one gram of silver.
However, every entrepreneur should be aware of the fact that purchasing precious metals is a rather lengthy and labor-intensive procedure. For example, it will take at least one week for an expert to establish the authenticity of the bullion (for a fee) and write an appropriate report. In addition, if you decide to store precious metal in a bank safe, opening the safe deposit box will also require spending a lot of time and money. However, this is still much safer than hiding it at home under the mattress.
Silver as an investment tool
The fall in silver prices in recent years has created the impression of its unreliability as an investment. But since 2011, gold has also fallen in price. The circumstances that contributed to this subsidence should be taken into account.
Prices were significantly influenced by two main factors that determine the quotes that the market exhibits.
Firstly, the decline in demand associated with the global financial crisis. A fifth of the silver produced on the planet is spent on jewelry. More than half is consumed by industry, and industry has learned to replace precious metals with other materials with similar properties in years of high cost (not everywhere, but in many products).
Secondly, mining and refining volumes have increased in the last decade. Supply outstripped demand, causing prices to decline.
These circumstances led to the undervaluation of the asset. As for gold, the demand for it did not decrease so much, and the supply almost did not increase. This led to relative “prosperity”.
Further forecasting of the dynamics of quotations of the white precious metal is difficult. As the experience of previous decades shows, having reached the bottom, they will go up, but how much is a big question. Some experts even predict the onset of a “silver age”: mining experts claim that the planet’s reserves of Ag are close to depletion. The need, in their opinion, will grow in those areas of the industry where there is nothing to replace it yet or in the near future.
It is likely that gold will also rise in price, since a resource famine is quite possible in relation to this metal. The investment potential of Au is assessed more reservedly.
Comparing the prices of gold and silver leads to the idea that the latter is more accessible to people of modest and average income.
Finally, there are opinions that the cost of the two main “coin” materials may be almost equal precisely because of the depletion of Ag reserves. Today, these predictions belong more to the realm of fantasy, but history knows examples when the most unrealistic predictions came true.
In any case, one should not forget that all metal investments are long-term and cannot serve as a tool for obtaining quick income.
End of the Silver Standard
Silver functioned as money for a long time. It was used in many countries with the bimetallic and monometallic systems until the 1870s. Differences between market and mint ratios, growing banking activity, and speculation and economic developments that increased the flow of capital increased the appetite for profit. The use of silver as money was soon discontinued.
Gold, which took on the entire role of money, acquired great value. Demand increased and those who had it profited in the form of increased purchasing power of the gold they collected. In the case of the German Empire, it should be mentioned that they were supplied with unimaginably high war reparations, which were paid to them by the French. This gold was worth 5 billion francs!
From this point on, the relatively stable price of silver went completely wrong. It has become unpredictable and prone to speculation. Even though the quantitative ratio of silver to gold is still stable, the markets operate very differently, valuing them differently every day.
The conclusion from this story is quite simple. The value of silver fell the moment it ceased to be used as money. It therefore appears that unless it becomes accepted money again, its value will not be stable. Is this bad for an investor? Quite the opposite. It is high volatility that makes investments attractive, although risky. What about the risks in silver?
Ways to invest in silver
Like any investment in precious metals, investing in silver is possible in physical and “paper” form. However, each of these options can be implemented differently.
Any citizen has the right to purchase bullion bars, investment coins and jewelry made from this material. No one forbids buying numismatic copies of tsarist and Soviet (1924–1931) coinage - they represent not only “weight”, but also collection value. In this case, hoarding takes place, since the invested funds will simply be stored without participating in the general financial turnover.
Another way to invest is to open an impersonal metal account (OMA). In this case, the funds “work”, but the dividends are small or not paid at all.
Finally, the most advanced method is capital funding. Purchasing shares of companies whose activities are related to silver promises good profits, if, of course, the financial result of business activities turns out to be positive.
Now let's learn more about each of the options for investing in silver.
Buying coins and bars
First, you need to decide whether or not to invest in silver. There are other investment objects, perhaps more profitable and bringing profit much faster. If the decision is made, then it says a lot about the psychological type of a person - he is conservative, not prone to risk and makes far-reaching plans for the future.
Buying a physical item that can be touched and seen is the choice of serious people, but not accustomed to trusting “pieces of paper”.
Silver bars and coins are sold in several banks, including Sberbank of Russia. Their purity means an impurity content of no more than 0.01%. The nominal weight may vary; it is indicated on the surface and does not exceed a thousand grams.
Coins can be selected from the catalog available on the website of the Bank of Russia and some financial and credit institutions.
The process of purchasing a silver bar includes the issuance of a certificate, which indicates the parameters of the product (weight, fineness 999, number). Banks offer a paid storage service.
Sales are possible at the same or another financial institution that has a license to operate with precious metals. The redemption price is affected by the condition of the ingot's surface, so damaging it is not recommended. The same applies to coins, investment and collectible.
Open an impersonal metal account (OMS) at a bank
A metal account, in this case a silver account, is essentially similar to a deposit account, but has its own specific features.
Firstly, it is not monetary units that are used as currency, but grams of the material in which it is discovered.
Secondly, in some institutions the terms of the agreement provide for a zero interest rate, and among them is Sberbank. Compulsory medical insurance is opened by the client solely based on the price difference between purchase and sale, and in certain periods it can be negative.
Thirdly, the prices for metals are set by the bank itself, and they are obviously higher than those existing on the market at the time of opening the deposit.
The investor cannot reliably know whether it is profitable for him to have non-cash silver. This unpredictability is both a disadvantage and an advantage of the purchase. If the optimistic forecasts come true, he will receive considerable profit, and if not, let him rest. Compulsory medical insurance is unlimited, so you can make money on silver at Sberbank or another financial institution. It's like a lottery, but with high chances of success and almost guaranteed winnings, but you don't know when it will happen.
Another disadvantage of metal bank accounts is that they are not insured.
Buy shares of silver mining companies
Despite the decline in the price of silver, the situation of the companies mining it cannot be called dire. The cost of production per ounce is on average approximately six US dollars, and the total cost of refining and production of measured ingots is no more than $10.50. At the same time, the world price exceeded $15.60 and is slowly but moving upward.
Analysts claim that the total world reserves of silver amount to 570 thousand tons. In a couple of decades they may run out, which will cause a global shortage of the material, which is extremely valuable for electronics and other promising industries.
The conclusion is that the securities of silver mining companies represent a profitable investment. There are quite a few such companies in Russia, but the most significant are five:
- Polymetal;
- Chukotka Mining and Geological Company;
- Highland Gold Mining;
- Amur Gold;
- Nordgold
Together they provide every eight out of ten ounces of silver mined in Russia.
Securities should be purchased on the Moscow Exchange through brokerage houses specializing in shares of “silver” companies. Now they are quoted at approximately 1000 RUB (Polymetal International plc) and continue to rise in price.
However, it is recommended to consider this investment as a long-term one, and not to rush into implementation.
Buying Silver ETFs
Another “paper” way to invest in silver is to become a shareholder in a metal exchange-traded fund. This scenario can be implemented in exactly the same way as in the case of gold ETFs - the methodology is similar. The managing and actually brokerage company representing the interests of foreign fishermen in Russia is FinEx, which operates on the Moscow Exchange.
In practice, investing in ETFs can be done through the Quik terminal, which provides access to world exchanges.
The principle of the fund is to work with securities of companies specializing in the mining and processing of silver. Unlike other types of investments, investments in ETFs can be considered as a short- to medium-term object. A share can always be sold if the need arises or such an operation is considered appropriate.
The ruble yield of the funds fluctuates within 20% per annum and is ensured by the wide diversification of their portfolios. In conditions of slow growth of quotations, futures are used, that is, purchase contracts at a pre-agreed price.
The disadvantage of this investment method is that all activities take place abroad. Russian legislation does not regulate the activities of ETFs.
Industrial demand returns
For many countries, 2020 was a huge blow to industrial production and business activity. The lingering effects of Covid-19 are still being felt in many developed countries despite the rollout of vaccines, although the industry is expected to normalize later this year. This is a huge boon for silver, given its status as an industrial metal. Additionally, silver is seen as a key player in many specific segments that are expected to generate new interest. This includes solar energy, and the incoming Biden administration in the United States is expected to place greater emphasis on it over the course of the new decade.
With increasing supply constraints due to the lack of physical markets, demand for silver is likely to increase. The price of silver continued to rise in February, although it has yet to match its earlier rise to $30. However, from a technical point of view, this was perceived as an artificial rebound.
Any new progress associated with the US stimulus package will also help lower silver prices. Until prices break above the $26 level, a clear path to upside remains unchanged. Silver prices will rise with more entry opportunities as the white metal remains one of the most volatile and fickle financial instruments.
