It has become popular to buy gold and silver. But does it make sense to invest in silver? The price has gone up a lot during several years. Has not silver become too expensive? And does not gold offer better protection than silver?
Most so-called financial gurus don’t like neither gold nor silver. They don’t pay any dividend and in most cases you have to pay for storage as well. Of course, you don’t need to buy physical silver, there are a number of ways you can invest in silver without buying physical silver. The easiest option, which may also pay dividend, is to invest in shares in companies that are silver producers. You can also buy silver certificates or ETFs, Exchange Traded Funds.
But if you are buying silver as an insurance against financial meltdowns, then the only safe solution is to buy physical silver. Gold is the traditional solution for such scenarios but silver has some advantages as well. One reason to own some silver and not just gold is that gold is far too expensive for daily transactions. Silver on the other hand is much more useful for smaller transactions. Note that in a case of a financial meltdown, both silver and gold prices are likely to skyrocket but silver will still be a better choice than gold for daily business. Although silver has performed better than gold lately, the gold/silver ration is still far higher than it is long-term average. Some people argue that the gold/silver ratio should, sooner or later, get closer to the long-term average. This means that silver has to perform much better than gold in the future. At the moment, the gold/silver ratio is above 50, it long-term average on the other hand is below 30.
Another reason for investing in silver is that silver is a much more useful metal than gold. Compared with gold, silver has a lot of commercial and industrial uses. This is also the main reason why the price of silver is much more volatile than the price of gold. The price swings of silver are a mixed blessing. It gives you the chance to buy silver cheap once in a while. But on the other hand, you may also see the price of your silver holdings drop significantly from time to time.
Should you buy silver coins or silver bars? You want to pay as little extra premium as possible. This means that numismatic coins are not a good idea, you often pay far more than the silver value for such coins. Rare coins are difficult to value and unless you really know what you are doing, you can end up losing money. Silver bars are the safe option, unless you buy small bars, the premium is small, at least as you find a good seller. Generic silver coins such as the Silver Eagle sell with a small premium as well. You should never pay anything for numismatic value for such coins. But note that for small coins such as 1-ounce Silver Eagles, you have to pay a significant premium, generally more than 10% above the spot price. You have to pay a relatively large premium also for small silver bars, so it is best to buy at least 10-ounce silver bars. On the other hand, you can generally get a slight premium also when you sell Silver Eagles, although significantly smaller than when you buy the coins.
If you only want some silver in order to have some basic protect against hyperinflation and financial meltdowns, silver coins can be a good solution. If you are more serious about getting into silver, buying larger silver bars is a better solution. Just remember that investing a lot in silver requires much storage space. In such cases, ETFs or silver certificates may be a better option. As long as you also remember that in a doomsday scenario, paper and electronic assets may become worthless.
Note that in some countries, for example members of the EU, buying physical silver has the drawback that you have to pay VAT. If you back gold instead, you don’t need to pay any VAT. This makes it less interesting to buy silver in such countries.