Is investing in Silver a good idea
Investing in Silver is an excellent idea, especially today with rising Inflation and the current World geopolitical situation.
That's the short answer.
The longer answer involves a discussion of several topics:
- the difference between investing and speculating
- appropriate position sizing for Investments and speculations
- Investment time horizon
- Portfolio diversification
- negative real interest rates
- Gold to Silver ratio
- Silver supply vs demand
- peak production of all commodities including Silver and Gold
Obviously, this is way too much information to cover in a short article and besides, at the end of the day, the answer to the question:
Is Silver a good Investment in 2022
is different for every investor based on their personal objectives and tolerance for risk.
At Satori Traders we believe that Silver belongs in every diversified Investment Portfolio.
We provide Precious metals information like this article as a free service to consumers so they can discover where Silver fits best in their own Investment Portfolio.
Why Silver is a bad Investment
There is a perception among some people that Silver is a bad Investment.
Typically, these naysayers compare Silver against some other asset class like Real Estate, the Stock market, or Crypto Coins and then gloat about Silver under-performing during whatever time frame they choose to focus on.
As part of their short-sighted attack on Silver these critics fail to point out that in a well-structured Investment Portfolio there would be exposure to both Silver and the asset class being used in the comparison.
While the Silver portion of the diversified Portfolio underperformed, the overall Portfolio would be benefiting from the asset that outperformed.
Without a discussion of Portfolio position sizing and Investment time horizon, these criticisms of Silver as an Investment are meaningless, although they sound quite persuasive.
If we wanted to cherry-pick time frames for an asset class we could talk about investing in Silver in 1963 at $1.29 an ounce and then selling that Silver for $49.45 in January of 1980.
That’s a return of well over 3000%.
Pick any other asset class and compare it against Silver during the same time frame and most likely it will be a dramatic underperformer.
But again, these comparisons are meaningless. We don’t get to invest in hindsight using cherry-picked dates, we have to decide how to allocate our hard-earned retirement savings today.
Multiple computer-based studies show that the typical Investment Portfolio (60/40 Stocks/Bonds) performs better throughout all cycles of the market when it is diversified with a 3-to-10% allocation towards Precious metals.
At Satori Traders we believe that every Portfolio should have exposure to the Precious metals with a heavy weighting towards physical Silver.
Instead of providing counter-arguments to why Silver is a bad Investment we prefer to talk about diversified Investment Portfolios and which form of physical Silver ownership is most appropriate for you.
Why Silver will never go up
When someone says, “Silver will never go up”, they are stating their personal opinion.
If a market analyst forecasts that "Silver will reach $600 an ounce within the next 10 years", that is just another opinion.
There are always two sides to every story. The truth usually lies somewhere in between.
The only valid argument supporting the idea that Silver will never go up involves an assumption that the Precious metals markets are controlled and manipulated.
Critics who proclaim that, "Silver will never go up", usually point at the futures markets as the mechanism used to control the price of Silver.
Silver futures
Whether it is intentional manipulation or not, Silver investors should certainly be aware of the heavy influence that the futures markets have over the Precious metals sector.
Futures contracts on Silver and Gold allow traders and hedgers to speculate on directional price movement. Because the contracts can be purchased on margin, professional traders with deep pockets are able to exert undue influence on the market using a relatively small amount of money.
Interesting market behavior
There are at least two behaviors in the Precious metals futures markets that might make an investor think the markets were manipulated.
The first behavior is large-scale selling of futures contracts during the middle of Sunday night when volume in the market is at its absolute lowest point of the week.
When a seller operating for profit attempts to liquidate a large position they don’t dump that position all at once into the lowest-volume market available.
Instead, a trader operating for profit attempts to distribute their large position slowly during price rallies (high volume periods) in order to minimize the effect that their selling will cause.
To explain the Sunday night fire sales we have to assume that the seller (or sellers) has some motivation other than making a profit on the position they are selling.
If we believed the market was manipulated we might think that these midnight fire sales were motivated by an objective to control price, not to make a profit.
The second eyebrow-raising behavior that might be noticed in the Precious metals futures markets is a propensity for margin rates on the exchanges to increase whenever the price of Silver or Gold rises too rapidly or too far.
When a futures exchange raises the margin rates on a contract, over-leveraged traders can be forced to sell their positions. Sometimes these forced liquidation events correlate closely with the end of large price rallies in the underlying metals.
The exchanges claim that when they change margin requirements it is to maintain orderly markets. To bullish Precious metals investors these margin changes can feel as though a price-capping mechanism is being employed in a controlled market.
Silver price will go up
The only justification for why Silver will never go up would be that the price of Silver is controlled via the futures markets, or some other mechanism.
Unless we assume the markets are manipulated in this manner, the price of Silver will continue to respond to decreasing supply and increasing demand in the same manner that all non-manipulated commodities do – i.e., the price of Silver will rise to balance the supply-demand equation.
And the supply-demand situation for physical Silver is extremely bullish as we will see below.
Is Gold a good Investment
If Gold is a good Investment then, by association, we can assume that Silver is also a good Investment. Or, at a minimum, we can invest in Silver with the expectation that the price of Silver will rise along with Gold.
The best evidence we have that Gold is a good Investment is the fact that central banks are buying the yellow metal and adding it to their reserves. In fact, central banks around the World have been on a buying spree since 2010.
China has more than tripled their officially acknowledged Gold reserves, growing from 600 tonnes in 2010 to almost 2,000 tonnes today. Russia has increased their Gold reserves from 790 tonnes to 2300 tonnes in the same time frame. Since the year 2000 these two countries have increased their combined Gold holdings by 5x (500%).
The answer to the question, "Is Gold a good Investment?", is obviously, "Yes!", based on the behavior of the central banks.
Why buy Silver instead of Gold
Silver is the most electrically-conductive metal on planet Earth. It is also the most reflective substance discovered so far.
In addition to these very useful attributes, Silver has natural anti-viral and anti-bacterial properties.
In today’s hi-tech world Silver is used in a broad array of products and applications where the metal’s natural properties are advantageous.
Demand for physical Silver is increasing significantly as Green initiatives are being implemented around the world. Solar panels, windmills, and electric vehicles all require Silver and lots of it.
While Silver has widespread commercial demand, Gold is used sparingly because of its cost. Also because of its cost, commercially used Gold is recovered and recycled whenever possible. Most of the Gold that has ever been mined on planet Earth is still sitting in vaults, museums and jewelry boxes.
In contrast, Silver gets used and thrown away because it doesn’t make economic sense to recover the small bit of Silver used in a cell phone, for example. Instead of being recovered this tiny amount of Silver goes to cell phone heaven when the phone reaches end-of-life (150+ million phones per year in the US alone).
From the perspective of supply versus commercial demand, Silver is the clear winner over Gold. Commercial demand for Silver is rising while the supply of available Silver steadily diminishes due to continual usage without recovery. Commercial demand for Gold, on the other hand, is flat and most of that Gold gets recycled.
Based on this analysis of commercial supply vs demand it is reasonable to expect that the price of Silver will rise more than the price of Gold on a percentage basis, and that is why buying Silver instead of Gold might make sense.
These are additional factors suggesting that a focus on buying Silver over Gold will be advantageous:
- The Gold to Silver ratio (GSR) (currently around 75:1) (see chart below) is expected to return to its historic level around 15:1. This repricing will result in a dramatic outperformance of Silver over Gold. The GSR may drop as low as 8:1 in the future since that is the ratio occurring in the mining industry today. In other words, for every ounce of Gold being mined, there are only 8 ounces of Silver coming out of the ground, not 15.
- Silver is less expensive than Gold and therefore more accessible to small-scale investors. While the price of Gold Coins may be out of reach, everyone can afford a few ounces of physical Silver. As more investors move into Precious metals, this new Investment demand will likely favor Silver over Gold.
- Silver has a reputation of being an Inflation hedge. Most Americans over 50 years of age can remember the gas lines and dramatic Inflation of the 1970s. Many of these people are also aware that the price of Silver soared to almost $50 during this time period. While Gold acts as a hedge against Inflation along with Silver, investors may have a stronger association with Silver acting in that role because of their experience during the 1970s. In the current environment of sustained and high Inflation, investors will be looking for protection and Silver may be their first choice, not Gold.
At Satori Traders we encourage investors to hold both Silver and Gold while suggesting that the ideal Precious metals Portfolio is weighted in favor of physical Silver over Gold.
When we talk about how to invest in Silver we have to differentiate between physical Silver metal and derivative forms of Silver like ETFs and Mining stocks.
The foundation of an ideal Precious metals Portfolio is formed with personally-held physical Silver, preferably 90% junk Coins (90% Silver US Coins minted 1964 and earlier).
The different ways of owning physical Silver are listed below:
- personally-held junk Silver, Silver Bullion bars and Coins
- Physical Silver held in a local safe deposit box or commercial vault
- Physical Silver held in a remote commercial vault
- Allocated Silver certificate program
- Unallocated or pooled certificate program
- Silver IRA
Although Silver IRAs appear last in this list, we have to keep in mind that these self-directed Precious metals IRAs are the only way to purchase and hold physical Silver metal using tax-advantaged retirement savings.
It is important to note that there are no Numismatic Coins or proof Coins on the list above. The high premiums charged for these Coins tend to make them a poor Investment.
If you spend some time reading consumer reviews about Precious metals Investments you will notice that most of the complaints are related to purchasing proof and Numismatic Coins and subsequently losing money.
It is easy to avoid these potential problems by simply not buying proof or Numismatic Coins, regardless of what any slick salesman has to say on the topic.
Derivative forms of Silver
Silver securities (Trusts, ETFs, Stocks, options on futures contracts, etc.) provide exposure to the price movement of physical Silver without providing actual ownership of the metal. These paper Investments derive their value from the underlying metal.
Investors can purchase Silver securities in their brokerage accounts and in their Retirement accounts if they have a self-directed option.
Different ways of gaining exposure to the price of Silver are listed below:
- Sprott Physical Silver Trust (PSLV)
- stocks of Precious metals Royalty companies
- selected Silver mining stocks with an emphasis on micro-cap companies in the emerging-producer stage
- major Mining stocks (e.g., GOLD and NEM)
- Mining stock ETFs (e.g., GDXJ)
- Silver-backed ETFs and Trusts (e.g., SLV)
Notice in the list above that PSLV is listed first while SLV is listed last. The Sprott Physical Trusts are widely believed to hold the physical metal they claim to hold while some analysts question the holdings of SLV. If you are interested in Silver-backed ETFs do your due diligence and compare the disclosure documents for PSLV and SLV. The PSLV doc is straightforward while the SLV document is jam-packed with legalese about sub-custodians who aren't required to maintain chains of custody or perform audits.
Investing in Silver for beginners
Investing in Silver for beginners starts with a purchase of US dimes, quarters, and halves minted in 1964 and before.
These 90% Silver Coins are unflatteringly referred to as “junk Silver” but they are the most useful form of Silver to have in a barter situation because they are widely recognized as something of value.
The small denominations make trading for a single loaf of bread or other day-to-day items possible if we ever revert to a barter economy. A Gold Coin, in contrast, represents too much value to use in a barter situation.
Junk Silver is sold by face value, typically in bags containing $1000 worth of dimes, quarters, or halves (4 quarters, 10 dimes, or 2 halves equals 1 dollar of face value).
Regardless of the Coin, these $1000 bags contain about 715 troy ounces of Silver and weigh approximately 55 pounds.
As part of your Investment strategy for physical Silver, give some thought to storage. Because Silver is so inexpensive, you can easily end up with more metal than you know what to do with.
Lowest Premium to the price of Silver
After securing enough junk Silver, complete the physical portion of the Silver Portfolio with Bullion bars and Coins.
In general, the best choice will be the Silver Bullion product with the lowest premium to the price of spot Silver. That will likely be 100 oz bars.
100-ounce Silver bars offer low premiums to the price of Silver and they store more conveniently than junk Silver because they are stackable. There is a potential downside to 100 oz bars, however, that Silver Investors should consider.
If Silver reaches the price levels being predicted by some analysts ($200+ per ounce), selling a 100-ounce Silver bar for cash will become a federally reportable event in the U.S. since any cash transaction over $10,000 requires documentation.
If this is a concern, pay a little bit of extra premium for Bullion products under 100 ounces. One-ounce Silver rounds or bars are fine. Five- and ten-ounce bars are great as well.
Always choose products from well-known companies like Sunshine Minting, Inc., A-Mark Precious Metals, Johnson Matthey Assayers and Refiners, United States Assay Commission, Engelhard, etc.) to prevent issues when it comes time to sell.
Silver Bullion Coins from the National mints offer another possibility, although the premium on these Coins is likely to be higher than other options. Here are some examples:
- American Silver Eagle
- Canadian Silver Maple Leaf
- Australian Silver Kookaburra
- Australian Silver Kangaroo
- Austrian Silver Vienna Philharmonic
On our Price forecast page we demonstrate how the price of Silver could reach $50 an ounce by May of 2023.
Based on that prediction we can say that Silver will hit $30 before May of 2023.
Technical analysis of the Silver price chart suggests that Silver’s price rise is likely to accelerate dramatically after the $30 level is reached.
At Satori Traders we are expecting Silver to work its way up to and through the $30 level in 2022 and then to quickly pop up and test $40 and perhaps even $50 before pulling-back for a rest in 2023. *
* Please see our disclaimer below. Although we make predictions for when will Silver hit $30, our predictions do not constitute trading recommendations or Investment advice. Do you own due diligence and consult your own professional advisers before making changes to your Portfolio.
Gold vs Silver price chart
This chart of the Gold Silver ratio demonstrates how the GSR fluctuates over time.
Notice how the ratio reached 15:1 in January of 1980 when that secular Precious metals bull market reached its peak.
At Satori Traders we are expecting the GSR to return to this 15:1 level in the current secular bull market. We are also speculating that the GSR may drop as low as 8:1. At 15:1 and below we will be looking for other asset classes to purchase with our gains from Silver.
Our objective in this article was to answer the question, "Is investing in Silver a good idea?" Hopefully we have helped you realize that the answer is definitely, "Yes!"
Here is a recap of the points we covered:
- central banks are buying and holding Gold which shows us that Gold is a good Investment
- the price of Silver is loosely correlated to Gold and, therefore, if Gold is a good Investment then so is Silver
- commercial demand for Silver is strong and rising significantly because of Green Energy initiatives
- the available supply of Silver is constantly diminishing because commercially-used metal is not recovered and recycled
- Silver is likely to outperform Gold on a percentage basis as the GSR returns to its historic range
After demonstrating why Silver is a good Investment we shared some pointers on how to purchase physical Silver and derivative forms of Silver.
At Satori Traders we believe that Silver belongs in all Investment Portfolios and we encourage our clients to answer these questions: "How much Silver is appropriate for your Portfolio?", and, "What forms of Silver would you like to hold?".
With these questions answered you can then determine how to fund your Silver Portfolio and add new funds to it as they become available.
If you fall in love with Silver like we have, you will find that your Portfolio is never big enough!
Hi, my name is Bryan Post and I love the shiny stuff - Silver and Gold.
I've been investing in the Precious metals and mining stocks since 2002 when I realized that Gold is the only real money on the planet.
Here on SatoriTraders.com I share everything I've learned about the metals, Financials markets, trading, Technical analysis, and the numerous games that central banks play with fiat currencies.
