Is silver a good investment?

By Patricia Miller

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While silver stock tends to fluctuate in direct correlation to that of gold, interestingly, its relative volatility has allowed it to outperform gold at every spike.

Silver is a classic safe-haven venture during uncertain times. Historically, during difficult global events such as recessions, market turbulence and political issues, investors flock to gold and silver. The coronavirus has been no exception. To add to that, silver has a much smaller market size than gold, so the weight of large investments will always have a greater impact on its price.

Another factor playing into the price surge is the dollar being the world’s reserve currency in the stock market, its value often relating directly to gold and silver. With the recent stimulus packages offered by the U.S. government, and the dollar trending down, this explains, and bodes well for, silver’s price currently and going forward.

While silver stock tends to fluctuate in direct correlation to that of gold, interestingly, its relative volatility has allowed it to outperform gold at every spike.

When it comes to precious metals, gold is often the most popular investment. This is no surprise as of late, given its rapidly rising stock value amid COVID-19. Despite the pandemic’s effects on the global economy, gold’s steadfastness seems to be the hot topic of the moment.

But look beyond gold and you’ll find silver is enjoying a very similar trajectory. Which is why many investors are currently asking themselves should I invest in silver?

Fundamentals of silver stock

From March to October 2020, the price of silver surged from $12.35 per ounce to $23.83. This followed on from a significant drop; due to the uncertainty of the approaching pandemic, stocks of all varieties plummeted. Silver was no exception, and the stock hit its lowest value since 2009.

This low, however, was followed by a huge rally that rocketed the stock to its highest level since 2013. Within weeks, the stock had seen an eleven-year low and a seven-year high. The current price of silver is at $23.47, just a little under the highs it achieved last year.

What separates silver from gold and perhaps makes silver a more viable asset, is that gold’s value comes mostly from jewellery and as a currency proxy. While some of silver’s value is also tied up in jewellery, half of all silver is purchased for industrial use.

These uses include the production of solar panels and batteries, which is a giant green tick for silver’s long-term price, an assortment of electronics, and as an antibacterial element.

The use in solar panels alone is a good omen; the market for sustainability is expected to triple in the next few years, meaning silver will be in increasingly high demand.

What is the bull case for silver stocks?

In the face of recent price increases, FXEmpire projected an incredible target of silver from anywhere between $135 and $213 per ounce in the six months from Oct 2020, if not even higher.

More conservatively, GoldSilver predicted back in June a 2020 high of $20 per ounce with no crisis, and $25 with crisis. Both of which the stock has surpassed. They did predict, though, a potential five-year high of $100-$150.

These are two contrasting predictions, but the general consensus is an overall increase in silver’s future. With this, it seems that any silver asset, be that physically or in mining stocks, could prove to be a wise addition to anyone’s portfolio.

Although no asset is without risk, and silver is highly volatile, its uses in industry make an excellent case for silver’s viability. Where it is right now, silver could represent an excellent investment opportunity if the predictions are correct.

What is the bear case for silver stocks?

As with gold, silver operates in a highly volatile market, one that is impacted by global, economic and political changes. Investment in silver comes at a much lower opening position than that of gold, often making it a more attractive investment instrument.

Silver can be sensitive to recession and with the current economic uncertainty around the pandemic, and given that the price of silver is driven by industrial growth, the price of silver could plummet by an economic slowdown.

It is also worth noting that the only way to benefit from investing in silver is to sell your stocks during a price increase. As a tangible commodity, silver doesn’t offer interest like a bond or dividends like some other stocks.

Unpredictable price moves and its vulnerability to technology shifts are also worth considering before you make the decision to invest in silver.

Should I invest in silver stocks?

In a bull market, silver will generally outperform gold making it an attractive investment option. But as the price of silver is significantly lower than gold, so are the returns. This said, silver is still a sound investment for investors looking to diversify their portfolio or preserve their wealth during times of economic uncertainty.

The increasing use of silver in industrial products could see the price of silver jump significantly in the coming years, but as with all investments, growth is not guaranteed and investors are always exposed to some element of risk.

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Topics:
Silver
Industries:
Materials

Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Patricia Miller does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Patricia Miller has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.