Investing in Silver

Investing in silver is fast becoming one of the most exciting investment opportunities in recent history, and has made extraordinary gains due to a culmination of global events. A volatile economy and shifting attitudes toward precious metals has put silver on a steady upward march with little sign of slowing down.

It should be noted that commodities investment is known for its unpredictability and there are never any guarantees. Even so, there are many ways to invest in silver, which makes it easy to experiment with low risk, and even mitigate that risk by using a variety of silver investment products.

Investors can generally choose to buy physical silver or "paper silver", and each category has its sub-categories, and those choices have benefits and drawbacks unique to them. Pros and cons aside, silver is a precious metal that can benefit both the short- and long-term investor.

Silver Value

Investing in silver has value as an investment because it is a finite resource, it is useful in manufacturing, it has intrinsic beauty and because nations have recognized it as legal tender. Although it does not have the investment cache as some other precious metals, it nevertheless has an established place as a commodity in the global market.

Many silver bullion coins produced by governments now and in the past remain legal tender today, which confers some additional prestige to the precious metal. It is a sign that, despite silver's steady battle with being considered solely as an industrial metal, it will persist as something valued beyond its beauty or utility.

Benefits and Drawbacks of "Paper Silver"

Investors may choose to invest in "paper silver" that is not tied to the physical metal. These investment tools take many forms, including silver options and silver futures. It may also refer to purchases that do attach to physical silver, although the silver will never be physically possessed because it will remain in a depository.

These choices increase investment liquidity, or the ease with which the silver is transferred to another party in a transaction, as well as help avoid the concern of safe storage and certification. It can also provide increased opportunities that a straightforward investment can't, such as bargaining for a greater return on a future, or hedging against a loss with an option.

Every positive has its negative, and the benefits of investments in silver in paper form are not exempt. Liquidity, bargaining power and storage savings has its price, and whether those costs are worth it depends on the investor's overall goals.

Tax/Transfer fees

Safeguarding silver and transferring it in transactions results in fees and taxes that are not necessarily associated with physical possession or in-person transfers of property. The drawbacks may come in the form of limited liquidity, storage safety and certification of the physical silver in your possession, but that is the balance of risk in "paper silver" compared to having it in hand.

Taxes and transfer fees are typically not that expensive given the relative value of the transaction, but when measuring the value of an investment every consideration should be made.

No silver in hand

Some silver investors predict the fall of fiat currency and an ad hoc return to silver as a way to purchase goods. Considering what has transpired in the U.S. and global economy since 2008, it may not be an unreasonable concern. This isn't an option, though, if you don't have physical possession of your silver investment.

The likelihood that this will occur is debatable, of course, and the scenario is offered only to illustrate the point that limited access to your investment can prevent you from doing what you want with your property, like selling it for cash on hand or trading it in person at your own discretion.

Silver Investment Vehicles

When investing in silver, considering which silver investment is right for you can be a daunting process. There are a lot of options, and each one can bear different results. Knowing your goals before you buy or sell is the best way to start. Once that is settled, it's time to study what the options are in the silver market.

Exchange-traded products

Silver ETPs are a way to invest in silver without taking possession of the actual metal, as you could with bars or bullion. The chief benefit to this is increasing liquidity and decreasing costs associated with safeguarding and certifying your own silver.

There are many different products to consider, including accounts, certificates and derivatives like futures and options.

Accounts allow buyers to purchase an interest in silver from a bank or depository that holds and certifies the silver. The buyer never takes possession of the silver, only an interest in what is stored.

Certificates are much like accounts in that the buyer does not take possession of the silver. These certificates are much like those issued as currency when it was still backed by precious metal, except these certificates are not traded in for the metal. The Perth Mint Certificate Program is the only government-certified program of its kind that we are aware of for investing in silver.

Derivatives are a way for investors to "bet" on the future value of silver, and these bets gain a value of their own that can be traded once issued. For example, you can buy an option to buy silver at a set price in the future that amounts to the difference of the obligation to actually buy. If that price is preferable when that time arrives you may exercise your option, or let it lapse. Additionally, you may choose to sell the option itself before its expiration date.

Silver Bullion Bars

Silver bullion bars can be physically possessed or stored for a fee and come in many different sizes, which makes them a versatile and popular investment tool. They can be sold in person or sold by the depository on your order, if such an arrangement is available.

The disadvantages are that it may not offer as much liquidity as "paper silver" if the depository imposes such limitations, will have to be stored and may need to be recertified if physical possession is taken.

Silver Bullion Coins and Rounds

Coins and rounds are yet another way for investing in silver that allows you to take physical possession. They are also easily sold for cash, and government-issued bullion is often also legal tender (although always with a face value far less than their worth in silver).