While everyone loves to talk about the value of gold, the silver bugs out there know that this precious metal is equally as valuable as a commodity. Learning how to invest in silver stocks is a great way to capitalize on a precious metal value that’s slowly been on the climb for 30 years. And while silver might be down from all-time highs in 2010, many believe we’re headed that direction again very soon. Picking up silver stocks today could yield green in your portfolio by the time the 2020 decade comes to a close.
While some people prefer to own silver bullion, there are easier ways to invest in this precious metal. Namely, silver stocks and ETFs. In many ways, these are preferred methods, since they’re often powered by companies mining or using silver. That, and securities tend to appreciate while bullion is subject to spot prices.
If you’re interested in silver as a commodity investment, here’s what you need to know about investing in silver stocks.
What is a Silver Stock?
When you own a silver stock, you don’t own the commodity itself—or the rights to it. Instead, you’re investing in a company that’s present within the life cycle of silver. That might mean the mining company that pulls it out of the ground or a smelting company that turns the ore into ingots. In any case, you’re investing in the means to commoditizing silver.
If you want to invest in silver itself, that’s an entirely different avenue. The popular options are silver bullion or silver certificates. Silver bullion is the physical silver itself; certificates are a statement of ownership of physical silver.
Is Silver in Demand Right Now?
When investing in precious metals and commodities, the first question to ask is one of demand. Demand continuously fluctuates for these products, so it’s important to know where demand is at this moment—and where that demand is coming from.
In 2021, silver is in high demand! In fact, it’s outpacing gold and other precious metals like platinum as it nears an eight-year high. The reason? Major demand from industries on the uptrend. Electronics and solar panels are high on the list of practical uses for silver. Other demands also exist, such as for jewelry and industrial uses.
Looking at Silver Prices, 2000-Present
While it can be difficult to valuate silver stocks, it’s much easier to determine the price of the actual commodity itself. All you need is a spot price chart going back a decade or more. And, if you look back to the turn of the millennium, you’ll notice some interesting trends in the charting of silver spot prices.
2008 was a terrible year not only for the economy, but for silver prices, as well. This precious metal lost half its value over the course of the year, before rebounding in a big way at the start of 2009. Silver peaked in April of 2011 and slowly trended down until this year. It’s been up since March 2021, with no sign of falling. Technical analysts see support for silver prices at $15, with a descending triangle formation that’s already in the midst of a reversal breakout. In simpler terms: silver is likely to keep trending high.
How to Invest in Silver Stocks
While the spot price will tell you how much silver bullion sells for on the free market, silver stocks are less affected by it. The value of most silver stocks comes from the fundamental valuation of the companies they represent. And that tends to depend on where they are in the life cycle of silver production.
Here’s a look at the different ways to invest in silver stocks, to gain exposure to this precious metal in diverse ways:
- Silver miners: Mining companies actually take silver out of the ground. Pan American Silver (Nasdaq: PAAS) and Fresnillo (LON: FRES) are the largest silver miners in the world. This is the equivalent of a pure-play investment in silver stocks.
- Silver streamers: These are the companies that finance the mining project to bring up silver. In doing so, they receive a portion of the profits from the recovery of silver. An example would be First Majestic Silver Corp. (NYSE: AG), the largest streamer in the world.
- Silver ETFs: Silver ETFs offer broad exposure to silver companies at all stages of the commodity cycle. Global X Silver Miners (SIL) is the best example of an ETF of silver stocks. There are other silver ETFs that focus on physical silver, as well.
- Silver mutual funds: Silver mutual funds offer leverage for retail investors. Invesco DB Precious Metals Fund (NYSE: DBP), for example, trades in gold and silver futures. Leverage and derivatives make for strong ROI potential.
Each of these investments gives you exposure to silver stocks—the companies handling the silver, not the commodity itself. This offers better prospects for appreciation and return on investment.
Should You Invest in Silver Stocks?
Traditionally, investors have used silver as a hedge against stock turbulence and market downturn. Because it’s a commodity, silver isn’t subject to inflation. That said, owning silver stocks is a bit different. While a silver index will likely weather turbulence well, other types of silver stocks face the same scrutiny as any security. Decide whether you’re investing in silver as a hedge against volatility or as part of a growth strategy based on demand. Once you know your investment strategy, the rest comes down to stock picking.
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If you’re a defensive investor who is hedging, a silver index is where you want to be. Moderate risk-takers will look to mining and refining company stocks. Those who can stomach a bit more risk might invest in silver streamers. In any case, there are plenty of options to add silver to your portfolio.