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Silver Investing

For thousands of years, silver has been used as a form of money, though now it’s usually thought of as an investment asset. Part of the reason for this is the way that the price of silver fluctuates, which makes it difficult to use as a stable currency. Of course, the price of silver has risen tremendously over the last few years, and this, too, makes it difficult to use as a metal with which to mint coins. (Consider the weight of silver in a nickel being worth ten times as much. Soon all the nickels would be melted down for their silver content.)

Investing in silver is a way for investors to make short-term gains or achieve long term growth. But to profit from silver, an investor should be aware of the reasons why silver is a good investment.

Savings Rates are Being Kept Low

Interest rates are at historic lows, and look set to remain there while the global economy battles with crisis after crisis. Low interest rates are used in part to spur economic growth, and also to allow governments to borrow more cheaply. The European wide sovereign debt problems are likely to mean interest rates being kept as low as possible for some time to come. This hurts savers, with the value of money in savings accounts depreciating due to inflation.

Inflationary Pressures May Grow

Governments around the world are also exercising expansionary monetary policies. Money is being pumped into the economy at a rate of knots, trying to stimulate growth. Quantitative easing measures have been used in the USA, Europe, and China. This type of action is inflationary, and considered good for the price of precious metals like silver.

Governments Keep Borrowing

The USA, most countries across Europe, including Britain, and many other ‘developed’ economies have allowed their finances to run out of control. In efforts to keep economies on track and growing, governments have borrowed heavily. Countries and economic regions are crumbling under debt, which is likely to lead to further economic uncertainty in the future. In such a climate, investors turn to assets that are a store of value and a hedge against inflation.

Silver is a Limited Resource

Like oil and gas, reserves of silver are depleting. At some point they will run out. When demand outstrips supply, prices go up. Though there will be some price volatility, there is little doubt that over the longer term silver will remain on an upward trend.

DIFFERENT SILVER INVESTMENTS

Investment can be achieved in several ways, though any investment in silver can be viewed either as buying physical or non-physical silver.

PHYSICAL SILVER

Physical silver is the metal that you can touch and hold. Many investors buy what is known as scrap silver – old jewelry, unwanted rings, and the like – though it’s more common to think of investment silver as being bars, ingots, coins, or rounds.

Silver Bars

Available in a range of sizes, bars are flat and easily stored. They are also readily bought and sold, with the price dependent upon the purity and weight of the silver content.

Coins and Rounds

Coins are valued more by their rarity than by silver content. Age and condition also play a part. Many national mints, as well as private concerns, produce silver coins for collectors and investors.

Coins are minted as legal tender, but rounds are not. Rounds are coin shaped, but without the factors that make coin collecting so popular (design, themes, rarity, etc). Their value is based solely upon weight and purity.

NON-PHYSICAL SILVER

Investing in non-physical silver includes buying shares of companies that profit from silver. Such an investment gives an indirect exposure to the silver price.

Company Shares

Predominantly the shares of mining companies though such companies usually mine for other metals and minerals also. Such an investment is far more diversified than investing in physical silver. However, investors should note that the prices of company shares also move on factors completely unrelated to the price of silver: costs, wages, taxes, and other outside influences all affect the value of such companies.

Exchange Traded Funds

An ETF is an investment fund whose shares trade on an exchange, just like the shares of other publicly traded companies. They are a fast and cost efficient way to invest with exposure to silver.

Silver Certificates

Silver Certificates allow investors to hold rights to physical silver without the need to actually own it. There is no need to take physical delivery, or store bars or coins, and the underlying silver is held for the benefit of the holder.

INVESTMENT AND TAXATION

All investors should remember that tax rules will affect their return on investment. Taxes that might be applicable include VAT (or sales tax), capital gains taxes, and income tax. It’s worth considering the tax position before making any investment.



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