Why invest in silver?
The term “silver” refers to a precious metal commonly used in the production of jewelry, coins, electronics, and photography. It has the highest electrical conductivity of any metal and is, therefore, a highly valuable substance. Silver holds significance in various religious aspects in India. There can be various financial benefits of silver too. It is more than a metal used for making ornaments. There are various investment opportunities in silver with passage of time.
Diversification:
One of the main reasons to invest in precious metals like silver and gold is reliable growth. This makes the overall portfolio very safe. If there are some risky assets, such investments can balance the risks. Moreover, it is always advisable to have securities with negative correlation in the portfolio. The correlation coefficient between silver and the S&P 500 is generally around 0.2 to 0.3, indicating a low to moderate relationship. So, the risk/loss faced by some can be balanced by others. The overall portfolio volatility is reduced. As it is wisely said, “Never put all your eggs in one basket”, investment in silver can give a chance to choose a different asset class.
Liquidity:
One can easily buy and sell pure silver/silver coins in the market. Silver is traded on major commodities exchanges like COMEX and London Bullion Market Association (LBMA). The daily trading volume for silver futures contracts is around 250,000 contracts, equating to billions of dollars in trading activity. There is least liquidity risk. Looking for a buyer is never a challenge. Also, if we compare silver with gold, silver is always more affordable and does not need huge cash reserves. The price of silver in India is around ₹87/gram, whereas the price of gold is around ₹7265/gram for 24K.
Potential for growth:
Silver has huge potential of growth over time with comparatively less investment. The prices of silver tend to shift quite impressively. In 1980, the prices were around ₹2.8/gram. It rose to ₹8/gram in 2000. In 2020, it was around ₹63.5/gram. During pandemic and various economic crises, when the stock market was falling and almost all investments were reducing wealth, silver did not show much vulnerability to the situation. It signifies that it is a safer option.
Flexible investment:
There are a variety of options when one wants to invest in silver. The rigidity has been reduced a lot over the years. There are online commodity markets, ETFs, bullions, futures and options, silver mining stocks apart from coins or jewelry. The intrinsic value of silver has never waned across countries. Flexible investment along with great liquidity makes buying silver a very wise decision.
Affordable along with higher returns:
The silver spot price moves further than the gold price moves, even when they trend in the same direction. As both metals rallied between 2008 and 2011, gold only gained 170% while silver gained 450%. Investors can consider having more silver than gold in their portfolios.
Industrial uses:
Gold is primarily used for jewelry and investments, with only 12% allocated for industrial applications. In contrast, silver is primarily utilized in industrial sectors, including electronics, solar panels, and other industrial uses. This distinction positions silver as a hybrid metal, influenced by both precious metal and industrial market dynamics. As per silver institute, around 50% of silver demand comes from industry applications. When it comes to solar panels, in 2022, about 120 million ounces of silver were used in photovoltaic cells, representing a significant portion of industrial demand.
Around the world:
Silver can be traded around the world. If I purchased 1kg of silver in India, I may not necessarily sell it in India. Sellers from any country would accept it from me. This may not be possible when it comes to shares/bonds or other financial instruments.
Health benefits:
Silver can break into bacterial cells and destroy their DNA, preventing and reducing infection. Silver-containing ointments may help treat acne and conjunctivitis in newborns. It can also help in wound healings. Silver can help regulate body temperature by balancing external electrical disturbances and distributing heat properly. Moreover, silver nanoparticles have shown promise in areas such as drug delivery and diagnostics, opening new avenues for advanced medical treatments. With its ability to combat harmful pathogens, silver continues to play a crucial role in maintaining public health and advancing medical science.
High demand:
The higher demand in the silver market makes silver a very safe option. The investments are safe with stable and increasing prices. As per economic times, imports of silver in the first four months of 2024 were higher than all of 2023 imports. This is majorly due to industrial and investment demands. India imported 3625 tonnes of silver in 2023, but in Jan2024-April2024, the imports were 4172 tonnes.
Inelasticity:
The prices of silver are inelastic to the market. Which means that even when prices fluctuate a lot in the market, silver will remain unaffected. It is almost never a bad time to invest in silver. Its unique properties and limited substitutes in various industries make the demand for silver less responsive to price changes. Silver serves as an investment and a store of value, leading to stable demand as investors view it as a hedge against inflation. The distinctive quality and consistent demand of silver contributes a lot to its value.
Various such applications and investment opportunities make it viable for investors to consider this as a safe investment option. That is why it is called a safe haven especially during economic uncertainties. Silver’s involvement in technological advancements and potential supply shortages can drive future price increases. The metal’s investment flexibility, from physical assets to ETFs and mining stocks, allows investors to choose according to their risk tolerance and goals. Overall, silver can be a valuable component of a diversified investment portfolio, providing both growth potential and stability in uncertain times when invested after careful investigations.
