Why Silver Investment Can Be Better Than Gold

While gold investing may get all the headlines, silver investment is the quiet cousin over in the corner.

Not as widely held as gold, silver is far are more affordable (i.e. lower price).

In fact, of the four precious metals you can purchase, silver usually has the lowest price !

What is Silver?

Silver is one of several "real assets" called commodities, due to its use as a raw material in various industries.

Silver is used in many practical applications, including photography, silverware, electronic devices, automotive applications, medical applications, industrial coatings (including mirrors), solar energy, and water purification.

Silver can also be used as a "currency" or way to pay for goods and services. However, gold is preferred (some experts feel this is part of the reason the reason that more private investors purchase gold investments).

Did You Know?
Silver was used to keep drinking water free from bacteria by the Greeks and Romans, as well as settlers of the American West.

Why Buy Silver Investments?

As with gold, investing in silver is typically used to preserve purchasing power.

This is because silver is a physical asset. Physical assets are considered a means of "value storage", meaning that investing in silver is a way to maintain (or store) the value of one's current holdings.

A second reason to invest in silver is that during times of financial crisis, people fear their paper money may lose value (or become worthless in extreme cases).

For example, low interest rates and high inflation can erode the purchasing power of your money over time (click here to learn about the causes of inflation).

This can happen to paper currency because paper money is not worth anything by itself; it does not have any "intrinsic" value.

At one time, silver was used to back currencies (i.e. a silver standard) just like the "gold standard".

Investing in silver is one way to protect yourself from these types of situations, and allows investors to preserve the value of a portion of their money.

Bank failures can further complicate the situation by making it difficult for you to make withdrawals from your accounts. If you did not have any paper money, silver could be used to purchase goods and services.

Factors Affecting Price

Since silver is a physical substance, price movement is generally driven by supply and demand.

The actual level of silver production, changes in global supply, and other macroeconomic factors (interest rates, rate of inflation or deflation, other commodity prices, GDP, etc.) can also be considered.

The Rise of Silver (Infographic)
[Source: Money Hacker]
World Silver Production - Click to enlarge

Silver has a unique combination of properties, which makes replacing it with other metals extremely difficult.

Therefore, industry uses account for the overwhelming majority of demand for silver.

All investment instruments that are associated with silver are affected by the "spot price". The spot price is simply the current market price for a set amount of silver (a standard quantity).

Silver Investment Choices

The characteristics of real and financial assets are very similar, so I covered them once on the precious metals investing page, rather than repeat them here.

Real Assets

  • Collectible Silver Coins
  • Silver Bullion (Coins and Bars)
  • Jewelry

Silver bullion is valued by its mass and level of purity. 99.9% purity is the most common form of silver bullion, but the highest level currently available is the Canadian Silver Maple Leaf coin (99.999% purity).

1oz Silver Maple Leaf

Financial Assets

  • ETFs
  • Mutual Funds
  • Silver-based stocks (Mining, refining, etc.)
  • Trusts and Partnerships

Where to buy Silver

Real assets can be purchased at a number of locations. Local rare coin dealers and trade shows are one place that collectible coins can be purchased, as well as some online auction houses.

Bullion can also be purchased online or from local dealers. A good place to start your research is the U.S. mint website (www.usmint.gov).

There are several other online brokers, but you MUST do your research to ensure that these dealers are reputable.

Financial assets, such as funds and stocks, can be purchased through your normal investment broker, and even in your retirement accounts. For more information on retirement and other trading accounts, click here.