Investing in Silver: Why are Prices so Volatile?
Physical silver is one of the most popular investments on the market. Like gold, the asset has been around for decades. However, it serves more of an industry use case. Silver is used in cars, jewelry, factories, and more. When it comes to what influences silver prices, that use case is one of the largest factors, among others.
In this post, we’ll break down why silver prices are so volatile.
What is Silver Used For?
As mentioned, silver is volatile due to its supply and demand. You’ll notice gold has more of a stable value than silver. That’s because people like to hoard the former. It’s hardly used in the world like the latter.
Because silver is used so often, companies are buying it at various times, causing the price to fluctuate. If there’s additional demand for cars and such, manufacturers purchase more silver. It becomes rarer, and the price goes up.
However, if there is a recession, cars are much less in demand. They might not be buying as much silver, and its price will fall as it isn’t as valuable.
It’s also worth noting that while silver can be used as a store of value, it almost never is. Silver bullion and coins make up a tiny percentage of the market. No one is holding it for value, meaning its value struggles to stabilize. Of course, investors wouldn’t want the silver to stabilize, but that’s beside the point.
That’s not to mention: miners aren’t looking for silver. If anything, they’re often looking for gold and other, rarer assets. The silver is more of a byproduct of their mining, as it’s so common. While sure, focusing on silver would stabilize income, it doesn’t bring in as much money.
Finally, silver’s price is actually affected by gold’s due to what’s called the gold-silver price ratio. This is calculating how much one ounce of gold trades for silver. Generally, it ranges from 40x to 80x, which is the standard market difference. But sometimes, it goes higher or lower than this. If the ratio is higher, we can expect silver to drop. If it’s lower, we would predict silver’s price to rise.
How to Invest in Silver
Now that you’re aware of what affects silver’s volatility, it’s important to note how to even invest in the precious metal.
There are various methods to get involved. You can invest in silver bullion, coins, ETFs, mining stocks, and more.
The obvious choice might initially be bullion. However, physical metals are expensive to store, and vendors often charge high fees for convenience and shipping. That said, this method allows you to actually see and protect your investment, not relying on a third-party to do so.
Coins are much simpler to store and easier to ship at that. They’re generally cheaper than bullion, too, as they’re a smaller amount of the metal.
Of course, if you don’t want to get involved in physical assets, you can invest in silver mining stock. This indirect method is similar to investing in silver, as these stocks generally follow the price of the asset. Of course, other factors can affect a company’s stock positively and negatively.
For example, an accident could happen, hurting workers and dropping the stock significantly. In that case, your investment will likely go down regardless of silver’s price. At the same time, a company could be performing okay even if silver’s price is down. Weigh the pros and cons before deciding.
There’s also investing in exchange-traded funds (ETFs). Basically, you’re investing in a fund that correlates with silver’s price. However, you can choose when to redeem any shares of that fund for physical bullion. That, or you can simply sell the shares as you please. Similar to a mining stock, this is a way to get involved without touching physical silver.
Conclusion
Silver, like most investments, is a speculative asset. Even knowing all of the information above, something unpredictable can happen and lose your investment. Always be careful when investing, and never put in more than you can afford to lose.
