When it comes to investing in precious metals, the type most flock to is gold. This yellow metal is no stranger to fame, having received a lot of attention and glory over the years in the investing world. When investors think about alternative investments to traditional stocks and bonds, gold is often the first asset that comes to mind. However, there are times when silver has its turn in the spotlight, and it is during these times that its price skyrockets. In some cases, it outperforms gold in the market.
With the COVID-19 outbreak triggering instability in financial markets and the economy as a whole, there has been a resurgence in interest regarding precious metals such as silver. Like gold, silver has experienced a steady increase since March. With that said, is now a good time to invest in this lustrous metal? Would it be wise to buy silver now?
Why do people invest in it to begin with?
Like gold and other natural resources, silver is categorized as a commodity. In other words, a tangible asset that is publicly traded. The prices of tangible assets typically move in the opposite direction from stocks and bonds.
Because of this, investors often turn their attention towards commodities like silver during an economic recession or political turmoil and whenever the stock market has a weak outlook. Silver is affected by various influences, so it is an ideal tool for diversifying and offsetting your portfolio regarding equities and other paper securities.
Furthermore, silver works as an inflation hedge. It preserves its value long term and manages quite well when interest rates drop, and fixed-income investments are not generating a huge profit. Because of this, silver is seen as a “safe haven” asset. With that said, silver doubles as an industrial metal and an investment metal, which has a sizable effect on its price performance and outlook.
By popular demand
Silver is a common component in the manufacture of various products for an array of industries.
- A single cell phone contains roughly one-third of a gram of silver. Over the years, cell phone usage has continued to climb worldwide and shows no sign of slowing down. According to the information technology research and advisory company Gartner, roughly 5.75 billion cell phones were purchased between 2017 and 2019. This means that 1.916 billion grams of silver (57.49 million oz) were used.
- Each electric vehicle uses 25-50g of silver, approximately twice the average of an internal combustion engine. The increase in electric vehicle production is estimated to be very high. In fact, the Silver Institute predicts that, by 2024, automotive demand will become the second-largest source of industrial silver demand.
- Silver is frequently used as a catalyst for creating ethylene oxide, a crucial precursor in plastic and chemical production. The Silver Institute predicts that a third more silver will be required by 2025 than the amount used in 2020.
- In 2006, the use of silver in photovoltaic cells (i.e. the key component in the construction of solar panels that generate electricity) was almost zero. Now, it utilizes more silver in its production than any other application.
Thanks to its unique characteristics, industrial silver usage will only continue to grow. This means that it is plausible for this source of demand to remain strong.
Silver is, inarguably, one of the trickier commodities to invest in. It is difficult to determine exactly when to buy and when to sell. Above all else, silver is not an investment that offers the most reliable capital appreciation, nor does it provide income like interest or dividends. Along with its dependency on multiple industries, one cannot easily predict what the silver market will look like five minutes from now, let alone five years.
However, several factors work in silver’s favor. Much like gold, silver is a monetary metal, which means that it will react to monetary dilution and fiscal unrestraint. When you consider that various industries rely on silver to build their products, it becomes clear that demand for the metal will continue as well. Historically speaking, unless the current system drastically changes, silver will still be a resilient asset to own.