High-Ho Silver!(?)

Canadian Silver Maples (Picture credit: lecho0047 from pixabay.com)

Gold had recently hit an all-time high of USD 2,190-ish due to the expectations of a cut of US interest rates coming soon. To explain further, a cut in the rates would bring down the demand of the USD, and gold, being typically seen as an USD substitute and non-yielding asset, would go up in value (see my post here for the relationship between gold and USD). 

 

With this, naturally its counterpart silver would be expected to go on an all-time high soon, yet the current price of the grey metal was nowhere near its two zenith points back in 1980 and 2011.

 

The first high was on 18 Jan 1980, when it traded around USD 49.45 per ounce (oz), and that was the result of market cornering by the Hunt brothers (article of this story under the Reference section below), so this was not due to pure economic reasons. The second high occurred on 29 Apr 2011, where silver reached close to USD 49 per oz. Depending on the news source that you read from, this rise was attributed to reasons ranging from the emerging Eurozone crisis, the silver supply chain issues, to the rising demand in its use of solar panels. In both cases, it went back to around their pre-spike price levels after a while.

 

Both gold and silver, though classified as precious metals, have different applications and use cases, thus giving the notion that both are the same and different simultaneously. Gold is mainly used for jewellery and investment, but it also sees some applications in the electronics field. Silver, on the other hand, has a heavy utilization on top of the ones for gold such as photovoltaic cells for solar panels, medical uses and even a component in the upcoming trend of electric vehicles.

 

Silver As An Investment

 

Three main ways of directly investing in silver would be via physical (bullion, i.e., coins and bars), securities (e.g., exchange traded funds (ETFs)) and precious metals savings accounts.

 

For physical bullion, the tips of investing in it would be similar to that of gold’s (see here). However, the premium for silver is higher than that of gold’s. For instance, based on online prices of a bullion dealer, a 1-oz silver bullion’s bid premium is around 15% over spot as compared to a 1-oz gold of 3% to 4% or so. Also, for a given amount to invest, the quantity of silver would be larger than gold, so storage is something to ponder about.

 

If going physical is not your cup of tea, then there are ETFs available, but they are listed overseas and, in my opinion, only a couple are suitable enough (e.g., SLV ETF). In the case of savings accounts, a couple of local banks provide this service.

 

The fundamentals of investing in silver (and gold) are very different from equities, real estate investment trusts and bonds. A popular way is to use the gold-silver ratio (see the write-up here for more information), while others use technical indicators such as lines of resistance and support, among others.

 

How Much Silver To Invest

According to the Bedokian Portfolio, the commodities asset class which silver belonged to stands at about 5% to 10%. There is no hard and fast rule on how much silver to invest in, so in my view it is up to the individual on allocating it with the gold and crude oil, the other two commodities for the asset class.

 

So now begs the question, will we see a high in silver prices like the time in 1980 and 2011? 

 

Only time will tell.

 

Disclosure

 

The Bedokian is vested in physical silver and SLV ETF.

 

Disclaimer

 

Reference

 

Beattie, Andrew. Silver Thursday: How Two Wealthy Traders Cornered the Market. 1 Feb 2024. https://www.investopedia.com/articles/optioninvestor/09/silver-thursday-hunt-brothers.asp (accessed 9 Mar 2024)