Why Buying Silver is a Good Investment
2020 has been the year for safe-haven assets, with silver standing out as one of the best options for investors looking to hedge risk and balance their portfolios. When traditional investment vehicles deteriorate, people turn to hard assets, for example:
- When stocks experience extreme levels of volatility (as they have in 2020), they become a less viable and higher risk store of value.
- In our current environment, bonds are also becoming less desirable, as negative interest rates eat into any long-term gains. National currencies that are infusing trillions of new dollars into their balance sheets may cause bond rates to sink even further as inflation rises.
- With trillions of dollars being added to the Fed’s ledgers, it’s difficult to map out the true long term growth potential of cash holdings. The chances of inflation increase with each new stimulus.
During times of economic uncertainty, such as during and after the Covid-19 pandemic, all types of investors are looking for ways to preserve the value of their holdings. It’s no surprise that since the beginning of 2020, investments in most precious metals have soared, along with their prices.
Silver is providing opportunity during economic chaos. With higher volatility than gold, increasing demand in the industrial sector, and easy access with a low barrier to entry, investors of all shapes and sizes can take advantage of this important store of value asset.
How silver preserves wealth
In times of financial crisis, volatile markets can wreak havoc on traditional means of storing wealth. Those that rely on stocks, bonds, and cash investment vehicles during times of relative stability and economic growth often turn to “safe haven” assets when a downturn strikes. This type of investment acts as a shield to protect a person’s wealth from the volatility and inflationary risk inherent in faltering markets.
The year 2020 has certainly reinforced the importance of finding a store of value for your wealth that doesn’t crash and burn along with temperamental stocks in times of crisis. The savvy investor turns to precious metals like silver to preserve their wealth and ride out the storm. After that, they can retain their silver holdings for the next economic event or redistribute their portfolio to reflect a new era of prosperity.
Silver has been around for centuries to help investors to protect their investments. It’s here today as well, even during a pandemic with mass lockdowns and industries screeching to a halt. In an environment where nations all over the globe are turning to negative interest rates, investors who long relied on bonds as an investment are looking for better options. While bonds may still be a better bet than stocks or cash over time, the fact is, the returns once guaranteed by investing in government and corporate bonds have all but evaporated.
The consequences of the various and hefty stimulus bailouts worldwide have experts agreeing that inflation is going to be a problem in the coming years. With cash, bonds, and stocks all flowing through high volatility stages, silver shines like a beacon of light to investors looking for shelter.
Silver is real money
Aside from silver’s long term use as a store of value, you can spend silver coins as well. People can use the coins purchased from government mints, most notably the U.S. quarter, dimes, and half dollars from pre-1965. These coins are all legal tender. This combination of a precious metal that is a store of value, a safe haven asset, and real money, means silver provides both assurances against inflation and an emergency cash fund in case of need.
Silver coins boast easy divisibility into small denominations of quarters, dimes, and half dollars. As a result, there’s a lower barrier to entry for those investing in silver in comparison with gold and other precious metals. That means more people will have access to an emergency currency in times of fiscal distress. Additionally, through the use of silver-backed cryptocurrencies, the barrier to entry lowers even more, with fractionalized token shares available with silver to back them up.
Even though they may fall under the “junk silver” designation, silver coins from a mint meet all the requirements of money:
- Store of value
- A means for protecting wealth
- Spendable currency
In fact, silver coins in the form of a currency date back to 600 B.C. in what is now Turkey. As it was then, silver is still a real form of money. It provides investors with an asset that improves their portfolio’s performance during financial collapses, reduces their risk, and adds wealth insurance even during the most difficult times.
Silver is cheap
The total supply of gold is 12x that of silver. Additionally, gold is perceived as a more valuable collectible when it comes to coins, bullion, and jewelry. These factors cause silver to be more volatile than gold. This means it is much easier to affect the price of silver. With gold’s market cap much more immense, it is more difficult to induce large price swings. Not so with silver. It often experiences higher highs during a bull market and lower lows in a bear market when compared to gold prices. Essentially, it’s easier for the price of silver to move up or down in response to markets.
With the lower price of silver and its easy divisibility due to small denominations, silver as money is also available to more people and provides a lower barrier to entry than gold and other precious metals.
With higher volatility and low barriers to entry, investing in silver creates a way for people to potentially get in at very low prices and make bigger gains than they might with gold and other types of assets.
Silver is more practical for everyday purchases
Silver coins offer a wide variety of liquidity options, meaning you can spend, buy, or sell them in multiple ways. This is particularly important during times of acute economic distress. You might need some extra cash on hand for everyday needs. For example, if you lost your job during the pandemic, your silver coin-stores could be are available for essentials.
“Junk” silver coins from a national mint, like pre-1965 quarters, dimes, and half dollars, can be cashed in at points of sale and banks. Most other forms of silver, from silver bullion bars, collectible coins, and jewelry, can be traded in using a variety of outlets both online and in brick and mortar establishments. Online dealers and sellers such as Silvercoin.com provide many Internet choices. Pawnshops, auction houses, and coin shows provide additional physical outlets.
The important thing to remember is that silver coins, unlike most other investments (including stocks and bonds), are also legal tender. They are available to use not only as a safe haven asset to protect your wealth but also for necessities (should it come to that).
Silver outperforms gold in bull markets
Because of the higher level of volatility with silver prices (in comparison with gold), silver investments during a bull market have historically outperformed gold holdings. Gold’s market cap is much larger, indicating that more money is required to move prices. On the other hand, silver’s market is relatively small. It is easier for its price to swing one way or the other.
In past economic downturns, silver’s price has soared higher than gold, giving investors a better store of value in times of uncertainty. It’s also important to remember that, due to this same volatility, silver prices fall more sharply during a bear market. But if an investor stores his wealth in silver to escape failing traditional markets, it is during the most acute times of need when silver performs best.
Another reason silver can outperform gold for investors is that its lower price widens the net for investors seeking financial refuge. Together with the higher volatility, this computes into a hard asset that has the potential for higher gains during a bull market than available through gold investments.
Investors know that in this unprecedented era of financial uncertainty, silver provides a safe asset with long-term viability. Silver market activities and price gains during 2020 reinforce the premise that more and more investors are turning to silver.
Silver inventories are falling
From 2009 to 2017, silver inventories posted growth each year. But in 2018, everything changed. The market share for silver decreased from 59% to 56% that year. The decrease signals a slow down in the solar industry (which uses silver in solar panel production), as well as a glut of inventory from the previous years. While production waned, demand went up at the same time, primarily in the electronics and alloys industries.
Mining output also fell after 2018, creating less new sliver to add to the market. This change led to a decrease in the price of silver. In turn, this disincentivized consumers from selling their collectibles, leading to an even lower market supply of silver.
Fast forward two years, and the high demand for silver in 2020 has put additional pressure on silver inventories. In the first half of 2020 alone, demand for silver rose close to 10%, with no signs of slowing down.
As lower inventories and higher demand define the silver market landscape, silver’s long term prospects provide a ‘silver lining’ to investors looking to shield their wealth and survive the current recession.
Just because silver inventories are contracting does not mean it is hard to access silver as an investment. The myriad of ways to invest in silver includes silver backed cryptocurrencies at Silvercoin.com, silver mining ETFs, and collector coins, giving investors plenty of options to get involved with silver in a fortuitous time.
Industrial use of silver is growing
Demand for this popular metal is growing expansively, not just because of its popularity as an asset for hedging risk. Silver is also a high-value precious metal for many industrial purposes:
- Silver is the best electrical and thermal conductor of all metals. Additionally, silver is a highly malleable metal, making it easy to produce silver products. Its use in industrial fabrication includes making electrical conductors, switches, and fuses.
- Catalytic converters, which reduce carbon emissions on automobiles, use silver to assist in the conversion of exhaust gases.
- Solar panel producers use silver to help conduct electrons to create an electrical current for energy consumption or storage.
- Silver is invaluable for soldering and brazing alloys for use in batteries, dentistry, LEDchips, medicine, and water purification systems, to name a few.
The growing demand for silver for industrial purposes increases its long-term viability as a store of value. Even with a higher level of volatility than gold, silver offers investors an increased earnings potential. It’s easier to get involved with silver due to its low price. Investors have a better chance of making increased gains between the low starting prices and high volatility. As demand for this hard asset continues to grow, investors will enjoy a long term store of value with heightened future potential.
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