Despite both gold and silver being precious metals, they are in fact very different propositions. Gold traditionally appeals to investors looking for the ultimate insurance and protection for their wealth during times of economic instability. On the other hand silver is a far more speculative investment and, despite the initial VAT outlay, can still realise substantial gains.
The silver price is influenced by both commercial and investment demand, leaving it open to more erratic price movements. As a result, silver tends to appeal to investors who are less risk averse. Many gold investors choose to diversify their gold investment with silver; doing this gives them exposure to the potential benefits of larger price surges. Below we are going to explore some of the key reasons why you should own silver.
An ideal way to diversify your investment portfolio
Owning physical silver bars and silver coins is often viewed as an ideal way of diversifying an investment portfolio. The idea behind diversification is that if certain parts of you portfolio suffer large devaluations, then other parts may be able to recoup your losses, negating or at least softening the blow of a portfolio crash. Precious metals also provide a low negative correlation to other assets, such as stocks or bonds, meaning that even a small amount of in your portfolio will noticeably decrease risk.
Silver is undervalued, speculative investment
The gold to silver ratio (GSR) measures how many ounces of silver it takes to buy a single
ounce of gold. Historically the GSR has sat as low as 14 and has an average of 47. Today
1 ounce of gold will buy you just over 90 ounces of silver, the highest ratio for 26 years. If
this historic figure is to be believed silver is currently vastly under-performing gold, suggesting
a potential strong upside if the ratio is to head back towards its historical average.
Physical above-ground inventories are shrinking
The above ground supply of silver is extremely small compared to when it hit its all time high back in 1980. For many years the world has used up far more silver than it has produced, putting some pressure on supply. If the pressure on the silver supply continues to rise, surely in the long-term there is only one way the price can go.
Silver is in demand as an industrial metal
Silver use in modern industrial applications doesn't seems to be going away anytime soon. It is relied on heavily in industries producing semi-conductors, solar-cells and batteries whilst also having medical uses and multiple applications in nanotechnology. As a direct result the silver price remains very sensitive to changes in the business environment and future demand for silver looks positive, potentially supporting the price going forward.
We cannot offer personal investment or tax advice. This guide aims to offer a useful source of information and opinions to assist people in making their own informed decisions. If you do require detailed tax and investment advice, you should seek your own independent advice from an appropriately qualified adviser.