Three Reasons to Invest in Silver
When considering investments in precious metals, silver is often overlooked in asset allocation despite having many unique beneficial attributes of its own. While precious metals are generally considered safe haven assets due to their scarcity and non-replicability (as opposed to fiat currencies such as the AUD), silver also boasts a strong exposure to industrial demand, and can often offer upside potential in strong market conditions. Given these strengths, we explore three reasons investors could consider silver.
1. Industrial Demands: Silver Wanted
It is often said that the price of silver is benchmarked against that of gold. Where silver holds particular advantages, however, is in its industrial applications. Unlike gold which is almost entirely used in jewellery or stashed in bank vaults, over 50% of silver’s current demand comes from industrial sources such as electronics, medical devices, and semiconductors. Industry demand is also rising thanks to its use in solar energy and photovoltaics, which has emerged as a key growth market for the precious metal, with one report projecting a potentially significant silver supply deficit by 2050 as the world works toward net-zero emissions.1 These industrial demands help create a fundamental support for silver’s value as metals used industrially are consumed and not easily recoverable. This effect can be especially pronounced during economic downturns or periods of inflation as supply and demand mechanics help drive prices beyond speculation.
2. The Old Adage: Diversification
Including silver in an investment portfolio can offer significant diversification benefits. While less pronounced in its non-correlation than gold, silver’s price movements also tend to stray from traditional investments such as stocks or even bonds.2 This is because as investors retreat to safety during economic downturns or political turmoil, these precious metals, known as safe haven assets, come under demand and tend to outperform. This can help smooth out overall portfolio volatility and reduce investor anxiety.
In addition, the value of silver also tends to rise during periods of currency depreciation and rising prices. This too will help safeguard investor purchasing power, making silver a good diversification tool.
3. Silver and Gold: Partners, Not Rivals
As many investors may rightly realise, silver’s qualities as a safe haven asset and inflationary hedge are very much shared by gold. Some investors may even consider silver a second fiddle to gold as the true symbol of wealth and store of value. However, it may be more beneficial to view the relationship between silver and gold as one of partnership in diversification, rather than rivals in which one is better than the other.
By diversifying a portfolio to include both gold and silver, investors can benefit from their slight but significantly distinct characteristics. Since both assets tend to exhibit a positive correlation, they complement one another during market downturns, helping investors mitigate risk and smoothen volatility. In more positive market conditions, silver’s deeper ties to the global economy can also help investors capitalise on the market recovery.3 Through recognising the unique advantages of both metals, investors can form a more balanced approach to wealth preservation and capital appreciation.
Should You Invest in a Physical Silver ETF?
Silver has a strong combination of safe haven qualities and market exposure, alongside a growing market in solar energy and photovoltaics. Its ability to both hedge and produce outsized returns make it a suitable partner in diversification alongside gold. Investors may benefit from recognising the unique advantages of both metals and utilising their synergistic qualities to achieve a balanced approach to physical commodities investing.
Investing in precious metals can be a tedious exercise in finding liquidity and ensuring safety, especially if one wishes to gain direct, physical exposure. This is where investing in a physical silver ETF can offer several advantages. Aside from ensuring institutional security and storage, investing in precious metals through ETFs ensures proper pricing and trade flexibility in markets which can otherwise be illiquid. They provide a convenient and cost-effective means of investing in precious metals without the need to store physical bullion yourself.
For a more in-depth analysis on silver, and how investors can allocate silver to your portfolio, read our investment case here.
Editor’s Note: Investing involves risk, including the possible loss of principal. Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
ETPMAG: For investors wanting to gain physical silver exposure, Global X Physical Silver (ETPMAG) offers a low-cost and secure way to access physical silver via the stock exchange and avoids the need for investors to personally store their own bullion.
Click the fund name above to view the fund’s current holdings. Holdings subject to change. Current and future holdings subject to risk.