Instruments and Strategies For Investing in Silver

Posted by Harry Johnson Jul 22, 2021

Since ancient times, silver has belonged to the list of the most valuable assets that people owned. Ancient cultures, beginning with the Phoenicians, developed silver deposits and processed this metal, making a variety of items from coins and plates to jewelry. In addition, for many centuries, silver has also been used in medicine for its disinfectant properties. As a result, it has always been considered valuable in many respects, resulting in the high value of this metal.

What makes silver attractive to investors?

Nowadays, the situation has not changed much. Silver not only continues to be valuable but, along with other precious metals, is growing in price. First of all, this fact is due to the instability of the world economy, constantly shaken by epidemics, wars, and other factors. In this context, precious metals that have maintained their high value for many millennia appear as one of the few pillars of stability.

Gold may not be the most expensive but definitely the most popular precious metal. Silver occupies a close second position. It is valued as a material for the manufacture of various products, but its role as an asset to invest in is no less important. At the same time, because its market is smaller than that of gold, silver is more volatile, which can be skillfully used by traders and investors if they apply the right strategy.

There are several sources of silver that influence the silver supply in the world. They include:

  • Mining silver in mines and quarries. The world still has plenty of primary silver deposits, most of which are located in Mexico, Australia, China, and Peru.

  • Melting of existing silver items in order to obtain the material from which they are made.

  • Extraction of silver from physical deposits, where significant reserves of this material are stored. Today, there are many such deposits, including those that are authorized by the state and those used by large exchanges of precious metals.
Mining silver

In addition to aesthetic properties, silver is also an essential structural component in many industries. For example, it is used to design gadgets, car parts, and solar panels. Innovative developments, such as nanomedical devices and new types of batteries, are also actively manufactured using silver components. As a result of this combination of factors, the demand for silver is constantly growing, which makes it a suitable target for investment.

How to invest in silver?

There are many ways in which a person interested in investing in silver can do it. Here are some of the most popular among them:

Purchasing silver

The easiest and most obvious way to invest in silver that will bring you long-term profits is to purchase this precious metal. You can buy silver in coins or ingots at most banks. At the same time, when doing so, you should keep in mind that the buying and selling rates of silver can fluctuate significantly. Also, if you intend to sell the metal later, do not forget to keep the quality certificates for it.

When selecting this mode of investment, consider that it has the lowest liquidity among all possible options due to the fact that, in order to get profits, you need to sell the items you've previously acquired, which may take some time. Besides, storing silver requires additional expenses. Even if you decide to keep it at home, you'll still need to take extra precautionary measures to avoid damaging your ingots and coins, which may be costly.

Opening an Unallocated Metal Account (UMA)

Another way of investment you can choose is opening a UMA. It is a particular type of bank account used precisely to store gold, silver, and other precious metals. Opening such an account usually does not require you to pay any commission fees. In such a way, you become an owner of a particular precious metal without the necessity to think about its physical storing. After that, you can wait until the price of your asset grows and sell it as soon as your profits from it become sufficient. Meanwhile, UMAs have some shortcomings since when you close such an account, the sum of money you receive is calculated based on the metal's buying rate, which is always a few percent lower than the selling one.

Using financial instruments

Another effective and easy way to invest in silver is to use financial instruments. This activity is carried out with the mediation of a broker. Among the tools that can be applied to silver, it is especially important to note the following:

  • Silver futures. Like any other futures contract, silver futures certify the buyer's obligation to purchase a particular commodity in the future at a predetermined price. In particular, a specific type of contract that is best applied to silver is settlement futures, within which, when a transaction stipulated in the contract is performed, the asset does not pass to the new owner in reality. Only the difference between a fixed and a current price is paid.

  • Spot contracts. This type of contract is implemented overnight. Therefore, the profits from the transaction are obtained much faster than those from futures. However, using this financial instrument, you will have to pay a commission, which can be considered as its disadvantage.

  • ETFs. These financial instruments (short for "Exchange Traded Funds") are specific trust funds. The main way to use them is to buy their stocks, hence, investing either in the operations with silver or its mining and production.

Final words

Silver is one of the most reliable assets in which one can invest in today's market. Therefore, it is worth the attention of investors. With a wide range of possible ways to make money from it and consistent value proven over several millennia, during which silver has maintained and increased its price, it can become a reliable source of income for those who can choose the right investment strategy.


Harry Johnson

Successfully passed the internship at the United States Department of the Treasury. Discovered trading at the university.

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