Why Investing in Silver May Be Smarter than You Think

There has been a lot of attention paid to gold over the past several years as the price has continued to climb approaching a new record over $1200 per ounce.  But like a red-headed stepchild, little attention has been given to silver despite a similar increase in price.  I think that this is a mistake but could be a boon to investors interested in precious metals.  In this article, I will outline four reasons why investing in silver may actually be a smart move.

Historically, currency has been made of precious metals often gold and silver.  In fact, silver was the first metal used as a currency over 4000 years ago and enjoyed widespread prominence in Mediterranean trade.

More recently in the United States, a “de-facto” silver standard was used from the late 1700’s through 1873 when the Coinage Act of 1873 embraced the gold standard for the country.  This only lasted for 5 years when silver was again given monetary status.  The ability to redeem a silver certificate lasted until 1967.  Silver was included in coins in the U.S. until 1965.

Given the historical importance of silver as currency and its association with gold in this regard, it will take more than just a few decades of political mandates to wipe this precious metal from the collective human consciousness as a store of wealth.

There are several ways to look at size when referring to a market, but I will only look at one.  There are roughly 600 million ounces of silver mined annually.  At a price of $18 per ounce, someone could purchase the entire yearly silver production of the world for $10.8 billion.  Warren Buffet or Bill Gates could do that!  Compare that to the 87 million ounces of gold produced annually.  At $1100 per ounce, it would take over $95 billion dollars to accomplish the same feat which is more than any one person could afford.

It wouldn’t take a whole lot of investment dollars to move in and impact the price of silver.  This can be seen in the volatility of silver when compared to gold.  You can use this volatility to your advantage and purchase silver when demand is low knocking down the price and sell when the price is higher.

Silver also has many uses in industry including batteries and electronics.  Silver is also being used in medicine.  It has uses in jewelry as well as in silverware.  Some of the silver that is used in industry cannot be recovered but surprisingly many processes allow for recycling of well over 90% of the silver.  So while silver is used in many industries, an increased focus on recycling can be used to add to the annual silver supply.

Anyone who can afford a carton of cigarettes can purchase an ounce of silver or two.  The same cannot be said for gold.  If the general population of developed countries ever become concerned that the paper currencies and governments that issue them cannot be trusted, then a barter economy will become more commonplace with the possibility that ounces of silver will serve as a medium of exchange and store of wealth.

If you are inclined to invest in silver and gold, silver may actually be the smarter investment.  The lower price will allow for cost averaging into a position over time and the volatility will allow for potentially greater gains when it is time to sell.  Not only do you stand to benefit handsomely if right, you could lose a lot less if you are wrong.