Investing in Silver

Investing in Silver

Silver has been used as money for thousands of years along with gold. Many cultures have used silver as wealth storage and many private and institutional investors buy silver for wealth preservation and financial portfolio diversification nowadays. The price of silver is more volatile compared to the price of gold. The silver price volatility can be explained with the fact that silver is both precious metal and industrial metal.

There are several ways to invest in silver, which are very similar to the way investing in gold works. Lets have a look at the silver investment alternatives:

Buying Physical Silver

One of the popular ways to invest in silver is buying physical silver in form of silver bars, silver rounds, and silver coins. Investors planning to buy physical silver should consider storage and insurance cost as well. Buying physical silver give investors give investors peace of mind, because the value of the silver they buy can never go to zero, while the same cannot be said for savings in banks (imagine if your bank goes into bankruptcy), fiat money (imagine how the value of paper money goes down if there is hyper-inflation) or various exotic financial instruments.

Buying Silver Certificates

Buying silver certificates is another option for silver ownership. If you buy silver certificates you donít take physical possession of silver, but instead you hold a certificate for ownership of certain amount of silver of certain purity. Silver certificates are liquid and can be easily traded without physical exchange of silver. Owning silver certificates is riskier compared to directly owning silver, because at the end of the day a silver certificate is just a piece of paper not much different than fiat currencies.

Silver Accounts

Some banks offer Silver Accounts, through which you can own and trade silver. The silver accounts can be unallocated and allocated.

Investor, who has unallocated silver account, doesnít have any specific silver bullion bars, silver rounds or silver coins allocated. The financial institution that maintains the silver account has the right to lease the silver held in unallocated silver accounts.

Investor, who has allocated silver account on the other hand, does have specific silver bullion bars, silver rounds or silver coins allocated and the investor fully owns them. The financial institution that maintains the silver account cannot lease the silver held in allocated silver accounts. With the allocated silver accounts the investor pays for the storage and insurance.

Silver Exchange-Traded Funds

Silver Exchange-Traded Funds (Silver ETF) are traded as any other security on major stock exchanges in Australia, Switzerland, UK, USA and other countries. The Silver Exchange-Traded Funds are backed by physical silver. Silver ETFs have become popular amongst silver investors because of the ability to trade silver without taking physical possession.

Silver Futures and Silver Options

Silver Futures are contracts for making or taking delivery of a certain amount of silver with defined purity, on a fixed date at fixed price.

Silver Options give the right to buy or sell certain amount of silver, on a fixed date at fixed price. Silver options donít obligate the investor to buy or sell the silver underlying the option.

Both Silver Futures and Silver Options offer a high level of leverage to investors, but they also carry a greater risk compared to physical silver possession.

Silver Mining Shares

Buying Silver Mining Shares is a way to invest in silver and use substantial leverage. If the price of silver goes up, the silver mining companiesí profits go up much faster, but the same is valid if the price of silver goes down.

Silver Mutual Funds

Some financial institutions and banks offer investors silver and precious metal oriented mutual funds, which invest in shares of silver producing and silver exploration companies. Investing in silver mining shares offers you leverage over the price of silver, but also increase the risk in your portfolio if the price of silver goes down.

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