How to invest in silver

Silver often plays second fiddle to gold at both an Olympic and at a commodities level. Although silver is no longer the de facto standard, this precious metal warrants further attention and investigation as a potential investment, feels Angelique Ruzicka.

It’s not a metal you would commonly think about investing in, but if you have some exposure to it currently you’d be smiling because silver showed an overall incline in value in 2016, having kicked off the year at a price of $13,82 (R180.33) and closed out the year at the price of $15,94 (R207.99) – a 15,34% increase.

When asked about the reasons behind silver’s rise, Arno Egen, the owner of Mr Kruger a bullion specialist company based in Pretoria, says it’s down to Brexit and production cuts across the industrial and precious metals industries, coupled with a pick-up in industrial production in key silver. “The pick-up is primarily driven by the medical sector for its anti-bacterial properties as well as a shift in battery technology away from lithium-ion to silver oxide batteries. This is prevalent in smaller button cell batteries used in watches, cameras, toys etc.,” he says.

The returns silver produced in 2016 is not something that many investment strategists would sniff at. If you’re thinking about investing in silver this year, you could still see some return as this trend seems set to continue into 2017 with silver opening at a price of $16,36 (R213.47) and closing out in February at $18,27 (R238.40), an impressive 11,67% increase for the first two months of 2017 alone according to Mr Kruger.

While it is better to buy silver when the price is low and to take profits when there is hike in the price, Egen argues that silver should be seen as a long term investment and not something that should be bought for a short term gain. “We believe in a more consistent approach due to the volatility of the metal. A longer term approach is always more appropriate for metals because it flattens out the peaks and troughs,” he says.

The history of silver

You may recall that the world used to work on the gold standard. However, there was a time when the silver standard was applied. But unfortunately, silver has suffered an unfortunate bias across the ages.

The silver specie standard was widespread from the fall of the Byzantine Empire until the 19th century. Following the discovery in the 16th century of large deposits of silver in Bolivia an international silver standard came into existence in conjunction with the Spanish pieces of eight. These silver dollar coins played the role of an international trading currency for nearly four hundred years.

However, things soon changed. In 1704 the British West Indies, under the decree of Queen Anne, became the first country to adopt the Gold Standard and soon this yellow metal replaced silver as the de facto legal tender across most of Europe and the silver standard became a thing of the past.

Silver is here to stay

There’s no denying that there is a need for this particular precious metal and that this need will could fuel its growth and price on the market. Silver has maintained an exceptional position among the precious metals from a scientific point of view, as it is an extremely versatile and useful material with major technological applications.

This shiny, metamorphic metal demonstrates exceptional microbial qualities, having been used for thousands of years by doctors to prevent and treat infections. Nano-Silver particles, or NSPs, have a wide range of functions within the biomedical sphere, owing to their antibacterial, antifungal, antiviral and anti-inflammatory properties. NSPs are used in wound dressings to speed the recovery process and are also used to detect disease and other substances. Interestingly enough, silver was used in ancient Korea to detect poison such as arsenic, owing to the metal tarnishing on contact with Sulphur.

The textile industry has also identified the valuable properties of silver to great effect for the marketing of high tech, anti-bacterial fabrics. Silver nanoparticles are being used in socks and underwear to prevent the spread of bacteria, making them odourless, and silver is being impregnated in medical gowns to reduce surface bacterial contamination. As hospitals fight to keep more virulent superbugs under control, the demand for silver in the medical industry continues to rise and the industrial fabrication of silver impacts the price and value of this shiny, versatile metal.

Silver boasts unique properties, often irreplaceable in the manufacturing process. Unlike other metals, it is almost 100% reflective and has the best conductive properties of any metal on the Periodic Table. Silver is the most reflective surface, making it perfect for the use of mirrors and Silver nitrate has applications in the field of film photography.

Silver, in its purest form, is the best conductor of both heat and electricity, and silver nanoparticles are made into inks, pastes and fillers to conduct electricity, owing to the stability of the metal and its low sintering temperature (meaning they are welded together easily).

According to a recent article in the Financial Times, the solar industry is beginning to drive further demand around silver due to its unrivalled ability to conduct electricity. “Silver demand used in solar photovoltaic applications rose 23% last year, the second straight year of increases, according to Thomson Reuters GFMS,” states the article, making Silver one of “the few commodities [that could benefit] from the rollout of renewable energy.”

Silver as an investment

Have you ever wondered where the tradition of gifting babies with silver spoons, rattles or cups comes from? This long-standing tradition has a much more practical root. Since silver has the ability to disrupt bacteria, small children were gifted with silver objects to protect them against the plague. In those times, it was a matter of survival. In 14th Century England the death rate of peasants was double that of the wealthy, creating a strong case for the need of owning silverware.

Silver has been linked to wealth since the onset of modern society. The expression that one is “born with a silver spoon in their mouth” means that the person has been born into a privileged family and will profit from inherited wealth. In the medieval times, spoons were typically made from wood, and it is likely that this expression derived from a time when only people with money could afford to eat from a silver spoon.

“Silver, like any precious metal, can allow investors to hedge their bets against the financial stress of inflation, devaluation and deflation by investing in an asset that has shown appreciating tendencies over time; an asset with tangible, real-world value. The inclusion of silver to your investment portfolio may allow you to avert these risks; you can make this hardworking metal work for you,” says Egen.

However, silver cannot always be relied upon. “Silver normally tracks gold but a big part of the reason for silver’s outsize moves is well-known: silver’s traded on a much smaller volume than gold, so it’s much more volatile and moves tend to be exaggerated,” he adds.

How to invest in silver

There are various ways that one can go about investing in silver: by buying silver coins, purchasing silver bullion or certificates, investing in silver-backed exchange traded funds or by trading in silver futures through a commodity exchange platform. “Physical silver cannot be bought from any bank. Currently the SA Mint, Rand Refinery and all their approved dealers will be able to offer advice and supply the metal,” says Egen.

Silver coins and bars are arguably two of the easiest ways for new investors to buy into this precious metal, and this can be done through qualified local bullion vendors. “Buying bullion can also be done with little knowledge of exchange-traded funds and futures, which could be daunting for first-time investors. Silver is traded at a fraction of the cost of gold, therefore making it an appetising investment for new investors who are looking to test the commodity market in relatively small increments,” adds Egen.