Silver is a precious metal with an abundant supply but a small demand. The price is prone to fluctuation, the physical bars are hard to store, and the market is scarce. As a result, silver comes with a huge risk, and it’s unlikely to bring your profit.
Investors, enthusiasts, and everyday people are all talking about silver. What’s the deal? When inflation started rising, people got scared that the dollar would lose its value. So they resorted to purchasing precious metals.
In uncertain times, precious metals seem like a safe bet, something that will never lose its value. This was true centuries ago, but today we have different means to protect ourselves from inflation and losses.
Since silver comes at a lower price than gold, most consider it a safer investment with a higher return if the price skyrockets. The high demand drove silver’s price up, but it brought it just as fast back to level one.
The start of the pandemic put the spotlight on silver and dimmed it just as quickly. In September of 2021, silver survived the highest drop in price since 2011, almost 25%.
Just 6 months earlier, it outperformed gold. The short-lived fame and value of silver should be more than enough to turn you away from this investment. But let’s go into detail.
1. Volatile price
Looking back to 2001, the price of silver has grown by 500%. But in the meantime, it suffered thousands of ups and downs.
So looking back at silver’s track record, it doesn’t give much hope for a significant profit simply because you won’t know when it’s low or high enough to buy or sell.
Demand dictates the price of silver, so it’s hard to predict. Silver has wide use in the electronics industry, but it can be replaced easily. The disruption in the supply chain led to the lowest price of silver in March 2020. Shortly after, there was a significant rise in September.
The artificially-created silver demand of 2021
An unpredictable thing happened at the beginning of 2021. Several investors that are members of the popular Reddit forum rushed and poured money into silver. They called it the #silversqueeze campaign.
This campaign ramped up the price almost $30 per ounce. The demand spread out to physical purchase of silver – billions and coins. In less than 2 months, the price fell to $20.5.
Even experienced investors are susceptible to emotional buying and selling. Silver, however, is not an investment that can bring reliable returns.
2. Silver is useless in times of deflation
We witnessed how the price of silver can skyrocket during inflation, but what happens during deflation?
When hit with abnormal inflation, the dollar’s value goes down while commodities like gold and silver increase in value. This was the case in 1980 when an ounce of silver was worth $50.
But during deflation, the opposite happens, and silver can hit rock bottom. The Great Depression is an excellent example of this; silver was worth just $0.25 per ounce in 1932.
3. Physical silver – storage fees, theft, damage
Buying physical silver is the most popular method to invest in silver. But this comes with a few headaches.
Siver is sold in bars and coins. When purchasing, you have to think of a place to keep the goods. Of course, a secured storage place like a bank safe is the wisest decision, but what when you have larger quantities?
Silver is plentiful, and if you want to make it a large part of your portfolio, you’ll need several bars. A $10,000 investment in silver will weigh over 29 pounds!
The storage fees are not low, and keeping in mind that silver doesn’t bring you any income while stored, it’s just an expense. Furthermore, if you decide to keep it at home, you’re risking possible losses during robberies.
Silver is soft, so it can be damaged easily, decreasing its value.
4. Scams and dishonest sellers
The high demand recently highlighted dishonest companies that sell silver coins and bars. They provide offers that include selling and storage. This means you pay them but don’t get your silver in hand; instead, they store it for you until you decide to take it or sell it.
The moment of truth comes when you decide to sell it right away or ask to take the coins home. Unfortunately, they work with a small supply of physical silver and can’t respond to your request.
It’s pretty easy to fall for fake silver too. Some sellers offer silver dollar coins. But in fact, they’re only 60% silver. While these coins have a collector’s value, you can’t sell them as pure silver.
5. Unlimited supply never leads to huge gains
Silver is 19 times more abundant than gold, with a 68:1 ratio. It’s relatively easy to mine but more complex than gold. It’s found worldwide, with North and South America being the largest producers.
So the abundance speaks volumes about the price. The basics of the economy are supply and demand. When there’s an unlimited supply, the market can’t go up; it’s stagnant, so is the price. Once the supply goes down, the demand is unsatisfied, raising the price.
Some estimates claim that all silver mines in the world could be emptied by 2240. This, however, does not affect the price today.
6. Silver doesn’t generate passive income
Investing in precious metals is as old as time, but what value does it bring to your personal finances in modern times?
Silver is not something that generates passive income, as stocks that pay dividends. Instead, it simply sits in the designated safe space and waits for a better day when you can sell and yield gains.
You have your money trapped in something that doesn’t bring you more money and will likely cause you losses.
7. Fluctuations based on fear
If cryptocurrency fluctuates based on speculations, prices of commodities like silver and gold fluctuate based on fear.
Potential investors are fear mongered into buying silver with the belief that the fiat currency will collapse and precious metals will be the only valuable asset. This is not based on any research or data but on conspiracy theories.
Stacking silver artificially increases the demand, and sellers raise their prices.
Are Silver ETFs better?
Some investors decide to go with silver ETF to get silver exposure without actually owning the precious metal. However, this comes with potential gain and loss. The stock is tied to the price of silver, so each time the price declines, the value of your stock falls.
With ETF, you have the chance to buy and sell quicker since you’re not dealing with physical silver. However, you can be paying anywhere from 0.5% and up in fees. Having to pay fees when dealing with loss is an added expense.
Alternative investments that bring income
When you invest in stocks, the company uses your investment to advance and generate more profit. Then, the next quarter or year, the company uses the profit to pay you dividends and reinvest into resources to grow further.
This is not the case with silver. When investing, you need to put your money where it can grow and bring excellent long-term results. Stacking physical silver and hopping for a bullish market is a loss of time.
Are silver coins a bad investment?
Silver coins are not necessarily a bad investment – if you’re buying them as a numismatologist. But if you’re using them as part of your portfolio, it’s not a good idea. Their price is volatile and can lead to losses quicker than generate gains.
Is it a good time to buy silver in 2022?
As inflation settles down and comes to the average rate, buying silver will not be a wise decision in 2022. In December 2021, it hit $21.97 and noticed a steady decline since the unnatural boost in February 2021.
What is the best way to invest in silver?
If you want some silver exposure, it’s best to avoid physical silver. Instead, buy stock in silver ETF, ETN, and silver mining companies.
What will silver be in 2022?
The industrial use of silver has recovered to a pre-pandemic level and will continue to do so in 2022. This will not affect the price. The projections are that silver will move between $22-$24. There are no anticipations for a bullish market.
Every once in a while, an event will shake the market, and in 2021 there were a few. The attempt of Reddit users to corner the market at the beginning of the year resulted in silver reaching almost its highest price since 2013.
The Hunt brothers were two wealthy gentlemen who tried to acquire as much silver as possible back in the 1980s to manipulate its price. They managed to drive the price up to $50 per ounce, and people were selling any silver they had to make use of the high price. So the Hunt brothers took up loans upon loans to buy out the silver and keep the supply low.
Shortly after, the government stepped in and burst their bubble. Replicating this deed today is impossible. But the Hunt brothers give us an example of how the unnaturally driven price can never keep up in the long run.