Silver is one of the two precious metals that people use to hedge inflation. While it is not seen as the first preference, it has more uses than gold
While gold has always been a preferred form of inves-tment, silver has grabbed a good deal of investors’ attention in the last decade. The while metal has proven its worth time and again.
It had seen big returns between 2007 and 2013, with prices breaching the Rs 60,000 per kg milestone.
Since then, prices have fluctuated and currently it stands at Rs 37,144 per kg, which is closer to what silver used to trade at towards the end of 2010.
Due to the low pricing of silver, the production of this precious metal has dropped across the world. But the fall in production happens to coincide with a jump in demand. The white metal has been seeing a rise in demand due to its versatile use. With Diwali around the corner, we know you have shopping in mind, so here are some pointers in case you are zeroing in on silver.
As a hedge against stock volatility Investors turn to commodities such as gold and silver in case of stock market turmoil. So whenever inflation ticks up, the value of these commodities go up. Silver had a strong run between 2007 and 2013, when the stock market came crashing, leading to financial crises across the world.
Even though gold is considered a strong hedge against inflation, with its prices rising, silver is a more convenient option.
Silver is more volatile than gold Like gold, silver is known for being a defensive investment. However, there is a caveat: silver is more volatile than gold and the volatility works both ways. While the returns are higher compared to that of gold in a bull market, the drop is sharper than that of gold when the market is bad for the asset. While both had similar returns in the past, silver prices have dropped sharply then onwards. Since 2013, silver has lost 40 per cent of its value, while gold has lost about 18 per cent.
Silver has more use than a monetary metal Unlike gold, silver finds use in industrial and medical applications and has seen a huge rise in demand in the recent years. From cameras and laptops to mirrors and cellphones, silver is used in traces in most electronic and digital products. The solar and the nanotechnology industries account for a large part of the growing demand. The chemical composition of silver makes it unique and irreplaceable. Gold, on the other hand, has limited industrial use and is mostly in demand due to its use in the form of jewellery.
Investing in silver in physical form Silver can be bought in the form of coins and bars through banks or bullion trading firms such as MMTC, or in an open market. In the form of jewellery, the white metal is available in stores and is more affordable than gold.
Unlike gold, where you end up investing thousands, silver can be bought with a few hundreds. A 10-gram coin of silver costs about Rs 340 only.
However, the problem lies in storing the metal in a physical form, as silver is bought in larger volumes compared to gold due to its affordability.
Another challenge one faces in buying silver from jewellers is figuring out the quality and grade of the metal. Buying from a bank is always a safer bet.
Unfortunately, asset management companies or exchanges do not offer silver funds or silver ETF unlike gold funds and ETF, so silver cannot be held in electronic versions.
Risks associated with silver Just like any other commodity, silver prices are driven by demand and supply, and investor speculations in the market and there is no guarantee of high returns, so we recommend assessing of investments periodically. As inv-esting in commodities is always risky, we suggest minimizing the risk by diversifying the portfolio. Also, go for a small sum at periodic intervals. This will balance out the price fluctuations in silver and restrict losses in case of unforeseen circumstances.
The writer is CEO, BankBazaar.com
