Gold has traditionally provided a reliable hedge against inflation. It has also been a part of the portfolio of investors because of its stable nature that mitigates volatility in a portfolio. However, its poor cousin, silver, is often ignored. There aren?t many options to invest in sliver like we have in case of gold. The biggest advantage gold has as an investment asset is its availability in digital form as a gold ETF. In recent years, there has been renewed interest in silver as an investment asset.

Silver vs gold

Jim Rogers, a commodities expert, said a few months ago that silver is one of the very few safe refuges left for investment. Robert Kiyosaki author of Rich Dad Poor Dad believes the same.

Currently, silver is trading at close to 40,000 per kilogram and Gold is around 20,000 per 10 gram. If we look at the returns from gold and silver in the last year, silver gave returns of more than 40% while gold gave over 25%. In fact, in last 5 years, silver has given CAGR of 27% while gold has given CAGR of 23%. Here the quality of silver taken for reference is 999.9 and quality of gold is 99.50.

Bullion trader & investors use ratio between gold and silver prices, which is currently at 50. There is a general perception that this ratio is on the higher side and hence the scope of further appreciation in silver prices may be limited. At the same time, few people point to the fact that this ratio has even gone to 20 in past and hence there is scope for appreciation.Unlike gold, which doesn?t have much use, the major consumption of silver is in industry. This makes silver more attractive.

Avenues for investment

Investors can buy silver coin and silver bar from open market, bullion traders such as MMTC, and banks. Silver is cheaper and hence many people can invest in it. A 10 gm coin can be bought for as little as Rs 300-400. You have to be careful about the grading quality when you buy it. A few points of difference in grading can make huge differences in price. Usually, anything above sterling grade (grade 925) is considered good.

Recently, because of increased interest in silver as an investment vehicle, the National Spot Exchange Limited (NSEL), an electronic spot market exchange for commodities, has introduced e-silver as an investment avenue from April 21, 2010. This facility allows investors to buy silver in dematerialised form. The trading session is from 10:00 am to 11:30 pm and hence investors can do it at their convenience. Investors can buy in the lot of 100 dematerialised units of e-Silver which is equivalent of 100 gm. of silver.

The investors may choose to sell the e-silver whenever they want and get the cash or may take delivery in physical form from any of the NSEL designated centres. Currently, NSEL has centres in Mumbai, Delhi, and Ahmedabad and will soon open more centres in major cities across India.

Silver is not as stable an investment as gold. The swing in price of silver is much wider than the gold.

Silver has experienced a dream run in last few years. This has raised the expectation of investors. The returns may moderate in future. When you buy Silver in physical form, buy from reliable jewellery or banks. Lastly, silver is at the end of the day an asset which does not produce earnings. You can make money only when you liquidate them. Unlike equity investment, silver do not provide this clarity. Invest for long term to maximise your returns.