Precious metal: Know why silver is a good investment now

March 10, 2021 1:30 AM

As economic revival is pulling down gold prices, international prices of silver are at a four-year high due to increase in industrial uses presenting a good investment opportunity now

Around 600 million ounces of silver is mined each year whereas the industry consumes about 870 million ounces and this gap is increasing.

By P Saravanan & Pradeep Chenthilkumar
Often, silver is considered the poor cousin of gold, though silver prices normally move in tandem with gold. But recently, silver has been glittering brighter than gold as the latter’s prices have entered into a correction zone since January this year. Silver has outperformed the yellow metal this year, especially post Covid-19 pandemic. After the bull run in 2020, gold prices started stabilising but silver, which had traded 47% higher than last year, is still going up. Let us discuss how investing in silver is going to be beneficial for investors in the current scenario, how to invest in silver and associated risks.

Why is silver in demand?
Silver is quite different from gold in many respects. First and foremost, unlike gold, silver gets used up and is then gone forever. But gold is used as a store of wealth and for decoration like jewellery. Silver is basically an industrial commodity. It is used in various industries, especially in manufacturing and industrial fabrication since it does not corrode and has solid thermal conductive properties. It is extensively used in products such as electrical switches, relays, batteries, water purification systems, paints, computer motherboard, etc. Owing to its natural antibiotic properties it is used as a key input in dentistry. Silver plays a vital role in the production of solar cells for electricity and the government’s push for solar industry and green energy is expected to create further demand.

Why can’t supply be enhanced?
While there is a lot of demand for silver, it cannot be mined more because of a simple reason: the cost of mining. To mine one ounce of silver as a primary metal, the cost associated is similar to that of mining one ounce of gold. As gold is trading at a higher price, it is not at all profitable to mine silver as a main product. As of now, silver is mined primarily as a by-product. Around 600 million ounces of silver is mined each year whereas the industry consumes about 870 million ounces and this gap is increasing.

How to invest in silver?
The best way to invest in silver is E-Silver, which can be bought on the National Spot Exchange or Multi Commodity Exchange in much the same way as shares and held in a de-materialised form. Investors can also invest in silver Exchange Traded Funds.

What are the associated risks?
Silver can be purchased in the physical forms such as coins, silver bars, ornaments, etc. But this mode has its own limitations because silver is bulkier than gold and needs additional storage space. While buying silver from the retail jewellery, investors should be doubly cautious with respect to the purity of the metal. It is always advisable to buy silver only from the recognised and trustworthy retailers as there is plenty of adulterated silver floating in the market.
Gold is considered a precious metal, but silver is a hybrid metal as it is used in various industrial applications.
Decrease in the number of infections, supply concerns, stimulus offered by the government across various industries pushed its international price to a nearly four-year high. So, the rapid price movement created by this metal is a good investment opportunity and investors should utilise the same.

P Saravanan is a professor of finance & accounting, IIM Tiruchirappalli and Pradeep Chenthilkumar is a leading chartered accountant in Tiruchirappalli

Strong silver
Best way to invest in silver is by buying E-Silver from National Spot Exchange or Multi Commodity Exchange which can be held in de-materialised form
Investors can also invest in silver Exchange Traded Funds
Silver plays a vital role in the production of solar cells for electricity. The government’s push for solar industry and green energy is expected to create further demand
Rapid price movement of silversu has created a good investment opportunity

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