Investing in Silver: Your Options Explained

October 27, 2022

How to find the best silver stocks on the ASX for your investment strategy

Silver has been a currency store and investment vehicle for over 4,000 years. During periods of market volatility like we’re currently experiencing, many investors turn to precious metals like gold, silver and platinum.

Precious metals tend to represent stability in fluctuating stock markets. But there’s one big question:

What is the best way to invest in silver?

Should you stock up on silver bullion? Buy shares in ASX-listed silver mining companies? Invest in an ETF that includes small-cap mining stocks?

The answer, of course, is “it depends”. It depends on your risk appetite, reasons for investing, financial goals and personal preferences.

Disclaimer: This is not investment advice, and Boab Metals Limited (ASX: BML) is not in a position to advise on specific investment strategies or stocks. Instead, we’ll outline your options for investing in silver so you can have a more informed conversation with a financial advisor.

Four strategies for investing in silver

1. Physical silver

Owning silver is physically, emotionally, and (hopefully) financially rewarding. Investment-grade silver is 99.9% pure. It typically comes in the form of coins or bullion bars, which are stored away and exchanged for cash in the future.

Considerations for owning silver bullion and coins

  • Control: Owning a physical asset means you retain direct control. Unlike shares, which can change form or function (although they rarely do), nobody’s touching your silver bullion but you.
  • Storage: Safe storage often comes with brokerage and maintenance costs. Although a premium silver bullion would be a nice bookshelf decoration, you’ll need to figure out a long-term safekeeping solution.
  • Quality: Buying silver bullion from untrustworthy sources is incredibly risky. In contrast, bullion merchants like The Perth Mint have government-issued licences and their own production facilities.

2. ETFs with silver in the portfolio

Exchange-traded funds (ETFs) can be a great introduction to investing or a strategy to diversify your portfolio.

ETFs are pooled funds that spread your investment, along with the investments of others, across a bundle of assets. When it comes to investing in silver, there are two ways ETFs might work:

ETFs that own silver

Some exchange-traded funds buy physical silver. Part of your investment will be used for bullion, which means you benefit if the price goes up and minimise risk if the price falls.

ETFs that own silver mining stocks

Rather than putting all your money into one or two companies, the ETF might include small-cap mining stocks in a diversified portfolio.

3. Silver stocks on the ASX

Buying shares is the most straightforward way to invest in silver companies on the ASX.

Unlike owning physical silver, shares give you a stake in the company’s future performance. That means the share’s value is not solely tied to the silver spot price. Instead, you’re betting that the company will continue growing.

Considerations for investing in silver mining companies

4. Silver as a hedge

When markets face inflationary pressures, some private and institutional investors use precious metals to hedge their investments.

“Hedging” refers to staking your investment on a future price. You agree to pay today’s price for a deliverable that won’t come for some time. In this case, that’s physical silver.

Hedging, also known as buying silver futures, is a complex investment strategy. It’s better suited to sophisticated traders with large accounts and mature risk strategies.

Considerations for hedging silver

  • No storage costs: Hedging exposes you to the same risks and rewards as owning physical silver. You pay today’s prices and benefit when the price goes up. However, you’re not burdened by storage fees in the meantime.
  • It works both ways: Investing in future amplifies your win and loss potential. Hopefully, the price goes up. But if it doesn’t, you risk the need to top up your position or lose your initial investment.
  • Spot or stay: Hedging can be used by day traders and long-term investors alike. You can gamble on today’s spot price or purchase futures for, well, the future.

The risks of investing in silver

Silver is often seen as the second precious metal after gold.

Much of that also-ran reputation comes from history. In the last 100 years, silver prices have fluctuated over short periods, often with no traceable cause.

But we believe that’s changing.

Silver is a crucial component in Australia’s green energy future. It is used in EV batteries, solar PV panels, sensors, circuits, and a long list of industrial applications. These could stabilise the price of silver above $30 USD per ounce in the coming years.

That said, any investment bears inherent risks. Some of these we’ve outlined above, such as betting on future spot prices or buying counterfeit bullion.

Other risks include:

  • Price fluctuations: Precious metal prices fluctuate in response to global events and market drivers, some of which are invisible until they’ve come and gone. Silver has been subject to spot price fluctuations in the past.
  • Silver mining company performance: Investing in small-cap mining stocks involves trust and market knowledge. It’s prudent to research any company before investing.
  • Alternative materials: Silver’s unmatched conductivity and high malleability make it a sought-after industrial metal. So far, there is no feasible replacement for silver. But that doesn’t mean there will never be alternative materials.

The silver mining stock to watch in 2023

Boab Metals Limited (ASX: BML) is on track to start construction at our Sorby Hills Project in the Kimberley in 2023.

We believe it’s going to be an exciting ride. If you’re interested in learning more about Boab Metals Limited or the Sorby Hills Project, here are some links to get started: