With gold's price up nearly 10% this year, some investors are starting to pay attention to the yellow metal's sidekick: silver.
Silver prices are up 4.5% in 2019, and the white metal is playing a game of catch-up as it follows strength in gold, says Frank Holmes, CEO and chief investment officer of U.S. Global Investors.
Market watchers see a positive environment for silver as the Federal Reserve cuts U.S. interest rates as a hedge against inflation and interest rates for German bunds, which are German government bonds; and other global fixed-income vehicles turn negative. Very low interest rates make precious metals such as silver and gold attractive, since these assets act as a store of value, offsetting the fact no yield is paid.
There are numerous ways to buy silver. Investors can buy silver coins and bars, invest in an exchange-traded fund backed by physical metal, or buy ETFs or mutual funds that include mining stocks.
Silver is sometimes called "poor man's gold," but investing in silver isn't just a cheap gold proxy. Silver is about 1.5 times more volatile than gold, Holmes says, because of its lower price and its dual use as both an investment vehicle and as an industrial metal.
-- Coin and bars are the traditional way to buy silver.
-- Silver has multiple uses.
-- ETFs and stocks give investors a different way to own silver.
Silver Coins and Bars
To find baseline silver prices, Peter Thomas, senior vice president of Zaner Precious Metals, says investors should look at the London Silver Fix. This price is updated twice daily and is carried on most precious metals dealers' websites. Dealers use that price to set their bid and offer prices on physical metals.
The easiest way to buy silver coins or bars is online through reputable dealers, says Terry Hanlon, president of Dillon Gage Metals, a metals trading firm in Dallas.
A good sign is if the dealer is a member of metals industry groups like the Industry Council for Tangible Assets or Professional Numismatists Guild. When researching prices, Hanlon says check a few dealers to get a sense of prevailing prices as most dealers should be competitive where they offer to buy or sell silver.
Silver dealers also sell bags of junk silver, which are pre-1965 U.S. currency that contain 90% silver such as Mercury Dimes, says Adrian Day, chairman and CEO of Adrian Day Asset Management. Investors can buy $100 or $1,000 in face value, but are priced by their silver content. Day says the rough price currently for $100 in old U.S. currency is $1,280 and contains about $1,190 in silver. While junk silver has the highest premium, he says the benefit is owners can sell off individual pieces.
When it comes to pricing, bullion bars have the least amount of dealer premium, Thomas says, because these products are simply silver poured into a mold. "It's not really labor intense," he says. "You can sometimes buy them for 30 (or) 40 cents over spot price, which is really cheap."
Bullion coins have a higher premium over bars because of the labor that goes into making blanks, stamping them, inspecting and sealing them in a case, Thomas says. The most popular bullion coins with the lowest premiums are a 1-ounce Silver American Eagle from the U.S. Mint and a 1-ounce Canadian Maple Leaf from the Royal Canadian Mint.
Silver can be included in individual retirement accounts, known as IRAs, Hanlon and Thomas say. But the Internal Revenue Service has strict requirements on how these assets are stored and the type of coins -- American Eagles and Maple Leafs are permitted. Silver coins must be sent straight from the dealer to an approved custodial depository.
Hanlon says most investors focus on bullion bars and coins, while numismatic coins are for collectors. Numismatic coins have a market value separate from bullion, he adds. For example, the U.S. Mint just offered a commemorative 2019 proof silver dollar to celebrate the 50th anniversary of Apollo II's moon landing. Those coins were sold at a high premium over the silver bullion price, he says.
Physical bullion can be stored in a home safe, but for quantities over 1,000 ounces, which weighs at least about 70 pounds, investors should consider depository storage, Hanlon and Thomas say.
Multiple Uses of Silver
Unlike gold, which largely is used for investments and jewelry, silver straddles both the investment world and the industrial sector. In terms of industrial demand, it is used in solar panels, electrical switches, medical equipment and many other uses.
About 70% of silver production is a by-product of base metal mining, Day says.
Industrial use and supply affect silver's value. It's one of the reasons why silver production depends on the health of the economy and the industrial sector. Because silver is a by-product, base-metal miners are unlikely to ramp up production if silver demand suddenly spikes.
"This is why silver can have such dramatic moves because the supply doesn't always respond to the price," he says.
Silver ETFs and Stocks
Investors who want exposure to the silver price but do not necessarily want to own physical metal can buy silver ETFs. The biggest by assets under management is iShares Silver Trust (ticker: SLV), at $5.8 billion. Day says he likes Sprott Physical Silver Trust (PSLV), which allows owners to redeem their shares for physical metal.
Day prefers to buy individual silver miner stocks versus a mining-company ETF because there are few pure-play silver miners left. He points out SSR Mining ( SSRM) and Wheaton Precious Metals ( WPM) changed their names because they were branching out to other metals.
"You look at a company like Pan American (Silver), for example, it gets 50% of its production from silver and gold, and 50% from base metals," he says.
Even so, he says, these miners who have silver production in their portfolio will benefit from silver price rises, and many of these company's current share price reflects the white metal's recent bounce. His picks for miners with significant silver production are Pan American Silver ( PAAS) and Fortuna Silver Mines ( FSM), which he sees as good values even with the recent rally.
Both of these companies have good balance sheets and strong management, Day says. Pan American recently purchased a closed silver mine in Guatemala for what Day calls "a phenomenal buy." Fortuna runs two existing silver mines in Peru and Mexico and is building a gold mine in Argentina. They are doing so without raising new money or taking on debt.
Silver, like gold, can be viewed as a safe-haven investment during the end of a long bull run because it is a hard asset and a store of value. It can also be viewed as an alternative currency to fiat currencies such as the U.S. dollar or euro.
Holmes says while he owns both silver coins and equities, he believes silver equities may have an advantage of coins in the current economic environment. He says when stocks are strong and interest rates are low, mining equities can outperform physical silver because of equities' leverage. He adds that's why precious metals prices and equities did so well during the 2002-2007 time frame.
"Commodities were up, stocks were up and interest rates were falling," he says. "In an expanding economy, stocks outperform."
Debbie Carlson has more than 20 years experience as a journalist and has had bylines in Barron's, The Wall Street Journal, the Chicago Tribune, The Guardian, and other publications. Follow her on Twitter at @debbiecarlson1.