The Fundamentals of the Silver Market

By: Submissions

Brett Chattz writes: All that Glitters is not Gold, it may be Silver!

The global financial crisis that began around 2008 sent investors into a tailspin. As the value of stocks plummeted, so the urgency to seek investment safe havens grew. The ongoing volatility in global financial markets is a natural catalyst for alternative investments such as precious metals. Among the most well-known precious metals is gold. However, silver is not to be underestimated in any way. As traders seek to limit their losses and grow their net worth, alternative investments in precious metals become more attractive. Not only do these types of investments add variety and depth to a portfolio, they also act as safe havens against rising economic uncertainty. The silver market is one of the most heavily traded markets in the world, and the relative stability of this market is well noted.

Sylvia Shines when the Dollar Dulls

As is typical with the currency markets, rapidly devaluing currencies lead to a shift to alternative investments. As of October '13, the dollar and the euro have both been pummelled by rising unemployment, increased dependency on government, falling GDPs and staggering debt. Combined, these factors lead to a loss of investor confidence in the value of the greenback, the Euro, the pound sterling or the Japanese yen. The volatility of the aforementioned currencies is a big factor in determining how much will be invested in precious metals such as silver. Investors and regular traders alike are wary of seeing the cash value of their stocks, indices, and Forex accounts obliterated. So they turn to commodities trading, and within this vast global market, silver shines.

Current Silver Investment Options - Drilldown

There are many available investment options when it comes to silver. These include silver coins, silver bullion, silver exchange traded funds (ETF), silver mining stocks, silver mutual funds, silver accounts, silver certificates, and of course, silver futures. Each one of these investment opportunities in silver brings with it unique advantages and several disadvantages. Perhaps the most easily recognisable of all the silver investments is that of physical silver coins. Coins are a relatively cheap way to invest in silver. They are also easy to store and transport. Plus, silver coins are easily converted into cash. Of course the safe storage of physical silver coins needs to be considered before the investment is made. Plus, there is no interest that will be earned by maintaining physical stores of this precious metal. Silver bars are equally popular, and they can be purchased directly from silver mints or sold over-the-counter at major banks.

There are many other ways to trade in silver. The most common of these is silver ETF's. These provide traders with all the advantages of investing in the silver market, without having to worry about physically storing silver. Of course the only downside to ETFs is that traders are once again subject to the fluctuations of the market. Another alternative is that of silver mutual funds. These funds are investments in silver mining stocks, or perhaps even in silver directly. The fact that these are diversified investments means that there is greater security than individual stocks. However, the costs are higher, and knowledge of the equities markets is required. When it comes to silver mining stocks, investors have opportunities to enjoy capital appreciation and dividends. However, mining stocks require extensive knowledge of the equities market, and there is an inherently bigger risk to investors. Silver mining stocks are better suited to professional traders and investors, and best avoided by novices.

Yet another option is that of silver accounts. These are offered through many Swiss banks and they are typically secured via an allocation of silver storage or through an unallocated silver storage. Note that investors do not take physical ownership of the silver; there are simply claims against the bank for a specific allocation. The advantages of using silver accounts include high levels of liquidity, no risk of loss or theft, zero tax and widely quoted prices. These will have to be weighed against delays in delivery and the fact that none of the silver is actually physically owned by the investor. With silver futures, traders agree to accept delivery of a specific quantity of silver at a future point in time, at an agreed price. With silver futures, profit/loss is decided by the difference between the price of the offsetting transaction and the purchase price. Silver futures trading is geared towards speculators with high degrees of leverage, high liquidity and no risk of storage loss. The disadvantages include the risk, the necessary experience that is required and multiple limitations on trade.

The Current Market for Silver

As the uncertainty in the markets continues, so investors see commodities such as silver more favourably. This is evidenced by the increasing prices and popularity of this precious metal. This also gives silver an enduring appeal, with stable prices over the long-term. Of course, the value of silver is evident in both its price and its lustre. It is increasingly being seen as a valuable precious metal with many real-world applications. Not only is silver used in jewellery, crockery, cutlery and medicine, but it is also an excellent conductor. The real world utility value of silver coupled with its investment value makes it a prized commodity for most everyone. The demand for silver is primarily governed by ETF's, with a minority of transactions demanded in physical silver bullion. When the stock market enters a bearish phase, silver tends to increase in value. As investments in silver increase, so the price of this precious metal increases accordingly. To stay abreast of the latest fluctuations in the price of silver, it is important to keep your finger on the pulse. There are 5 sectors that determine the overall demand for silver. These include silver bullion, silverware, photography, jewellery and industrial applications. Once demand increases, so too does the price of silver.

Author’s Bio: Brett Chatz was born in Johannesburg, Gauteng, South Africa. He attended the internationally accredited University of South Africa, where he completed the prestigious Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes his expertise and knowledge for Intertrader - spread betting and CFD trading provider.

© 2013 Copyright Brett Chattz - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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