Is Silver an Undervalued Investment? | investing in silver

Posted by – February 7, 2013

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Investing in Silver

The price of gold has risen steadily over the past few years, leading many to start selling off their old jewelry while others clamor to invest in the precious metal. Although its numbers have always been lower, gold’s underdog cousin, silver, has also seen recent fluctuation in its value, and many are wondering if silver is becoming the next hot investment.

With the instability of the stock market generating fear of traditional stock investing, a newly restored desire to buy up physical precious metals is taking hold. Having tangible, tradable goods represents a mistrust that has been brewing against the stock market in the past decade, and precious metals stand as more stable symbols of economic longevity.

Where platinum has long reigned supreme among metal, valued consistently at around $1,600 an ounce throughout most of the 2000’s, gold has crept up quickly, reaching an equivalent value in the past two years.

platinum

Gold’s going rate per ounce is considerably higher than silver’s, with Kitco.com listing the price per ounce for gold settling in around $1,675 on Monday, compared to silver at $31.74 per ounce.  It is easy to see why gold has gotten so much hype of late, having risen in value from around $800 an ounce in December 2008 to its current price rivaling relatively stable platinum, according to IOL Business Report.

In contrast, silver’s fluctuations, while dramatic in the last decade, have held lower stakes. Because its price per ounce is nowhere near the hundreds, it can be easy to overlook silver’s worth, but a close look at the metal’s history in the 2000’s shows that investors are keeping a keen eye on it.

In early 2008, silver’s price-per-ounce hit above $20 for the first time in decades, according to the Silver Institute. Following the economic downturn in the latter half of the year, however, silver posted an annual average price of $14.67 for 2009.

Then, as a result of higher retail investment and fabrication demands, as well as for exchange traded funds, silver saw its biggest jump in 2011, when its average price more than doubled to hit $35.12 per ounce.

Its current value sits just below the record high of two years ago, but has stayed steadily above the $30 an ounce mark.

The Appeal of Silver Investment

investing in silver

Part of silver’s relative stability comes from its wide-reaching industrial applications aside from its use as currency or jewelry. As Investment U points out, silver is used in many appliances, as well by medical practitioners for its disinfectant properties.

Its high level of electrical conductivity means that it is also used in many electronics, such as cell phones and cameras, meaning that its usefulness is unlikely to die down anytime soon. On the contrary, with the volume of electronics in demand reaching ever higher, it would seem that silver’s value stands to increase over the next decades.

For investors who foresee an eventual boom in demand for silver, the combination of steady values and relatively low buying prices make it a tempting physical commodity investment. Where gold’s sharp rises and high going rates make the metal too rich for many casual investors’ blood, silver offers the appeal of an affordable, long-term investment.

David Newman, owner of South City Pawn Shop in South San Francisco, said that he has seen in increase in sales of silver jewelry at his shop, mainly because silver is much more affordable than gold. He said that since silver’s value has risen from around $7 an ounce about a decade ago to more than $30 an ounce now, more customers than ever are snapping silver pieces up.

Where pawn shops like Newman’s have seen a rise in customers looking to sell their gold for quick money in the past couple years, consumers’ desire to purchase silver has also increased.

San Francisco antiques enthusiast Jon Keating has seen the demand for quality silver firsthand. After purchasing a 26-piece sterling silver flatware set for $15 at a garage sale, Keating was able to turn a huge profit on the items, selling the entire set to an independent buyer on eBay for $846.

After finding that the flatware was in fact sterling, meaning that it contained 92.5% pure silver, Keating said he knew the pieces would fetch a much higher price than what he paid. “They must not have known what they had,” he said of the original sellers.

How to Invest

While sterling silver is a lucky find for a casual investor, most experts recommend sticking to items that can be universally measured when investing in silver.

Newman said that he would never recommend that investors stockpile jewelry because there is no set markup rate to reference. The amount an investor gets back from a jewelry sale would depend entirely on the location and dealers.

A better investment, Newman explained, is in coins or bullion – items with easily referenced market prices.

“If you’re buying a silver dollar or quarter or bullion, you can look up the market value to see how much you should be paying,” he said.

USA Today has advised investors that investing in precious metals during times of economic instability has been historically risky, and that purchasing commodities that have recently had record value highs can often result in losses.

They recommend treating metal purchases much like stock purchases by setting limits on how much to invest and knowing at what price you want to sell, and then acting fast.

Investing in anything carries its share of risks, but the appeal of owning silver bullion or coins is clear: having tangible value in your hands tends to make investors feel a bit more secure in a unsteady economy.

 

Angie Picardo is a staff writer for NerdWallet, a website dedicated to helping consumers alleviate debt with the best balance transfer cards.

image courtesy of: 123RF.com

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