Is Silver a Good Investment?

August 29, 2010 Investing, Investing Tips, Investing/Trading, Silver Investing

Silver is both a precious metal and an industrial metal. Is silver a good investment? It depends upon the market for silver and how you go about investing in silver. There are mining stocks and companies that just refine silver. There is silver bullion and there are collectible silver coins. Is silver a good investment? Similar to investing in gold there are a number of factors to take into consideration. Let’s take a look.

Silver bullion fell in price way back in the mid 1850’s with silver discoveries in the Western United States and has never recovered its former purchasing power. It fact the price of silver bullion kept falling until the middle of the last century. Then silver recovered at bit, especially with the inflation of the late 1960’s and the 1970’s. When the Hunt brothers tried to corner the market on silver in 1980 the price of silver bullion went from under $20 an ounce to around $70. After their effort failed the price of silver bullion went into free fall and hit an all time low of $4.50 an ounce in 1992. With inflation and concerns about a falling dollar, a monster stock market crash, and unheard of levels of governmental debt silver has climbed to the $18 an ounce range today. Fundamental analysis would tell us that for much of the last century and a half silver was not a good investment. It would also tell us that buying silver at the bottom in 1992 would have been a good idea. So, is silver a good investment today?

To the extent that a person buys silver before someone like the Hunts try to corner the market and have the discipline to get out before the bubble bursts, silver is a great one time investment. To the extent that the investor realizes that all time lows in silver are right down to the bare minimum and invests at the bottom of the curve, silver is a good investment. To the extent that a silver investor can read the silver market and buy and sell bullion with exacting efficiency, silver is a good investment. However, it not like investing in growing companies where there is a steady income stream over the years, unless you think of silver mining.

An alternative to buying silver bullion is to own mining stocks. Precious metal mining stocks tend to go up in multiples to the price of gold, silver, platinum, etc. when the economy is shaky or people doubt the staying power of the dollar for any reason. Because the mining company is, typically, making money even at a lower price it has its overhead covered. Thus any increase in the price of silver is clear profit. Is silver a good investment when you own mining stocks? It can be. When the price of silver is going up deciding on which silver mining operation to invest in is a matter of picking new winners. However, buying mining stocks when the price of silver is high can be a recipe for disaster as the mining stock will plummet faster than the price of silver if there is big correction in silver price. Then the answer to is silver a good investment would be a resounding “NO.”