Precious metals have long attracted investors worried about an uncertain world. There is something appealing about protecting one’s wealth using tried and true methods, such as assets that have been used for millennia to store and protect wealth.
Silver and gold can be remarkably useful assets for diversifying your portfolio and protecting a portion of your wealth from the unpredictability of the world. If you’re interested in getting started with bullion, these are three reasons it can be a smart strategy to start with silver.
1. Lower Cost Barriers
The top reason to start with silver instead of gold is the low cost barrier. Depending on the price of gold, you can wind up spending around $2,000 or more on a single ounce. While gold is available in smaller weights, an ounce is a relatively standard measurement with average premiums. Silver is much more attainable in larger quantities with a lower cash commitment.
As a Canadian investor, you have the advantage of easy access to premium silver bullion products, such as the Silver Maple Leaf made by the Royal Canadian Mint. When you buy silver in Canada for investment purposes, you have options, including bullion products available at lower premiums than numismatic or collectible coins.
2. The Silver-Gold Ratio
If you’re investing for the long-term, one source of value to investigate is the silver-gold ratio. This is a comparison of the price of gold to the price of silver, and precious metals investors infer the relative value of the two metals using this metric.
Before the 20th century, the historical silver-gold ratio was relatively steady at 16-1. The stability of this ratio helped make possible bullion-based currencies that included silver, but that stability fell apart in the 20th century. In recent years, the silver-gold ratio has wavered between 60 to 100 and even gone as high as 120.
Some investors see this information as a sign that silver is undervalued, and a correction in the silver-gold ratio could mean huge gains. Given the breakdown of this price relationship in the 20th century, it’s unlikely that the world will see a return to the historical ratio in the near future, but a precious metals shortage could certainly give silver more growth potential than gold.
3. Commodity Super Cycles
As physical assets, silver and gold are both commodities, just like oil, lumber, and agricultural products, though their unique history (and easier storage) means they are also useful financial vehicles.
Despite their differences, they have historically benefited from the same macro trends that impact other commodities. One of these trends is the commodity super cycle, a global trend that sees a sustained period of high commodity prices, affecting everything from lumber to copper to silver.
Physical commodities require significant infrastructure investment, especially metals. When global economic growth expands rapidly, it tends to create a supply shortage, as the infrastructure is not in place to satisfy global demand.
As a metal that is both in high-demand industrially and for purposes such as jewellery and bullion, silver prices will be worth watching as the world economy enters into a new super cycle. Silver’s use in photovoltaic installations means demand will likely only increase as the world moves to electrification and EVs.
Silver has several qualities that make it an attractive investment for beginners in the bullion market. It has a low barrier to entry and considerable growth potential.
