FP Answers: Is silver a good investment? – Financial Post

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In an increasingly complex world, the Financial Post should be the first place you look for answers. Our FP Answers initiative puts readers in the driver’s seat: you submit questions and our reporters find answers not just for you, but for all our readers. Today, we answer a question from Bruce about silver’s prospects.

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Like gold, silver has often been seen as a safe investment haven during uncertain times as well as a traditional hedge against inflation, but it may now be having a “golden” moment of its own as industrial demand increases for the precious metal.

Silver has always been used to manufacture a variety of items from jewelry and batteries to microcircuits and medical equipment, but its growing importance as a critical metal in solar-energy production and electric-vehicle (EV) assembly may have a significant effect on its future performance and outlook, investment advisers say.

“The price of silver has a tailwind driving it forward,” Paul de Sousa, a senior investment adviser at Sightline Wealth Management LP, said. “Silver is an increasingly important metal component in industrial inputs because of green initiatives by all countries around the world.”

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For example, silver is essential in the production of both solar panels and EVs. Its high conductivity and corrosion resistance make it necessary for conductors and electrodes, and nearly every electrical connection in an EV uses silver.

Demand for silver could substantially rise in the coming years after United States President Joe Biden signed into law the Inflation Reduction Act, which includes billions of dollars in tax credits and grants for companies to manufacture solar panels and clean vehicles.

“I would say to an investor to look for industrial demand (for silver) to grow,” de Sousa said, adding that demand for silver has already outstripped supply.

Silver production was around 870 billion ounces in 2021 while demand was more than one billion ounces, with the deficit being met by recycling.

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Silver closed at US$19.28 an ounce on Thursday, down US$3.66, or about 15 per cent, over the past year.

The precious metal reached an all-time high of US$49.45 an ounce in mid-January 1980, acting as both a hedge against inflation and as a safe investment haven with the 1979 Iranian Revolution and Soviet invasion of Afghanistan in the background.

But the price plunged by more than 50 per cent within a week, with Bunker and Herbert Hunt often blamed for exacerbating the abrupt fall as the Texas brothers tried to corner the silver market.

While silver is far cheaper than gold, which is currently around US$1,790 an ounce, it is more thinly traded and, therefore, more illiquid and volatile as an investment.

De Sousa recommends the typical investor maintain a small position in silver — less than five per cent of their portfolio — with an eye on holding it long term to ride out the metal’s volatility.

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That volatility, however, is not the only factor to take into consideration before investing in the precious metal. The price of silver can also be affected by sudden economic slowdowns.

“It’s industrial demand that drives that price,” Phillip Streible, chief market strategist at Blue Line Futures LLC, said.

China is likely the No. 1 industrial consumer of silver, and Streible said the Chinese central bank’s surprise interest rate cut on Monday indicates a slowing economy, so the outlook for silver is not as favourable as it was even a week ago.

“We don’t expect prices to be robust, but more in a trading range,” he said.

Streible favours owning the metal over investing in a silver mining company. There are several factors, such as rising labour and energy costs, working against miners at the moment, he said.

Investors can purchase silver directly as bullion or indirectly through an exchange-traded fund such as the Sprott Physical Silver Trust.

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