Types of Silver Investments

Like gold and platinum, silver is classified as a precious metal. It has been valuable throughout history, with a myriad of uses that attract industrial demand. Silver investing is not uncommon today, and there are many ways for investors to gain exposure to this silvery-white metal. 

We hope that this article will give new silver investors clarity on the different types of silver investments on the market and the potential risks that come with them. Our views stem from our more-than-a-decade experience as a bullion dealer - one that is very much plugged into the global precious metal industry and a London Bullion Market Association (LBMA) member.

Physical Silver / Silver Bullion

One of the most common ways to invest in silver is to buy silver, be it silver coins, bars, rounds or collectibles. As a precious metal dealer with over a decade of industry experience, we believe buying physical silver is the safest way to invest in silver.

Owning silver bars or coins eliminates counterparty risks often found in paper silver investments such as silver ETFs, silver mining stocks, and silver futures contracts. Silver bullion bars or coins stored in a safe jurisdiction outside of the financial system are among the best wealth protection against a global financial crisis, economic collapse, or currency debasement.

Nothing compares with the peace of mind of holding weighty physical assets like silver coins and bars that insure against financial storms.

Silver Bars

Silver bars are for silver investment. Very often, due to their less fancy designs, bars' price premiums (the amount you pay above the silver spot price) are lower than silver coins. Since you are buying silver for investment (and not for collection), lower premiums set you up for a larger profit in the future when silver rises.

Silver bars have lower premiums because they are often produced in larger weights (e.g., from 10 troy ounces to 1,000 troy ounces) than coins. Unlike silver coins, which are often minted with intricate designs and motifs, silver bars are minimally or plainly designed at best.

Bar sizes between 1 kilogram and 1,000 troy ounces are often produced as silver cast bars with a rough finish that spots scratches, dents, and other blemishes. However, despite their aesthetic challenges, these investment-grade silver bars contain the allotted amount of 99.9% pure silver, meeting international refining standards.

It is important for investors to look beyond aesthetics when buying silver bars if their intention to buy physical silver is for investment and not collection.

Given that the largest silver bar is the LBMA 1,000 Oz silver bar, each costing about USD 30,000, silver bars offer the best and most efficient way to make a large investment into silver. This is why global silver exchanges exclusively trade the 1,000 Oz silver bar among their institutional clients, which include bullion banks, refineries, manufacturers, and other financial institutions.

In our experience as bullion dealers, silver bars are the best way to invest in silver since they give you the best returns when silver rises.

 

Silver Coins

Silver coins are a popular form of investment among smaller investors, attracted by their intricate designs and lower unit prices. 

Silver coins are exclusively minted by various government mints, such as the Royal Mint, the Perth Mint, the Royal Canadian Mint, the Austrian Mint, and the U.S. Mint. On the other hand, round silver bullion minted by non-government privately-owned mints are referred to as silver rounds.

Examples of popular investment-grade silver bullion coins include the Canadian Maple Leaf, American Silver Eagle, Australian Silver Kangaroo, Austrian Vienna Philharmonic, and the UK Silver Britannia.

Given that silver coins are minted by sovereign mints, they bear a legal tender face value denominated in the currency of the issuing country. For example, the UK Silver Britannia coin has a 2-pound face value, and the Canadian Maple Leaf coin has a CAD $5 legal tender face value.

Another benefit of bullion coins produced by government mints is their potential for VAT or sales tax exemption, depending on the country where they are bought. For example, the Singapore government has exempted the local Goods & Services Tax (GST) when purchasing investment-grade silver coins. Similarly, investing in UK Britannia silver coins has major tax advantages for UK residents.

Silver coins are commonly minted to a weight of 1 troy ounce, although there are exceptions, like the 1-kilogram Koala and Kookaburra silver coins from the Perth Mint and the 1-kilogram UK Britannia silver coin from the Royal Mint.

Silver coins have higher premiums than silver bars due to the additional workmanship going into the coin's design and its smaller weight. As a general rule of thumb, larger bullion products tend to have lower premiums.

It is common for mints to ship silver coins in monster boxes, each containing 250 to 500 1-troy-ounce coins kept in plastic tubes. Investors keen to invest more in silver coins can buy mint-strapped monster boxes.

 

Silver Rounds

Silver rounds are similar to silver coins but are not minted by government mints. They are produced by private mints and do not have a legal tender face value.

Silver rounds are usually available at a lower premium than government-issued silver coins and are produced by private refineries as an alternative investment product to the silver bars they produce. While sovereign mint coins are well-received internationally, silver rounds are only popular in some countries, such as the United States, Canada, and certain European countries. They are viewed as a semi-numismatic product in the rest of the world.

Therefore, silver rounds are more likely to incur a sales tax than silver coins, depending on the country of import. Moreover, in countries where rounds are less popular, they may be harder to liquidate when it is time for you to sell silver.

Given that many private mints of varying experience produce silver rounds, the quality of the rounds can differ from mint to mint. Poorly produced silver rounds could have inconsistent weight and dimensions, affecting their resale value.

Investors buying silver for investment purposes will likely pay a little more for silver coins than rounds to be assured of their quality and international recognizability.

Despite our caution, silver rounds are still a good way to invest in physical silver, better than the counterparty risks of buying paper silver.

Collectible Silver

Collectible silver items, such as antique silverware or limited-edition coins, can also be an investment option. 

Also referred to as numismatics, the silver collectibles market is diverse, ranging from mass-market collectibles to rare historical silver coins.

The shrewdest collectors are exclusively interested in rare and historical silver coins that are traded for thousands of dollars. These rare coins are often graded for quality by numismatists and are sealed in barcoded protective plastic slabs. The United States has one of the most mature markets for trading rare silver coins.

The various international mints that produce bullion coins also mint mass-market collectible silver coins. As with other license-based merchandising, these mints produce licensed silver numismatic products from globally recognizable movie franchises or gift products commemorating special occasions such as birthdays or anniversaries. This category of silver collectibles often has shallow secondary markets with unremarkable resale value beyond the silver content.

Therefore, only the rare silver coin market can be considered for investment. However, it requires investor expertise to authenticate genuine coins and market connections to access the rarest coins in the world.

Silver ETFs

While buying physical silver is the safest and easiest way to invest in silver, some investors may want to gain further exposure to the silver market in addition to owning silver bars and coins.

In this respect, precious metal exchange-traded funds (ETFs) like gold and silver ETFs are convenient ways to gain exposure to the silver price without owning physical silver. Silver ETFs track the price of silver and are traded on stock exchanges, much like stocks.

Investors buy into Silver ETFs by buying the shares of a trust that owns the physical silver. Without silver ownership, one benefit of an exchange-traded fund is that investors are not required to pay any silver storage fees.

However, the convenience that comes with Silver ETFs is not without risks. Without direct ownership of any silver bullion, you rely on fund managers or the trust to make good on your investment. This counterparty risk exists for all precious metal-backed ETFs.

As with investing in a company's stock, you are exposed to counterparty risks such as management proficiency, silver storage, regulatory oversight, operational integrity, and the silver custodians' financial strength. Your silver investment may be at risk if any of these factors are mismanaged or encounter problems.

In addition, ETF prospectuses are notoriously riddled with disclaimers and clauses, often in fine print, that absolve the fund of responsibility in many situations that may negatively impact your silver ETF investment.

Investing in silver ETFs requires careful consideration of expense ratios and tracking errors, which will erode your returns. It is also common for ETFs to be taxed similarly to collectibles and securities, which will further impact your investment in silver funds.

As with other paper silver investment products, silver ETFs provide convenience without the 'hassle' that comes with holding physical silver. A commonly touted benefit is that there are no storage costs when one buys a silver ETF. However, careful research into prospectuses of silver funds may reveal very real risks that could jeopardize your silver investment.

Silver Mining Stocks

Investing in silver mining stocks is another way to gain exposure to the silver market. By purchasing shares in silver mining companies, investors can participate in the company's growth and success. 

Investors are buying shares of a silver mining company, not silver itself. While silver mining equities can be influenced by falling and rising silver prices, they can also be impacted by the performance of silver mining companies and their operational efficiencies. 

Like precious metal ETFs, silver stocks are fraught with counterparty risks and are highly dependent on the political stability of mining jurisdictions, environmental regulations, company financials, and management competency. Although the precious metal mining industry is known for outsized returns when companies succeed, it is considered one of the riskiest sectors in the stock market.

The market attempts to mitigate some risks in the sector by introducing the silver miners ETF as a safer option for investors. However, as we have mentioned above, silver miners ETFs also carry the same risks, if not more, as silver or gold ETFs.

It is essential to do your own due diligence in assessing the performance of individual mining companies before you buy silver stocks.

Silver Futures

For more experienced investors, silver futures and options can provide a way to speculate on the future price of silver or hedge existing investments. This type of silver investment is commonly used by banks, mining companies, manufacturers, and jewelers to hedge against the market's adverse price movements.

Futures contracts allow you to agree to buy or sell a specific amount of silver at a predetermined price on a future date. 

While silver futures offer profit potential, the risks are high, and success often requires constant monitoring of economic trends for opportunities to buy and sell. As futures trading allows investors to leverage their capital for larger potential returns, there are also risks of amplified losses. You could be subjected to margin calls if spot silver prices decline to maintain your futures positions.

Often marketed as a silver investment requiring less capital with significant flexibility, silver futures trading is not for everyone and is best left to experienced traders, as it requires a high level of sophistication given the risks that come with leverage.

Digital Silver Platforms

Digital silver platforms allow investors to buy, sell, and store silver online without the need to hold physical silver. Such platforms are geared towards convenience, where investors can buy silver easily using their mobile devices.

However, it is important to research companies that offer such digital silver platforms to ensure that they are credible and understand the potential risks involved with such silver investment products.

Look for well-established companies in the precious metals industry with an experienced management team. Often, digital silver platforms are offered by new tech start-ups that have expertise in building an app or website but little to no experience in the precious metals industry.

Bullion industry experience is important, especially if the platform promises digital silver backed by physical silver bars or coins. With physical silver, the challenges and costs to store, insure, and audit silver become relevant and should be managed by companies with experience in the precious metals market. 

New digital silver platform entrants may tout free silver storage as a marketing hook to attract inexperienced investors. However, veteran investors understand that a company's long-term profitability is important for longevity in the business world. Therefore, while free silver storage may benefit investors in the short term, the benefit teeters out if the silver storage costs overburden the company's revenue.

An example of a credible digital silver platform is Silver Bullion's S.T.A.R. Grams, where investors can conveniently buy fractional gold, silver, and platinum with their mobile devices. Furthermore, S.T.A.R. Grams are fully backed by bullion stored at the company's The Safe House vault in Singapore. The bullion bars backing S.T.A.R. Grams are explicitly identified via their parcel serial numbers along with the bullion's photo.

Bullion stored at The Safe House vault also undergoes quarterly bullion audits conducted by independent third-party precious metal auditors, which verify its existence in the vault.

Given the well-designed checking mechanisms in place, S.T.A.R. Grams offers precious metal investors unrivaled peace of mind.

 

Conclusion

Interest in investing in silver will undoubtedly arise, especially in a precious metal bull market. However, it is important for investors to stay level-headed amid the excitement of rising silver prices and assess which types of silver investments are best suited. The risk-reward ratio will differ with different silver investments, and understanding the potential risks is crucial to ensure that your invested funds achieve your goals. As one of Singapore's leading precious metal dealers, we advise you to begin by buying physical silver bars and coins. With the physical metal in your safekeeping, eliminating counterparty risks, you have no fear, even with a financial crisis or currency collapse. In reality, precious metals are more of a wealth insurance against such uncertainties and increase your wealth like investments at the same time.

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