Should I invest in silver coins

Buy silver

How to invest in the white precious metal

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By Armin Moghaddam: stock market expert & trader
Updated on

Silver is the cheap and historically undervalued alternative to gold.

Find out now how to buy silver and how best to invest in silver investments on the stock market.

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Silver - The price history so far

Silver is relatively cheap because it has depreciated significantly since the financial crisis, as you can see in the following chart:


However, looking at the previous value development is not sufficient for a long-term investment in precious metals.


Does buying silver make sense in 2021?

The price of silver rose last year, but the precious metal is still relatively cheap in 2021:

To find out whether buying silver is currently useful, one uses the "gold-silver ratio" and the consumer price index (CPI = Consumer Price Index).

The gold-silver ratio shows how much more expensive gold is compared to silver. The CPI shows how much the prices of precious metals were influenced by inflation (monetary devaluation).

Sounds complicated? But it is not:


Gold-silver ratio

The gold-silver ratio simply describes the value that results from dividing the gold price by the silver price. This allows you to see whether it is currently better to buy gold or silver.1

Example: Gold price $ 1300 divided by silver price $ 15 = 86.66 gold-silver ratio.


The gold-silver ratio shows how expensive gold was in relation to silver.
Image source: kitco.com 2

Historically, this value has moved between around 20 and 90. That means we're at the top end at the moment, so gold is too expensive and silver is too cheap.

Accordingly, it would currently make very good sense to invest in silver.


Consumer Price Index (CPI)

The consumer price index, or CPI (Consumer Price Index) for short, describes the price development of common consumer goods.

So you can measure the inflation by increasing the money supply, or also: the inflation.3

This is important when considering the silver price, since this value is of course also measured in a currency (US dollar).


The 50-year chart for silver, adjusted for inflation. Image source: shadowstats.com
The extreme price of 1980 (Silver Thursday) is due to a manipulation of the Hunt brothers.4

Accordingly, silver is currently very undervalued relative to gold and cheaper than ever when adjusted for inflation. So everything speaks for an investment in the white precious metal.

But what is the best way to buy it?


Buying silver: how it works

There are several ways to speculate in silver. You can buy real silver coins, buy silver certificates on the stock exchange or invest in the shares of the silver mines.

In the following, you will learn how exactly these methods work.


Physical silver

These are usually silver coins or silver bars. You can order these in the desired quantity from a bank or a precious metal dealer.

You will either store this silver at home under your pillow, or at a bank in a locker for a fee.

Attention: VAT on silver bars

Since 2014, 19% VAT on silver bars has also been due in Germany!

The only way to avoid them is to purchase and store the silver abroad. Many providers therefore offer so-called "duty-free warehouses" where the precious metal remains abroad. The tax is only due when it is imported into Germany.

Most silver coins, on the other hand, are exempt from the regulation, they are not subject to VAT.5

Advantage speculation period

An important advantage of buying physical silver is the tax-free profits after a one-year holding period.

If you only sell the silver coins or silver bars after a year, then the profit is tax-free. This gives you a decisive advantage over equity investments, which of course always do not have the withholding tax.

So here again everything you need to know about buying silver in physical form:

  • 19% VAT for domestic purchases
  • Tax-free profits after one year of speculation
  • Storage at home or in a safe deposit box
  • Practical as a means of payment (when the bomb falls ...)

What other options are there to invest in silver?


Buy silver on the stock exchange: Certificates (ETCs)

Silver ETCs are perpetual, real silver backed debt securities issued by an issuer. In practical terms, they are certificates that can be traded on the stock exchange like stocks.6

ETC stands for "Exchange Traded Commodities", which literally means "exchange-traded commodities".


Silver certificate: 5-year chart des ishares silver ETC.

The advantage of these ETCs is that they are backed by real silver. This means that if the issuer, i.e. the publisher, goes bankrupt, then the real silver is reserved for the investors in the ETC.

The disadvantage is that the storage fees as well as the management fees incurred are included in the performance of the certificate.

You should look at these fees carefully before buying the respective ETC, because 1-2% per year can make a considerable difference in the long run.

Advantages and disadvantages of silver ETCs:

  • easily traded like stocks on the stock exchange
  • no VAT
  • for this, as with shares, the withholding tax applies
  • secured by physical silver

Silver mining stocks

Another way to profit from silver is by buying silver mining stocks.

Investing in stocks is far more risky than buying hard cash, as the bankruptcy of the stock corporation is very likely to result in total loss.

Silver is produced by publicly traded companies, and shares in these companies can be bought just like any other stock. If the price of silver goes up, these companies will make more money, and their stock prices should go up.


Silver mining stocks: The Mexican Fresnillo plc on the 5-year chart.

Of course, you bear the usual risks when buying shares. The company can slide into bankruptcy and the share price can fall. On the other hand, the prices usually rise disproportionately to the silver price when things are going well.

Features of silver mining stocks:

  • Bankruptcy risk as with other stocks
  • react violently to fluctuations in the price of silver
  • Withholding tax is due
  • easily tradable with any online broker

In order to select the right silver mining stocks, one should definitely perform a fundamental analysis of the respective stock. This can save you from nasty surprises.


Silver mining funds and ETFs

Where there are stocks, there are of course funds and ETFs (Exchange Traded Funds).

Here you should pay particular attention to the composition and the fees, which are included in the performance every year.7

Silver mining funds are slightly less risky than individual stocks because they invest in a large amount of stocks. Thus, a single bankruptcy is not that important.

Of course, the chances for this are also limited.


ETF: The Horizons silver fund relative to the Fresnillo silver mines share in pink on the 10-year chart.
You can see how the individual stock reacts more extreme to the silver market.

Here you have to weigh up whether you make a selection of silver mining stocks yourself, or whether you buy funds and leave the selection to the fund managers.

The pros and cons of ETFs are roughly the same as silver mining stocks.

Now you know how to invest in silver, but how much silver makes sense?


How Much Silver Should You Own?

How high the proportion of silver or gold should be in the depot is controversial. Experts like Thomas RoĂźmann from Augsburger Aktienbank recommend a share in the portfolio of only 5%.8

Others, however, recommend a precious metal weighting of up to 40%.

I think a blanket weighting of the silver content is wrong. It is better to assess the current stock market situation and the valuation of silver, and conclude from this how high the proportion in the depot should be.

Is the price of silver historically high or low? Does the gold-silver ratio (see above in the article) speak more in favor of silver or gold as a current investment?

Depending on the situation, you can then opt for a silver content of 5 to 40% in the depot.

It would also be possible to use silver as a cash substitute. Instead of a cash portion in the depot for times of crisis, you hold silver certificates. (Stocks and ETFs are too volatile as a cash substitute, physical silver too cumbersome)

All right?

Then take a look at the depository calculator, there are all depository banks with which you can trade the silver financial products discussed.


Note: I have checked this article for accuracy and correct sources.



Sources and references:
  1. AG Precious Metals | Gold-silver ratio↩
  2. kitco.com | The 45 year record of Gold-Silver Ratios↩
  3. Jürgen Schwiesselmann: Inflation Measurement. GRIN Verlag, 2010, EAN 9783640595433.↩
  4. Encyclopædia Britannica | Silver Thursday↩
  5. Heap. | From 2014 higher VAT on silver coins↩
  6. xetra.com | Exchange Traded Commodities (ETCs) ↩
  7. Mike Piper: Investing Made Simple: Index Fund Investing and Etf Investing Explained in 100 Pages or Less. Publisher: Simple Subjects, 2015, ISBN 978-0-9979465-3-6.↩
  8. Augsburger Allgemeine | How much gold makes sense to build up wealth↩