In 2021 the price of silver touched 20+ US dollars per ounce after seven years. Although the statistical view of silver investment shows great potential for short-term gain, experts predict investing in silver is a bad idea. And here is why experts think is silver is a bad investment.
Risk Factors Associated with Silver Investment
The main risk of silver investment is the price drop of silver, which will reduce the investment value. Risk factors are certain circumstances that impose or increase the risk of an investment and hamper presumed growth. All the assets classes and investments are vulnerable to different risk factors to some-extant. And the silver investment is not out of this list. So every investor who intends to invest in silver for diversification, gain, and preservation of asset value should consider the risk factors associated with the silver investment. Knowing the risk factors will help investors take measures beforehand or avoid investing in silver if possible. The following factors affect the risk of silver investment
Sensitive to the Economic Downturn
he market rate of silver is volatile and always changing. The price of silver largely depends on the growth of industrial use of silver. If the industrial demand for silver rises, then the market rate of silver will also grow. If the industrial demand falls, then the market rate of silver will also drop, making the investors vulnerable to capital loss. Also, there is a supply-demand imbalance. And when there is no balance in supply and demand of silver, the market rate of silver fluctuates, making the silver market risky for investment.
Subject to Technology Shifts
Income is Limited
Silver does not offer a dividend or interest like other financial investments. A stock of a company offers the possibility of capital gain and dividend on it, but in the case of silver, investors cannot make dividends from silver. The only source of income from the silver investment is capital gain. If an investor can sell the silver at a greater price than the purchasing price, he will make money. And this factor increases the risk of investment because capital loss is also a possibility here, and there is no dividend or interest to back that possible loss.
The Unforeseeable Rise in Price
Unforeseeable price fluctuation of silver can impose a risk of loss of investment value. There are multiple determinants of the silver price. Each uniquely affects the price of silver, making the price of silver unforeseeable and making an investor vulnerable to loss of investment. For new investors, lack of market information can result in investing in silver when the market price is already at its peak, but soon after investment, the value of silver can drop, and the investor can face a loss of investment value.
Why Silver is a Bad Investment?
Silver has one of the biggest markets of the precious metal class, but only 2% of the total market represents silver investment. Although the silver market is growing, there are many obvious reasons why some investors find silver a bad investment.
Fluctuation of Silver Market Price
Precious metals are volatile of changing price, but in the case of silver, it is much more volatile than the gold market. The major reason for this fluctuation is the dynamic factors of silver use and the low price of silver. Price fluctuation can cause new investors to lose because of its changing price. One example of how much the market price of silver can fluctuate is the market report of 1980. In January of 1980, silver price per ounce was 127.73 US dollars which dropped to only 42.97 US dollars in January 1981, and this drop shows the damage investors faced because of price fluctuation. (macrotrends.net)
Storage fee
An investor can purchase a greater amount of silver with a small investment than a gold investment. As silver is much cheaper than gold, it means silver occupies greater storage space, and it increases the cost of storage fee and cost of storage fee increase the cost of investment.
Large Supply
Although silver is a precious metal class, its availability and supply are greater than those, making the silver market cheaper. While there are only about 50000 tons of gold left for mining, about 560000 tons of silver left which shows that the supply of silver will not run out soon enough, making it less precious than gold. (usmoneyreserve.com) (tavex.fi/en)
The Silver Investment Market is Small
The global production of silver only in 2020 was 25000 metric tons by volume of production. The size of the silver market is huge compared to gold and other precious metal markets, but most of the silver produced globally goes for industrial use. Only 2% of global production is used for investment purposes. (statista.com/statistics) (silvermonthly.com)
Chance of Theft and Loss
Many investors prefer to invest in concrete silver bars and coins and store that silver at home, and this act of feeling insecure increases the chance of theft and loss from their house.
Fake Silver
Being a new investor in the silver market imposes a risk of buying fake silver as there is huge fake silver available, and every silver dealer is not honest enough to provide 100% pure silver.
Does not Generate Dividend
Silver does not generate any other form of income except capital gain; an investor can profit from silver investment only if he can sell his silver at a higher price than his purchasing price. It also increases the risk of capital loss.
Investment in the Right Time
The market rate of silver per ounce is always fluctuating, and this fluctuating situation makes it complex to select the right time for investment. If an investor is not precise enough to invest at the right time, he or she may incur a capital loss.
Dynamic Market Determinants
The price of silver frequently changes because of its changing demand. Industrial use and fear of investors greatly hamper the silver market’s stable growth.
Bottom Line
There are different types of silver investment available, and each one possesses a unique advantage over the other. Although silver has a vulnerable and unstable market price, investors with long-term investment plans can invest in silver after thoroughly considering and eliminating risk factors associated with silver investment if possible. (bestfinancier.com)
Bibliography
- bestfinancier.com. (n.d.). Retrieved from https://bestfinancier.com/why-silver-is-a-bad-investment/
- macrotrends.net. (n.d.). Retrieved from https://www.macrotrends.net/1470/historical-silver-prices-100-year-chart
- silvermonthly.com. (n.d.). Retrieved from http://www.silvermonthly.com/global-silver-demand/
- statista.com/statistics. (n.d.). Retrieved from https://www.statista.com/statistics/253293/silver-production-volume-worldwide/
- tavex.fi/en. (n.d.). Retrieved from https://tavex.fi/en/how-much-gold-is-there-left-to-mine-and-what-happens-if-gold-runs-out/
- usmoneyreserve.com. (n.d.). Retrieved from https://www.usmoneyreserve.com/blog/how-much-silver-is-in-the-world/
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