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Commodities Trading: Investing in Silver

Commodities Trading: Investing in Silver

Silver is the second most-common precious metal. It's an important industrial metal used in the electrical, electronics, and photography industries of which there is a limited global supply. Worldwide 24,000 tons of silver were mined in 2021 according to the U.S. Geological Survey.

Throughout history silver has had a mixed performance as an inflation hedge. From 1980 to 1984, inflation averaged 6.5%, but silver prices fell 22.6% annually during that period. Inflation averaged about 4.6% from 1988 to 1991, but silver prices dropped 12.7% annually during that time.

Because silver has a relatively weak correlation to stocks, bonds and other commodities, it can help diversify an investment portfolio.

The most direct way to own silver is to own physical silver (99.9% pure investment grade), whether in the form of bullion or so-called junk silver coins. Prior to 1965, all dimes, quarters and half-dollars issued by the U.S. Mint contained large quantities of silver. These coins are valued not only for their silver content, but also their value to collectors based upon their scarcity, condition, and popularity.

If you hold the physical metals, there are costs for storing and insuring them. There's also the potential for theft. Also, if you sell them at a profit, the IRS taxes them as collectibles, which is higher than capital gains tax rates. Another disadvantage of a direct investment in precious metals is that they don't generate income.

Indirectly, investors can buy shares of silver mining stocks, invest in exchange traded funds (ETFs) that own physical silver or silver futures contracts, invest in precious metals mutual funds that track silver, or in silver futures contracts outright.

While many investors seek out silver in physical form, a better option is often to invest in mining stocks, you may earn dividends.

To research silver, seek out independent and objective silver and precious metals news outlets.


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