Should ASX investors look to the precious metal silver as an investment in 2020 alongside gold? There are good arguments on both sides.
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Is silver a good investment in 2020?
In the department of precious metals, it’s normally gold that gets the attention as an attractive asset class to invest in. Gold has been the foundation of the world’s monetary system practically until the 1970s. So it makes sense that investors are still attracted to its use as a store of value.
In 2020 so far, gold has indeed attracted a lot of attention, helped of course by surging demand. Over the course of the year to date, the gold price has appreciated from US$1,520 an ounce to a high of US$2,061 an ounce that we saw back in early August. This broke the previous all-time high of US$1,921 an ounce that was set back in 2011. Today, gold has cooled somewhat at the current price of US$,1898. But it’s still a popular choice for portfolio diversification and hedging against economic, monetary and geopolitical uncertainty.
Silver as an investment
But what has been less prevalent (or at least obvious) in 2020 is the fortune of another precious metal: silver. Although not as conspicuous as gold, silver also has a history of monetary use. Coins used to be minted in silver after all, and there have been instances in history where it was also used as a monetary foundation for currencies. Silver functions a little differently to gold in reality though. Unlike its yellow cousin, silver has a myriad of industrial uses. Perhaps the most pertinent in our modern age is silver’s status as a key ingredient in rechargeable batteries and solar panels. This tends to translate into a more volatile price for silver. As an example, in 2020 so far, silver has fluctuated between US$12 and US$29 an ounce.
But what of silver as an investment?
It’s certainly offered and available today as such a vehicle. Physical silver bullion is always an option. And alongside gold, there are exchange-traded funds (ETFs) on the ASX that allow access to silver. A primary example is the ETFS Physical Silver ETF (ASX: ETPMAG). So the question now is not ‘can you buy silver as an investment?’ but ‘why should you?’
Is silver a good idea for an ASX portfolio?
Many of the reasons that attract investors to gold as an investment can also be applied to silver. It is a scarce and precious metal with intrinsic value. In this way, it demonstrates some of the similar perceived ‘inflation/deflation’ protections that gold offers. And unlike currencies these days, silver cannot be ‘printed’ on-demand, which is another factor that some investors appreciate.
However, as I mentioned earlier, silver is also far more volatile than gold, which provokes some scepticism for its use as an effective store of wealth. I think ordinary investors will probably find little use for silver as an investment because of this. There is nothing that silver can offer against gold as a better alternative apart from the more potential upside fuelled by its volatility, in my view.
If you are interested in pursuing silver as an investment, I would recommend using a ‘rebalancing strategy’ for a small and predetermined allocation in your portfolio, say 5%. This strategy might have the potential to lend some diversification from an asset not correlated with your ASX shares. But otherwise, I think silver is set to remain a fringe option for most ASX investors. Thus, I wouldn’t bother with silver as an investment unless you really want to.
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Motley Fool contributor Sebastian Bowen owns shares of ETFS Physical Silver ETF. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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