Silver linings?

What do George Soros, Bill Gates, Warren Buffet and the World Bank have in common? Give up? They are all rumoured to have large holdings in silver. Australia is the fourth largest silver-producing country and BHP owns the world's largest silver mine, so investing in silver is worth considering. Silver is plentiful and is also the least expensive precious metal. It is malleable, highly resistant to corrosion, a superior reflector of light and a conductor of heat and electricity. Silver demand is mainly for industrial purposes and applications in which the metal is a small part of the finished product. Consequently if the price of silver doubles it has a relatively small impact on its industrial demand. Only about one fifth of silver is mined as a primary metal. Most silver is mined as a by-product of lead, zinc, copper and gold. This results in significant quantities of silver being produced at operations where it is not the primary target or the principal earner of revenue. This is the case with BHP and Newcrest. Most stock brokers and analysts in Australia in general do not follow the silver market to the same extent as gold. They see it as a market that is hard to buy into, i.e. there are no direct silver investments, and a market that is easy to manipulate.

Like gold, silver can be included in an investment portfolio in a number of different ways. It can be purchased as bullion bars through approved refiners, which is usually the least expensive method of purchasing the physical commodity. However you have to consider storage and insurance costs and the fact that silver yields no interest. Silver bullion coins and medallions are also available, with some less than US$10. They are small, easy to transport and store, and internationally negotiable. But again there are storage costs and they yield no interest, and you also pay a premium over silver bars. In the US you can invest in silver mutual funds that specifically invest in silver and precious metals and silver mining companies. This may be a good way of investing in a diversified silver portfolio. In the US, you can invest in silver storage certificates and storage accounts. This saves investors the insurance and storage costs but they are not actually in possession of the silver and there is a delay of a few days when converting to cash.

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