The Ultimate Guide to Silver Trading

In the previous article we were talking about allocating your money in Gold – the most popular precious metal. In this section, I will continue this idea, but we will focus on the gold’s smaller brother – Silver. Basically, the principle in trading Silver is similar to the one with gold, with only minor differences.

The first one is that Gold is pretty much money and is used mostly for investment purposes (around 90% of the time). Silver on the other hand, is mostly an industrial metal (Around 60%) with a great variety of usages. Actually, it is one of the most widely used commodities in the industry next to Oil. Primary branches are Electrical and Medical. Most of the demand for silver comes from the industry and most of the silver production, comes from the industry too. Silver comes as a by-product of mining other metals like for example Copper (Only around 28% comes from direct silver mining). That is why, one of the biggest producers of Silver in the world is KGHM – polish copper mining company.

The Silver market is much smaller than the Gold one. That makes it more vulnerable to manipulation. It is estimated that the global size of the Silver market is around 40 mld USD, which is only a small part of few billion dollar size Gold market.

Should I trade Gold, Silver or both?

Good question and one chart comes particularly handy when we have this thought in mind – Gold/Silver ratio. Gold/Silver ratio shows us, which of the precious metal is currently performing better and which one is not.

Here you can see the chart, which shows this ratio for the past 30 years. How can you read this? In general, you can see that Gold comparing to Silver is quite expensive. When you see high values here (around 70 or above), Silver seems a better option as it is undervalued. Obviously, it goes both ways, so values around 40-50 are promoting buying Gold instead of Silver. It is worth mentioning that this indicator should be considered when investing long-term. For the short-term speculation, it is not so relevant.

When trading on the silver market you have to remember one thing. Volatility. It is said, that a 10% change in the price of Gold, corresponds with a 20-25% change in the price of Silver. Knowing this, let’s look at the period from October 2008 to April 2011. At that time, the price of Gold went 150% higher. At the same time, Silver rose 420%. Quite impressive right? And that is just 2,5 years. If that is not a great return then I do not know what is.

If you want to invest in Silver, you have three main ways to do so. The first one is to buy physical silver, bars, coins, etc. The great thing is that in this case, you own it, you have it under your custody. As for the disadvantages, well, usually prices from previous metals dealers are worse than those seen on the commodity exchange. In the case of silver, when selling, you will have to additionally pay tax.

Another option are contracts on Silver. On Axiory’s platform, you can easily trade CFD on Silver and that is a way to go for many investors. In this case, you do not own the silver, you are only speculating about the future price of this precious metal. The great advantage here is leverage, which allows you to control a much bigger position than in the first option (owning physical metal).

The Last option are shares of silver mining companies. I think this one is the most advanced one and requires the biggest knowledge in this matter. The first two are in my opinion more than enough for a trader wishing to start its journey on the precious metals market.