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Silver Is Soaring. Here Are 5 Ways You Can Profit

By Dan Caplinger - Updated Jul 25, 2020 at 1:12PM

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Here's how you can invest in the semi-precious metal.

The stock market has been extremely volatile in 2020, plunging during the winter months but then bouncing back convincingly since March. However, one investment that's up considerably so far in the year is silver. In just the past few weeks, silver has jumped to its best levels in years. Many investors see even more upside for the low-priced precious metal.

Three are several different ways you can invest in silver. Not all of them share the same investing characteristics, and although they all tend to benefit when silver prices rise, the specific ways in which each prospers from climbing silver prices differ greatly. Below, we'll look at four different silver investments and offer some views on why some might make more sense for you than others.

1. Silver bars, coins, and other bullion investments

For some investors, there's no alternative to owning actual physical silver. There are many online coin and bullion dealers that will sell you silver in quantities ranging from a single ounce to 1,000-ounce ingots. You can also visit local coin shops in person, as many of them also offer ways to buy and sell silver. There are many different silver coins in various weights, as well as bars of various sizes.

Silver coins and bars piled loosely on each other.

Image source: Getty Images.

Owning physical silver ensures that you'll participate directly in the movements of the silver market. However, you'll be responsible for shipping costs to get the silver to you, and you'll have to take care of storing it securely. In addition, most dealers have a fairly wide gap between the price at which they'll sell you silver and the price they'll pay you to buy it back. This method is therefore best for those who expect to hold their silver over long periods of time.

2. Silver futures contracts

You can also invest in silver without ever having to take physical ownership of any actual metal. Silver futures contracts give you the right to receive delivery at a specified date in the future at a given price that tends to fluctuate with the price of silver. If silver prices rise, the value of your futures contract will typically rise along with it. If you don't want to take delivery, you just need to sell the contract back before its expiration date.

Silver futures usually trade fairly closely with the spot price of silver bullion, but there's still some risk of futures market irregularities that can create disparities between spot prices and futures prices. You'll also need to talk to your broker to see if you have the ability to trade futures contracts in your account. If not, you'll need to take steps to add futures trading to your account or get a separate account with another broker. In addition, the intricacies of futures contracts can get complicated, leaving many investors preferring other choices.

3. Silver ETFs

The exchange-traded fund market also caters to silver investors with funds that track the price of the white metal. iShares Silver (SLV 0.11%) owns silver bullion, and each share corresponds to about 0.93 ounces of silver. Except for the 0.50% annual expense ratio, the ETF has done a good job of tracking the long-term movements in the silver market.

ETFs allow you to buy and sell shares any time the market is open. They're also typically available at no commission, saving you from the markups your local coin dealer will charge. However, some investors don't like silver ETFs as much, because you have no legal right to demand the actual silver bullion from the fund.

4. Silver mining stocks

A host of companies mine silver. When silver gets more expensive, their profits tend to rise. Most silver miners are actually leveraged plays on silver prices, because fixed costs make the impact on profits larger than the rise in the price of silver. As a basic example, if a company has costs of $10 per ounce to mine silver and the price jumps from $15 to $20, then the miner's profit will double from $5 per ounce to $10. That can create big share movements, even though the price of silver went up just 33%.

However, the link between any given miner and the silver market isn't perfect, as there are some company-specific issues that can arise. For instance, if a mining company has an accident in one of its mines, it might have to shut the mine down and halt production. That'll send shares of the mining stock lower even if silver prices are soaring.

Investors can buy individual mining stocks. Alternatively, you can turn to ETFs like GlobalX Silver Miners (SIL 1.31%) for diversified exposure.

5. Silver streaming companies

There's another set of companies with exposure to silver. Streaming companies aren't miners, but they work with miners to provide financing for mining projects. In exchange, they'll obtain the right to buy some or all of the silver production from those projects, often at a fixed price that's well below the current market price.

Most streaming companies, including Wheaton Precious Metals (WPM 1.58%) and Franco-Nevada (FNV 1.52%), enter into contracts with precious metals miners of all types. With exposure to gold and platinum-group metals as well as silver, it can be tough to find pure-play silver streaming companies. However, gold and silver often move in tandem, so some investors are comfortable with exposure to gold as well in a streaming company.

Hi ho silver!

If you think silver has more room to run higher, then these five investments are worth a closer look. No matter which one you pick, you'll put yourself in a position to profit if the silver market stays as hot as it's been lately.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

iShares Silver Trust Stock Quote
iShares Silver Trust
SLV
$18.95 (0.11%) $0.02
Global X Funds - Global X Silver Miners ETF Stock Quote
Global X Funds - Global X Silver Miners ETF
SIL
$27.13 (1.31%) $0.35
Wheaton Precious Metals Corp. Stock Quote
Wheaton Precious Metals Corp.
WPM
$34.67 (1.58%) $0.54
Franco-Nevada Stock Quote
Franco-Nevada
FNV
$133.79 (1.52%) $2.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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