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Is Silver ETF Good As An Investment?
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Is Silver ETF Good As An Investment?

Almost any news that you read or hear now a days talks about how central banks across the world are trying to beat the recession and the global economic slowdown by printing more money. In the same note, another term that is well repeated is inflation, which is a downside to printing more money as it loses its value.

Likewise, another term(s) that is mentioned and often follows is silver and gold or precious metals investment. The crux of the matter is that as more money is made available, the higher the value of precious metals such as Gold and Silver tend to be.

As the uncertainty continues, investors often wonder where best to invest their money in order to make more returns. Given the current economic situation in the world, it is but obvious that some savvy investors have managed to diversify their investment portfolio from stocks to precious metals investing.

Precious Metals Investing - What is it?

The term precious metals investing is quite a vague term, so let us break this down into different categories.

Investment in precious metals such as Gold and Silver can encompass any of the following:

  • Actual purchase and delivery of the physical goods (Gold/Silver bullion bars, coins etc).
  • Paper trading such as ETF's, ETP's, Spot gold and spot silver investments and so on
  • Investing in the mining sector on a stock exchange

To keep this article concise, we will look into ETF's or exchange traded funds, which is nothing but a form of investing in precious metals but does not involve any delivery or purchase of the actual goods.

Why Exchange Traded Funds

You might ask why? Well the answer is simple. When you purchase a Gold or Silver bar or coin, there are many costs associated with it. First of all, such investment requires significant amount of money and secondly there are associated costs such as delivery, storage and so on. Most such purchases involves storing the precious metal in a bank vault, which comes at a certain fee. Also when you want to sell the physical bar or coin, it needs to be re-evaluated and every aspect of this comes at an additional fee.

Given the circumstances, investing or paper trading in precious metals is a better option for those who have limited capital to invest but at the same time do not want to lose out on the potential profits that come with precious metals trading.

Why are precious metals such as Gold/Silver so valued?

Before the world moved to fiat currency, the US Dollar, also know as the world's reserve currency was originally printed based on the value of Gold. In other words, unlike today if the central bank wanted to print money, the equivalent amount of Gold had to be stored in a physical vault. Thus every dollar had to be backed up by its equivalent value in Gold, which at one point was at approximately $30 for an ounce of Gold.

However, due to sloppy rules the US had to make do with this form of currency and switched to fiat currency which is not backed by any physical asset, and the one we use today.

As obvious, you can comprehend why demand for precious metals such as Gold and Silver have now risen in value.

Silver Exchange Traded Funds - A brief introduction

While there are many ways to paper trade Silver or even Gold for that matter, ETF's or Exchange Traded funds are one of the most popular ways. Unlike spot silver trading, trading Silver ETF's is more on the long term. Silver ETF's were relatively new and was introduced only in 2006, with the iShares Silver ETF now managed by Blackrock being one of the biggest ETF fund ever.

Investing in a Silver ETF is as simple as purchasing a few shares and the fund in itself is managed by a trust or a fund manager. Another interesting point to note is that each share of the ETF (iShares Silver ETF for example) has to be backed up by its equivalent value in Silver. Therefore, ETF's make a great investment because the trust deals with the purchase and delivery of the precious metal while you can hold on to the shares or sell them as you please. Of course there is a certain fee involved but it is much lesser compared to the actual purchase of the metal itself.

The above article concludes here by summarizing some important points.

As the global economic crisis continues to worsen, investors will be and some have already diversified their portfolios into ETF's. Because inflation can really hurt the measures taken up by the central bank, the value of precious metals, especially Gold and Silver will continue to rise.

Investing in Silver ETF's is a better option compared to buying and storing the metal, this is also know as paper trading.


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