Robert Kiyosaki (from the Rich Dad Poor Dad fame) was in the news recently stating how Silver is the biggest bargain today. He even goes ahead and predicts that Silver will double this year! That may be an audacious prediction for some, but the fact holds that Silver as compared to Gold is at a discounted price. Gold being at an all-time high, should we then just rotate capital from Gold into Silver?
When we look at investing in Silver metal, the first thing that comes to mind is volatility. Silver has historically been extremely volatile. Here is an ETF chart that links to moving Silver prices.
Silver’s demand is not linked just to jewelry but has immense industrial demand, specifically in electronics, and a variety of industries from solar panels to automobiles. Hence, it is tied to multiple businesses which could be also cyclical. This also leads to the fact that Gold is much more disconnected from real business than Silver, and hence from a diversification perspective, it could make more sense to stick to Gold.
While Gold continues to touch new highs, primarily due to the hedge against all the uncertainties in the world at the moment, Silver is still 30-35% off from its highest peak. Both of them are still considered safer investments during turmoil, or simply a hedge against inflation. Hence, instead of overthinking Gold versus Silver, it can be treated as yet another diversification that seems to gather bullish sentiments.
Similar to Gold, various channels can be opted for Silver investment, starting with the physical form itself. Silver ETFs are gaining much prominence primarily due to ease of investment and liquidation. The latter is very important due to the volatility factor, and a sudden price movement sometimes provides opportunities to do swing trading. A staggered investment would also make sense due to the high risk associated with short-term price fluctuations. It may not be a bad idea to think along the lines of alpha SIP to look for short-term dips to engage some of the idle funds into the ETF basket.
Most of the ETFs would be comparable returns, so with any other fund or ETF investment, keeping the expense ratios is a factor in deciding on the exact ETF as they would make a huge difference in the long term.
Lastly, never forget the tax implications on the gains. Silver ETFs are treated just like equity investments. Hence, for gains from holding more than 12 months, they are taxed as LTCG of 12.5%, while for any holding lesser than that, they are treated as STCG and taxed at 20%. In neither of the cases, there are any indexation benefits applicable.
Overall, it could be a complicated investment considering the various linkages with other industries and factors. Hence, limit it to a very smaller fraction of overall investment (even lesser than Gold), but keep an active eye on it to look for dips and buying opportunities instead of a sole passive form of investment.
