How to Invest in Silver in Canada

| September 23, 2022
✓ Verified by Harshil Dhanky

Those concerned with inflation often worry about the negative effects of unmonitored spending and loose fiscal discipline by governments.

In response to such policies, investors turn to precious metals as they have stood the test of time as a store of value and a hedge against inflation.

Investors desiring to express such a view can invest in silver to establish such defensive positions.

There are several ways one can begin investing in silver:

  • Buying Physical Silver Bullion
  • Investing in Physical Silver ETFs
  • Silver Mining Stocks
  • Silver Futures
  • Silver ETFs (Holding futures/silver mining companies)

5 Ways to Invest in Silver

Physical

Summary

Owning physical silver, buying and storing the actual commodity, is the most straightforward way of getting exposure to the underlying commodity.

Pros

  • Owning and storing physical silver is easy to accomplish for retail investors as they can buy Silver from bullion dealers and store them securely as a hedge against inflation or financial uncertainty.

Cons

  • Bullion dealers often markup prices and may not offer the best price for physical commodities when liquidating physical silver. Further, it is essential to have secure storage facilities to prevent theft.
Physical Silver ETFs

Summary

Similar to owning the commodity and physically storing it, asset managers have several funds that specialize in buying and storing the physical silver. Sprott’s Physical Silver Trust is a good example of such a fund

Pros

  • ETFs that hold physical silver and not futures provide exposure directly to silver’s price movement by owning the underlying commodity and will participate in silver’s price appreciation.

Cons

  • Physical Silver ETFs have a cost of carry embedded as there are various storage and operation costs involved to operate such funds.
Stocks

Summary

Stocks of silver producers generally mirror the price movement of spot silver. Producers benefit from higher prices leading to better margins and profitability.

Pros

  • Silver mining companies can take advantage of bull markets in the underlying as they are best positioned to generate higher revenues and increased cash flow prospects.

Cons

  • Despite higher spot prices, silver producers may be locked into long term hedging programs capping the prices they’d receive for a certain period, thereby minimizing their ability to participate meaningfully in any price appreciation of silver.
Futures

Summary

Silver futures are leveraged products that can be settled financially before expiry or be taken into physical settlement at a specified location. Each contract size is 5,000 troy ounces and a $25 tick size for one lot.

Pros

  • Silver futures are an extremely liquid, direct way to own silver with leverage. Such products work with initial margin deposit and subsequent maintenance of established margins set by the exchange.

Cons

  • Silver futures contain risk and should be used by sophisticated investors as losses can exceed initial investments in volatile price moves.
Silver Related ETFs

Summary

Silver ETFs can provide exposure to managed silver futures or a group of silver producing companies. Invesco DB Silver Fund is a good example of an ETF that holds silver futures and iShares SLVP is a silver miners ETF.

Pros

  • Utilizing ETFs is a great way for investors that don’t want to over-allocate to a particular position and can own several different producers on a diversified basis in the case of a silver miner ETF index.

Cons

  • Silver ETFs holding silver futures will lose out every time the fund rolls the contracts, thereby not enabling investors to participate fully in the price appreciation of the underlying commodity

1. Owning Physical Silver

Buying physical silver is certainly the most direct way to get exposure to silver’s price appreciation but it involves making necessary arrangements for secure storage.

It’s also important to find bullion dealers that offer reasonable prices while trading these physical silver positions and liquidating them for cash.

Did You Know?

Silver has been around since 4000 BC and is one of the first five metals to ever be discovered. It was used as a currency in Egypt, and valued higher than Gold.

2. Buying Physical Silver ETFs

Physical Silver ETFs are great tools to own physical silver with limited operational involvement in storing and maintaining physical stocks of the commodity.

Such funds often have world-class infrastructure that can operate at scale and minimize costs for investors as a whole.

However, such investments will have an embedded cost of carry and will only produce returns if the price of the silver appreciates.

Such an investment represents a safe haven position and will benefit in periods of chaos and volatility. 

3. Investing in Silver Producer Stocks

While owning physical silver is the best way to get commodity exposure, investing in stocks of silver producing companies can be a great alternative as such equities benefit from price appreciation and can increase dividends to investors which are absent when holding physical commodities.

Silver acts as an inflationary hedge and such producers will benefit immensely as they can extract greater revenue from the same output.

However, necessary due diligence is needed to ensure that such companies have appropriate licences and are compliant with all regulations to engage in silver mining.

4. Silver Futures

Silver futures are instruments representing 5,000 troy ounces per contract that are traded nearly 24×7 with a decent amount of liquidity.

Margin accounts are necessary to trade futures and since these products employ leverage, it is important to size positions appropriately to avoid taking larger than necessary positions.

Positions are marked to market daily and it is necessary to meet the maintenance margin requirements.

Otherwise, the broker will issue margin calls or liquidate positions until margin requirements are satisfied.

Finally, silver futures can be settled financially or be taken into expiry to settle physically at the exchange’s specified delivery point.

5. Other Silver ETFs

With the proliferation of various exchange-traded products, there are a large number of ETFs that provide exposure to silver via futures or represent an index of silver miners and producers.

Both methods can provide exposure to the underlying commodity but will have their nuances and may not move in lockstep with the spot price of silver.

Silver futures need to be rolled as these products are settled financially meaning that the cost of the roll is incorporated into the fees of the ETF.

On the other hand, silver mining companies are driven by factors such as operational efficiency, grade of silver produced and mining permits and regulatory environment.

As a result, while there are numerous ways to express a long silver view using exchange-traded funds, it is important to have a firm grasp on what the product can and cannot do in order to tether expectations to reality and optimize return on investment.

Potential Risks of Investing in Silver

Investors aiming to get exposure to silver may encounter a variety of risks depending on the instrument of choice to express their view.

These risks vary depending on the vehicle used to invest.

However, listed below are a few of the risk considerations that should be kept in mind while investing in silver.

Storage Risk

When holding physical silver bullion, it becomes extremely important to ensure a secure storage facility to prevent any chances of theft.

Such expenses should be factored into the cost of acquisition and kept in mind while calculating the return on investment.

Price Volatility

Silver spot price is driven by supply and demand fundamentals, global macro events and random market volatility in the short term.

Such price fluctuations can impact the day-to-day P&L of holding such an investment and investors need to be comfortable with the volatility associated with investing in commodities.

Market Risks

Investing in equities of silver producers entails a certain market exposure and any commodity producer is closely linked with the economic business cycle affecting their stock price.

It is important to understand this risk factor while investing in commodity miners.

It is also important to know how to hedge such market exposure in case the investor anticipates headwinds to their investment. 

Quality & Authenticity

The investor wishing to own physical silver needs to be certain of the quality of the commodity being bought and has to procure the metal from an authentic verified source.

Such investments are priced similarly with different bullion dealers and any source offering a significant discount might be too good to be true.

As such, investors should exercise caution while having a healthy sense of skepticism. 

Silver bullion

Is Silver a Good Investment?

Silver can be a good hedge against inflation and provide investors with a source of safety in risk-off market scenarios.

Further, silver has several real-world applications adding to its utility and making it more than a store of value.

Overall, investors should allocate a small percentage of their portfolio towards precious metals to de-risk their holdings against market sell-offs and a surge in inflation expectations.

Frequently Asked Questions

  • How do I buy silver stocks?
  • Is investing in silver an inflation hedge?

Sid Mohapatra is an energy trader based out of Toronto working in power and natural gas trading. Prior to working in commodities, Sid worked at a top Canadian bank’s fixed income and derivatives business. He possesses strong fundamentals in asset allocation, global macro thematic investing and physical commodities.

As a graduate of McMaster University, Sid specialized in Finance and has taught numerous sessions on Investing, Financial Securities and Trading courses. He led and managed the Horizon’s Trading Center at McMaster University.

Sid’s unique experience brings a breadth of institutional knowledge to the retail investing universe. He covers equity derivatives, structured credit instruments and tax harvesting techniques to help Canadians make better financial decisions in the ever-changing landscape of financial markets and investing.