NOTE: THE BELOW DISCUSSION IS MERELY FOR EDUCATIONAL PURPOSES ONLY. I AM NOT A SEBI REGISTERED ADVISOR AND THE ARTICLE DOES NOT INTEND TO RECOMMEND ANYTHING RELATED TO INVESTMENT DECISIONS. PLEASE CONSULT A SEBI REGISTERED ADVISOR, BEFORE INVESTING
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[A] Introduction: Silver is considered to be a poor man's gold. Its quite economically priced, compared to gold. Many people believe that silver should also be a part of one's portfolio, and that, in future, it is likely to outperform gold as well. Everyone has some opinion about silver for sure. In today's article, I'll try to examine the pros and cons of investing in silver, with some data points and logic. Plus, I will try to decode the place of silver in the portfolio. And, yes, of course, I will try to answer a question: should one invest in gold or silver?
[B] Investing in Silver: Pros and Cons:
Look at the charts below:
GOLD RETRUNS SINCE 2014
SILVER RETURNS IN LAST 10 YEARS
Without going into too many data points, you can see from above charts that silver is inherently more volatile, compared to gold. As a high beta commodity. There are many reasons for that. One is, it is used in many products like mobile, tablets, solar panel cells, making it more correlated to the economic ups and downs, compared to the gold, which has far less fewer industrial usages.
Plus, because, silver is cheaper, compared to gold, it attracts more speculators, adding to its overall volatility. So, it does not provide any stability to the portfolio to an investor, like gold. Yes, for a trader (speculator?), it might be a good commodity to take opportunistic bets, allowing a trader to make profits whenever the silver is booming.
Now look at the charts below: (blue shows gold, golden line shows silver)
Once again, without going into too many data points, we can see that gold has been the clear winner in long term. On the other hand, the silver is far more volatile than gold, making it much more riskier compared to gold.
Now look at the chart below:
It is clear from the above chart that Nifty has handsomely outperformed the silver in the long run.
[C] Will silver shine in 2025?
Right now, both the precious metals are trading at all time high on MCX. Gold is trading around 73,700 while silver is trading around 87,330. But the gold-to-silver ratio is at around 85. Historically, it has been around 65-70. That means, we can expect some recovery in silver or silver has not given as much returns, as it should have, as per the past records. Some experts believe that recovery of China will also push the demand of silver further upto 1,00,000 within next 1 to 1.5 years.
[D] What should you do? - my take
My take is simple: AVOID SILVER ALTOGETHER IF YOU ARE A MACRO / FUNDAMENTAL LONG-TERM INVESTOR. SILVER OFFERS NO DIVERSIFICATION AS IT HAS HIGH CORRELATION WITH SENSEX. PLUS, IT IS VERY VOLATILE AND HAS GENERATED MERELY 3% PERCENT RETURNS IN LAST ONE DECADE.
STILL, IF YOU LOVE TO SPECULATE AND WANT TO TAKE HIGH RISK BET, KEEP 3 TO 5% OF YOUR PORTFOLIO IN SILVER FOR NEXT ONE TO TWO YEARS AND BOOK PROFIT (EXIT) WHEN IT TOUCHES 1,00,000. THOUGH I WOULD STRONGLY RECOMMEND TO KEEP AWAY FROM SUCH SPECULATION.
