Silver can be used as an investment, much like other precious metals. It has been valued as money and a store of value for over 4,000 years. However, it stopped being used as legal tender in developed countries after the silver standard ended in 1935. Some countries still mint silver bullion and collector coins, such as the American Silver Eagle, which have nominal face values. In 2009, silver demand was primarily for industrial uses (40%), jewelry, bullion coins, and exchange-traded products. By 2011, global silver reserves were about 530,000 tonnes.
Every year, millions of Canadian Silver Maple Leaf and American Silver Eagle coins are bought as investments. Although these bullion coins are legal tender, they are seldom used in everyday transactions. “Junk silver” coins, which were originally meant for circulation, are rare but sometimes found and are popular among coin collectors.
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The price of silver is influenced by market speculation and supply and demand. It is more volatile than gold due to a smaller market and fluctuations in industrial and investment demand. Silver often tracks gold prices but can vary. Historically, the gold/silver ratio has fluctuated, with the ratio fixed at 15:1 in the U.S. in 1792. In 1980, silver prices surged to a record high due to market conditions, then fell sharply. Prices spiked again in 2011 due to economic uncertainties but later declined as investors shifted back to equities.
The silver market is smaller compared to gold, which means large trades can impact prices significantly. Silver is used in various industries, including photovoltaics and water purification. It is also a hedge against inflation. Public sentiment and marketing campaigns can affect perceptions of silver’s value.
Investment Vehicles
Investors can buy silver in various forms:
- Bars: Physical silver bars are available in multiple sizes and can be bought or sold through banks or dealers. They are suitable for home or bank safe storage.
- Coins and Rounds: Silver coins, such as the Canadian Silver Maple Leaf and American Silver Eagle, are government-minted and carry face value. “Junk silver” refers to pre-1964 U.S. coins with high silver content. Rounds are privately minted and do not have face value.
- Exchange-Traded Products (ETPs): Silver ETPs, such as iShares Silver Trust and Sprott Physical Silver Trust, provide exposure to silver prices without storing physical metal.
- Accounts: Swiss banks and digital bullion exchanges offer silver accounts where investors can buy or sell silver without handling physical bars.
- Derivatives and Mining Shares: Silver futures and shares in mining companies are other investment options, though they involve additional risks and factors.
Taxation
Silver is taxed differently across regions. For example, in the EU, silver is subject to VAT, unlike gold. In the U.S., silver is taxed at a special collectibles rate when sold for a profit. In Utah, U.S.-minted silver coins are legal tender and exempt from state capital gains tax but still subject to federal tax.
Conclusion
Silver has long been valued as a form of money and investment. While it ceased to be legal tender in many developed countries in 1935, it remains a significant asset, widely used in industrial applications, jewelry, and as an investment. The price of silver is highly volatile, influenced by market speculation, supply and demand, and economic conditions. It often follows gold prices but can vary significantly due to its smaller market size and diverse uses. Investors have various options for purchasing silver, including bars, coins, and exchange-traded products, each with its own advantages. Tax treatment of silver investments varies by region, affecting its attractiveness compared to other assets.
