Silver Beats Stocks: Investing in Times of Turbulence
Posted by Amit Bhandari on
This article was originally featured in the Deccan Chronicle
Rising demand from solar power and electrical sectors has pushed up silver prices, making it an attractive investment avenue. Investors can invest in physical silver (via bars and coins) or exchange traded funds.
The past few months been a nightmare for equity investors – with the benchmark Nifty delivering a return of just 5% over the past year. This has been ascribed to a host of factors – slowdown in the Indian economy, foreign investors withdrawing funds, shifting of assets to the US in anticipation of Trump tariffs. The bottomline – equity markets are unpredictable and can and will do poorly for extended durations.
At the same time, bullion metals – gold and silver – have shone in contrast. While most Indians are quite familiar with gold, it is silver that has been the real surprise. Over the past year, silver prices have gone up by nearly 37% in rupee terms, outperforming not just the stock market but also gold! Over longer timeframes too, silver has delivered an impressive performance. Over the past five years, silver prices have doubled in rupee terms – notwithstanding the cut in customs duties in July 2024, which brought the price down by nearly 10%. Over the same period, Nifty has delivered a return of 87.6% - slightly behind. Any diversified investment portfolio should have bullion as a component – and silver is one metal that investors need to look at.
Historically, silver was used heavily in currency. Prior to the World War II, most of the world’s major currencies – the US Dollar, British Pound and the Indian Rupee, were silver coins – also making up for stable exchange rates! Most countries dropped silver coinage after the war (1946 in case of India). Another big historical use of silver was in photography – which has nearly died out with the advent of digital photography. The other big uses of silver have been jewelry and investments.
However, this is now changing. The biggest demand for silver now comes from industry. As per the Silver Institute, an industry body, the global silver demand is 1,200 million ounces (1 troy ounce = 31.1 grams), of which 711 million oz, or 58%, is industrial demand. Silver is used in electrical and electronic appliances, including in solar photovoltaic cells. Growing interest in renewable energy has also pushed up silver demand over the past decade. Jewellery and investment demand account for bulk of the remaining demand. On the other side, silver supply has lagged as mines have been unable to keep pace with the growing industrial demand, pushing up prices.
Investing in Silver
An easy way to invest in silver is to buy physical silver – hallmarked bars – which can be 10 grams, 100 grams or even a kilogram. For a passive investor willing to hold for long periods, nothing beats physical silver. However, many investors prefer buying antique silver coins – old coins such as the Indian Rupees, US Morgan Dollars, and British Crowns of the pre-1945 era. These coins were minted in tens (sometimes hundreds!) of millions – and continue to be available in large quantities. The Princely State of Hyderabad issued its own silver coins till the 1940s, and these are also very popular in this region. The uniform size and purity, and a liquid market for coins makes them an attractive investment option as well.
Another investment avenue which is growing in popularity is silver Exchange Traded Funds (ETFs). These funds operate like a mutual fund – they collect money from a large pool of investors and use it to buy (and store) physical silver. Units in these funds can be bought and sold on the stock exchange, like any other share. ETFs make more sense for someone who needs liquid investments. ETFs have an expense ratio – about 0.4-0.6% of the investment value is the annual expense – which will add up over longer duration.