Diversifying a portfolio through precious metals can be done in many different ways. Investing in the metals themselves, or products derived from them, is one option to explore. Silver mining stocks, for examples, can yield some good money as well.
The Appeal of Silver Mining Stocks
Given the current price rise of precious metals, the industry appears to be firing on all cylinders. Noting such strong gains would not be possible without the companies providing core services. Mining firms are the lifeblood of gold and silver, and a fair few of them can be traded publicly.
Finding the right silver stocks to invest in, however, is a bit more complex than one would imagine at first. Before making any financial commitment, it is pertinent to note which types of stocks there are and what they represent. Investing blindly is never a smart idea, thus doing research is crucial.
Major Silver Mining Stocks
As the name would suggest, these particular types of stocks are tied to bigger silver mining operations or exploration firms, often spanning multiple active mining locations. More specifically, there aren’t that many firms that fit this category at this time.
While investing in these stocks will often yield positive results, the buy-in price may be relatively steep as well. Given the track record of major silver stocks, the room for potential profit may also be slightly smaller.
Any company capable of producing silver is worth looking into. In virtually all cases, these companies will have active mines, with potentially more in development. Depending on how much metal they can produce on a yearly basis, their market cap will be adjusted accordingly.
One thing to look out for with mid-tier producers is whether they have any outstanding debt. If the debt vastly outweighs cash reserves or yearly production, the investment becomes a lot riskier. Thankfully, most mid-tier producers will have a healthy ratio, but digging into their public finances may be worth one’s while.
Junior Silver Mining Stocks
Junior companies are the up-and-coming investment segment everyone is going crazy about. Given the current conditions surrounding the silver market, these are the companies likely to benefit the most. That trend can reflect favorably upon their stock price as well, although it is never a guarantee for success.
There are many different types of junior silver stocks to explore. This particular market segment goes well beyond the concept of producing gold. Companies currently developing their first mine(s), exploring new locations, or being labeled as “project generators” can all yield significant returns if they turn out to be successful.
The main appeal of junior silver stocks is how they are often cheaper to buy. These are also primarily companies with a market cap well below the $100 million mark. In some cases, new companies can be valued at just $2 million, with major potential for future growth. Every investment carries risks, however, including silver mining stocks.
In this modern day and age, investing in precious metals is a good idea. Some traders go one step further, and explore the silver exchange-traded products. Several key categories can be identified in this regard.
Physically Backed Products
The most obvious form of silver exchange-traded products are those that are physically backed by actual silver. Speculating on price differences is great, but one rarely has anything to hold in one’s hand. With physically backed funds products, that situation is very different.
Any fund offering such an option often has ample reserves in physical silver. Whether it is bars or coins, their portfolio of net assets are precious metals. A part of it will be cash, to offer some liquidity in case a rebalancing procedure is required due to changing market conditions.
Trading physically backed funds can be done with ease. Several different products can be explored, depending on one’s region. Some of the more famous names include Julius Baer Physical Silver Fund, Sprott Physical Silver Trust, and iShares Silver Trust.This latter one has millions of troy ounces of silver under management.
Another popular option, albeit a far riskier one, is to invest in leveraged ETFs. These silver exchange-traded products can be denominated in either silver, gold, or other precious metals. Investors will leverage their position when they go long or short, depending on how they evaluate the current market sentiment.
Dealing with leveraged positions is always a major risk. If the market evolves in the right direction, big profits can be generated. When the market heads south, however, the losses will be a lot steeper. Investing in these types of silver exchange traded products is not advised for newcomers or people who trade based on emotions.
ETFs Based on Futures
Exploring futures contract trading for silver and gold can be another valuable option. This requires a lot of market insight as one speculates on the price of said commodity month(s) in advance.
Given the sentiment for both silver and gold in 2020, a bullish outlook remains in place. However, blindly investing in futures and expecting the market to remain bullish may not be the most solid strategy either. Always conduct proper research before making any financial commitments.
Albeit the following investment options are a bit out of the ordinary, they can still yield significant results. When looking into silver exchange traded products, the performance tracking indexes are crucial. Different forms exist, as some will track a specific sub-Index, whereas others track silver mine stocks, for example.
In recent years, these indexes have become more popular. That is only normal, as they represent the silver industry on a much broader level .
For many decades, investors have flocked to gold as the go-to safe haven asset. In modern times, there is a genuine chance that this narrative will shift, and also include silver. Many factors are aligning for the cheaper precious metal to have a major breakout.
Silver is Making Waves
This year alone, there has been a lot of talk about silver alongside gold. Precious metals enthusiasts and investors are changing this narrative to include this cheaper metal in their discussions. Doing so will not only bring more attention to silver, but it may also weaken gold’s position as the undisputed leader somewhat.
For those looking to begin accumulating precious metals, silver is fairly priced, even at its current value. Building up a portfolio requires patience, timing, and cost-averaging. This latter factor is often overlooked by new investors. Buying smaller quantities of silver will add up over time.
It is also worth mentioning that, unlike gold, silver’s gains – or losses – tend to materialize in a different time frame. It is a crucial commodity for patient traders who have high hopes for the future. Those looking or a quick flip are best off ignoring precious metals altogether.
Many years ago, the Silverites suggested that silver should become the monetary standard. While their vision never came true, most experts agree that silver is still solid money in 2020. It is also a cheaper safe-haven asset compared to gold, giving it an extra layer of appeal.
Keeping an eye on the Gold-Silver Ratio
Another contributing factor to the sudden popularity of silver is the gold-silver ratio. Despite this correlation hitting a high in favor of gold earlier this year, the current momentum looks very different.
Unlike gold, silver has an industrial application that is much bigger compared to gold. Whereas gold is genuinely a precious metal, silver is both an industrial and precious metal. As economies around the globe recover from the COVID-19 pandemic, it is a matter of time until global demand for silver picks up again. Gold may not be treated the same way.
Ongoing stock market volatility will remain a contributing factor throughout 2020. All major stock market indexes remain under a lot of pressure. News of Apple shutting down several stores across the United States has thrown a wrench into any uptrend that seemed to materialize.
Savvy investors will already choose physical gold to avoid the counterparty risk of futures accounts, ETFs, and other forms of paper gold. But the jurisdiction of gold storage represents another, often overlooked counterparty risk.
When disaster strikes and the global financial system is plunged into chaos, your gold is more valuable than ever — not just to other investors, but to governments and central banks as a means of controlling the economy.
Throughout history, authorities have intervened and seized the gold of citizens — not only in fascist regimes like Stalin’s Russia and Mao’s China, but in the land of the free when President Roosevelt confiscated gold to bailout the Federal Reserve in 1933. To avoid being left high and dry, investors should factor the risk of such an event happening again into every decision about where to store gold.
Today, bullion buyers today are often confronted with the choice between vaulting gold in the small Alpine nation of Switzerland, and the economic superpower of the United States. Both are developed nations that promise a degree of prosperity and stability. But different laws, history and culture mean only one country is a truly safe bet.
Political and Economic Stability
The United States of America is the largest and most powerful economy ever to exist, and is perhaps now the greatest it’s ever been. (At least if we listen to president Trump!) But beneath the surface, the U.S. faces several threats that make the country an inferior choice for storing gold.
As America plays the global policeman, it increasingly risks getting sucked into wars. During the Obama presidency alone, America attacked an average of one country a year, dramatically raising the geopolitical risk of using the country to store gold. This is reflected in the rank awarded to the nation by the World Bank’s political stability index. The USA comes in at number 69, below the communist nation Cuba at 58, and the African nation of Namibia at 59.
Years of dysfunctional warfare have also sunk the United States ever deeper into debt, and the country now runs the risk of debt-induced instability, hyper-inflation, and social unrest. At the end of the fiscal year 2019, the United States’ national debt to GDP ratio was 79% — and coronavirus response measures have since added to the burden.
While some economists argue debt doesn’t threaten stability, The U.S. government has a track record of defaulting on obligations; either by creating new currencies as in the revolutionary war and the civil war, or with President Franklin D.Roosevelt’s infamous Executive Order 6102 in April 1933 during the Great Depression, which meant private gold owners were obliged to take their bullion to a bank and exchange it for dollars.
Switzerland is a neutral nation that has stepped back from Europe’s political shenanigans since the middle ages, but still maintained an army to defend incase of invasion. This nonpartisan status is reflected in the country’s role as host to the headquarters of multiple international organisations, and its economy focused on commerce, finance, and foreign investment.
The Swiss people have a reputation for prudence, and the Swiss economy is characterized by low inflation, stability, and relatively low debt. Compared to the United States’ 79% Debt to GDP ratio, Switzerland’s was just 33% in 2019.
Both Switzerland and the States harbour a historic fondness for gold. In America, this dates back to when “there’s gold in them thar hills!” became a catchphrase for prospectors heading west, and in Switzerland, since Celts and Romans panned for gold in mountain streams.
But while America gave up the gold standard in 1971 under President Nixon, the Swiss franc remained 40% backed by gold until 1992 when the country joined the IMF. Even today, a good chunk of the population would still prefer to go back to gold-backed money — as shown by the failed referendum of November 2014 which proposed a restoration of 20% gold backing for the Swiss franc.
The sheer scale of the United States means it can lay claim to having the largest official gold holdings in the world. But when measured per capita, Switzerland is actually home to the world’s largest gold reserves. This is due to the country’s status as a hub of the gold industry.
Each year, around 70% of gold mined makes its way to Switzerland to be refined before being cast into bars, coins, jewelry and other forms for industrial use, and as the majority of gold vaulting companies are also based in Switzerland, this creates a deep and liquid market for physical gold trading.
Industry Regulations and Banking Secrecy Laws
You can fly into the United States with any amount of gold worth under $10,000 without telling a soul. But if you are carrying more than $10,000 of gold, you will be flagged as a potential money launderer and required to fill out a FinCEN 105 form to explain your activities to the authorities.
Switzerland on the other hand has no limits on what you can carry in. Besides the baggage weight restrictions for travelers on commercial airlines! This laissez faire attitude and lack of currency restrictions have helped give Swiss banks an infamous reputation as the final resting place of the ill-gotten gains of banksters. And while banking requirements today are more stringent than ever, Switzerland still grants a greater degree of privacy and seclusion than its American counterparts.
The repatriation of gold from America
If you’re still unconvinced that Switzerland is the best place for your gold, then you only need to look at the moves of central banks.
Since the crisis of 2008 when faith in the financial system was shaken, European central banks have been pulling gold out of American vaults and back to Europe: The German Bundesbank took 300 tons of its 1,500 tonne gold reserve from the U.S. to Frankfurt in 2013, and Holland then followed suit in 2014, returning 122.5 tons of Dutch gold reserves to Amsterdam from New York.
Turkey, Hungary and other European countries have since made similar moves, citing the need for absolute security in times of crisis.
When people actively discuss the precious metals market, most discussions will ultimately be steered in the direction of gold. Silver is often overlooked, even though the Silverites movement certainly tried to change that many moons ago.
An Introduction to Silverites
Over the past few centuries, there have been numerous debates to find a new sort of monetary system. Ultimately, the battle was won by supporters of centralized finance and central banks. Whether that is good or bad for society, is a topic for a different type of debate.
If the Silverites had any say in the matter – and they certainly did in the late-19th century – things could have looked very different. Rather than advocating for paper bills and full control by central banks, they aimed to maintain a monetary standard linked to precious metals. As the name suggests, they had high hopes for silver to co-exist alongside gold in this particular regard.
More specifically, the Silverates aimed to enforce this procedure through the Coinage Act of 1792. Under that act, the coinage of the United States is regulated. It also established the silver dollar as the unit of money in the US, although it was replaced by other coinage later on.
In theory, everything was in place to ensure that silver would have a bright future as a unit of money in the United States. Nothing ever comes easy in life, however, and the vision of the Silverites didn’t come to pass. That doesn’t mean they gave up on the idea that easily, however.
The Silverites and Politics
The best way to get something done in the United States is by leveraging one’s political position. The Silverites certainly explored that angle quite well. Members of this political movement could be found across different parties, including the Democratic Party, Populist Party, and Silver Republican Party.
At one point, the Silverites even had their own Presidential candidate. Willian Jennigns Bryan, credited with the Cross of Gold speech, often lobbied in favor of the movement’s desires and plans. Despite attempting to run for President on multiple occasions, he never succeeded in getting elected.
The Silver-Gold Ratio
In modern finance, the ratio between silver and gold has become a valuable tool to determine overall market sentiment. Not that long ago, it surpassed the 100-to-1 ratio, further indicating that silver would be left behind if the gold price continued to rally.
In their initial proposals, the Silverites wanted to ensure that this ratio would be maintained at 16-to-1. A very ambitious goal, although a similar ratio was effectively established in the Coinage Act of 1834. By maintaining this ratio between the two metals, the Silverites also aimed to allow for inflation of the money supply.
Even today, there will be Silverites among society. While not necessarily adhering to all standards of the late 19th century, there are many who feel that silver should play a more prominent role in the precious metal industry. Following the coronavirus crisis and subsequent financial recession, that vision may yet come to pass in some shape or form.
The world is teetering on the brink of a new economic policy. Not one that was written about by capitalism’s founding father Adam Smith, or even John Maynard Keynes, but a giant experiment in which we will all be the subject.
Negative interest rates threaten to turn the whole financial world upside down — punishing savers and paying borrowers in a complete reversal of normal circumstances.
Investors wishing to protect their hard-won wealth in this distorted economic environment must quickly adjust. But how are assets likely to behave once negative interest rates are put in place? And will the centuries-old safe haven of gold still offer a refuge?
Why are interest rates going negative?
Negative interest rates are a shocking idea. After all, who in their right mind would pay someone to take their money?
The answer can be found by delving deep into the mechanism of the modern monetary system.
Central banks, which are responsible for monetary policy, adjust interest rates to control inflation. This impacts people’s ability to borrow money with mortgages, business loans and other forms of credit.
By keeping inflation at a certain level—usually 2-3%—central banks aim to create steady growth and economic stability.
In economic boom times, people will be confident in the future and borrow more funds—leading to more money sloshing around the economy and higher rates of inflation. To bring levels of inflation down, central banks will raise interest rates and curb the amount of borrowing—making it more attractive for people to keep funds in the bank, and more difficult for them to borrow.
In economic downturns, people are less likely to borrow and spend and more likely to horde funds in the bank. To stimulate the economy, central banks will lower interest rates, incentivising commercial banks to stop storing cash with the central bank at a poor rate, and start loaning it out to businesses, making new ventures more economically viable, creating jobs and boosting the economy.
At least, that’s the theory…
However, since the financial crisis in 2008, confidence in the economy has remained at a low ebb. People are saving more money, and banks are lending less. This has caused inflation and growth to stay below targeted levels, leading banks to continually lower interest rates.
But with interest rates now approaching zero, banks are forced to consider a last-ditch attempt to keep the economy afloat: negative interest rates.
This policy was tried for the first time in Sweden in 2009 as a temporary measure, and since then has been introduced by Japan and other European central banks.
At the moment, the negative rates are mostly confined to the domain of large financial institutions and governments, but they are gradually starting to trickle out from the upper echelons of global finance to high street banks. As seen in Denmark with the introduction of the world’s first negative interest rate mortgage in July 2019.
What happens when interest rates go negative?
Twenty years ago, nobody would have considered negative interest rates to be a possibility. And even today, economists still disagree on the implications for the global economy.
Some policymakers, like President Trump, are keen to embrace negative interest rates to bolster economic growth. Others are more skeptical, like JP Morgan’s Jamie Dimon who said negative rates are “one of the great experiments of all time”, and have “adverse consequences which we do not fully understand.”
One of the potential problems with negative interest rates is that they would not lead to more spending, but actually cause another catastrophic event — a bank run, where people rush to withdraw all their cash at once.
Whether this will happen or not is difficult to say, but banks are certainly likely to face squeezed margins and lower profits, which could discourage them from lending entirely and lead the negative interest rates to pull the economy down further into the quagmire.
Competitive high street banks may also be reluctant to pass on the negative interest rates to customers, for fear of losing them. This attitude is already playing out in Denmark, as the Housing Economist of Danish bank Jyske told The Guardian, “no bank wants to be the first mover into negative deposit rates.”
But with digital cash looming on the horizon, central banks are consolidating power over their currencies — tightening the reins over the money supply and ultimately gaining more power to enforce controversial policies like negative interest rates.
How to invest with negative interest rates
It is a commonly held belief among investors that high interest rates exert a gravitational pull on asset valuations — pulling prices down as investors choose to park funds in cash at the bank to earn regular interest.
Some investors even suggest that the only reason the stock market has performed so well over the last decade is because interest rates have been pushed down so low by central bankers.
On the surface, negative rates would seem to make holding cash even less attractive and further pump up the stock market as the yield of bonds falls.
But the enforcement of negative interest rates is likely to be triggered by very weak growth, or even a recession. This would create a “risk-off” environment that could counterbalance the appeal of equities.
Are negative interest rates good for gold?
Gold and interest rates traditionally have a negative correlation, with gold prices going up as interest rates go down.
This correlation makes negative interest rates bullish for gold, and the metal is also likely to benefit from safe haven demand as the public begin to question the new and experimental central bank policy.
Until now, the impact of negative interest rates has been largely limited to central bank reserves. But when implemented in places like Japan, the results of pushing rates to the negative has been lackluster, with inflation falling instead of rising as the measure failed to stimulate the economy.
The danger is that the poor results could lead central banks like Japan’s to go deeper into negative interest rates, and potentially unleash even more bizarre and dystopian consequences — like mortgages that stretch for many decades to keep that sweet debt for as long as possible, or children being glad at the prospect of inheriting debt.
In this new strange world, the idea of sound money might just make more sense than ever.