Silver often plays second fiddle to gold in the world of alternative investments, but it has the potential to shine just as brightly. With unique considerations and risks, investing in silver requires careful evaluation.
Here are the factors influencing the silver market that would help you determine whether it's a good investment choice.
Silver Prices On The Rise
According to experts at ICICI Direct, silver is expected to reach Rs 80,000 per kg in 2023. The silver market is anticipated to remain in deficit for a second consecutive year, outperforming gold. Factors contributing to this bullish outlook include the moderation of inflation in the US, which allows the Federal Reserve to unwind tighter monetary policy and potentially puts downward pressure on yields. Additionally, the demand for silver in the industrial sector is projected to grow due to the increasing adoption of electrification in vehicles, advancements in 5G technology, and a commitment to green infrastructure.
In 2022, physical investment in silver witnessed an 18 per cent growth, indicating a rising interest in this precious metal. Looking ahead, fresh investment demand is expected to arise due to recessionary fears and weakness in the dollar. However, Abhishek Kumar, founder and chief investment advisor at SahajMoney, advises caution when investing in commodities for major financial goals, stating, "Silver being a commodity would depend a lot on the commodity cycle for generating returns from it." Kumar suggests that if you invest in silver for diversification, it is advisable not to allocate more than 10 per cent of your liquid net worth as part of your overall asset allocation strategy.
Evaluating The Pros And Cons
Potential Returns: Historically, silver has shown strong growth potential during certain market conditions. When silver prices experience significant increases, investors can benefit from substantial returns on their investments.
Industrial Demand: Silver's industrial applications make it an attractive investment. As technological advancements continue, the demand for silver in sectors like electronics, solar panels, and healthcare is expected to rise, potentially driving up its value.
Diversification: Investing in silver can be a valuable diversification strategy. By including silver in your investment portfolio, you can reduce reliance on traditional assets like stocks and bonds, which may help mitigate risk.
However, it is important to consider the potential risks associated with silver investment:
Market Volatility: The silver market can be highly volatile, subject to price fluctuations influenced by various factors such as economic conditions, geopolitical events, and investor sentiment.
Industrial Demand Risks: While industrial demand can drive up the price of silver, it also exposes it to potential downturns if technological advancements or market conditions change, affecting the demand for silver in specific industries.
Storage And Liquidity: Unlike stocks or bonds, investing in physical silver requires proper storage facilities and additional costs. Moreover, liquidity may be a concern when it comes to selling physical silver, especially during periods of market uncertainty.
Considering the projected growth in silver prices, increasing industrial demand, and the potential benefits of diversification, investing in silver can be an appealing option. However, it's essential to approach it cautiously and consider the risks associated with market volatility, industrial demand fluctuations, and storage requirements. If you decide to invest in silver, limiting your exposure to a reasonable percentage of your overall portfolio, such as the recommended 10 per cent of your liquid net worth, is advisable. Conduct thorough research, consult financial advisors, and make informed decisions based on your investment goals, risk tolerance, and prevailing market conditions.