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The Silver Series: Silver as an Investment (Part 3)

THE SILVER VISUAL CAPITALIST SERIES PART THREE The History of Silver Supply and Demand Silver as an Investment Silver is like gold in many ways. Both are precious metals with long histories as currency. They are malleable, lustrous, ductile, resilient, and rare. Both also have interesting electrical properties. However, silver investors should be aware of the 3 main differences from gold. The silver market is only a fraction of the size of the gold market. This means less liquidity. Total Silver Demand (2011) Total Gold Demand (2011) Total Silver Traded (2012) Total Gold Traded (2012) $31 Billion $222 Billion $1 Trillion $9 Trillion Ag Au Gold and silver traded are LBMA figures based on daily average clearing value. 2. Silver is driven significantly more by industrial demand. 10% 46% SAg* Small, less liquid market 1800 45 1600 As you can see, the price of silver has become more volatile in recent years. 40 + 1400 35 Demand fluctuations between industrial and store of value uses 1200 30 1000 25 800 20 600 15 400 10 Higher Volatility. 200 00 '01 '02 '03 'O4 '05 '06 '07 '08 '09 10 '11 12 HMonthly average price Volatility of Average Monthly Returns 0.93% ag mean 2000-2012 12 10 This graph represents the distribution of monthly silver and gold returns over the last 13 years. 2 -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2 4 Within 3% of mean: Silver 45% Gold 70% 10 12 Within 8% of mean: 14 Silver 79% Gold 95% 16 18 20 1.25% au mean 22 In recent times, monthly silver returns have been within 3% of the mean less than half of the time. Silver is more volatile than gold, but for the strong willed investor this presents an opportunity to buy low and sell high. Silver Investing 101 Silver has had double digit gains in 7 of the last 10 years 70% 60% 50% 40% Il. 30% Silver 20% 10% S&P 500 0% -10% -20% -30% -40% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 In 7 of those years, silver outperformed the S&P 500. If bought in 2003, you'd have got a 500% return Investment in silver has risen dramatically in the last few years since the global financial crisis. Investors have more access to silver than ever before thanks to: More primary silver producers Casy access to bullion Silver ETFS Millions of oz Coins, Medals, and Investments 1000 800 600 400 Other Demand 200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ag Silver, like gold, is a precious metal that is considered a hedge against inflation and economic stress. In the recent, decade-long silver bull market, silver has had a -0.79 correlation with the US Dollar and a 0.90 correlation with increasing US money supply. Correlation Station GOLD 0.96 M2 MONEY SUPPLY 0.90 CONSUMER PRICE INDEK 0.88 OIL (BRENT) 0.86 US DOLLAR INDEK -0.81 10 YEAR TREASURIES -0.71 EURO INDEK -0.55 US T-BILLS (3 MONTH) -045 SEP 500 0.39 VOLATILITY INDEK 0.10 All figures correlation of weekly averages between 2003-2013 except CPI and Euro, which is monthly over same range. Euro was trade weighted to top 10 trading partners in 2010. 土 1 NONE AMOUNT OF CORRELATION PERFECT As the value of the US Dollar has decreased Silver vs. The Dollar over time, silver has been an excellent hedge. 160 $60 U.S. adjusted monetary base (in billions of dollars) 140 $50 2500 USD Trade Weighted Index 120 $40 2000 Silver Thursday 100 $30 1500 08 $20 1000 60 $10 Silver Price Silver Price '72 75 'B0 '85 '00 '05 "10 13 '94 "04 '13 06. 96. h8. As the monetary supply increases, so has the price of silver. Market Volatility & Portfolto Diversification Though the price of silver is volatile itself, silver fares well against general market volatility over the long term. Compare these correlations to the Volatility Index: SILVER 0.10 SGP 500-049 No observable relationship to slight positive relationship medium negative relationship (See below) 70 VOLATILITY INDEK 60 50 VS $50 40 SILVER PRICE $40 30 $30 20 $20 10 $10 SO 2000 2002 2004 2006 2008 2010 2012 Silver also helps diversify a portfolio, meaning less overall risk. CASH 0.04 PRECIOUS METALS -0.10 US INTERMEDIATE BONDS 0.22 US LONG-TERM BONDS 0.28 INTERNATIONAL EQUITY 0.58 In addition to our study above, this study from 1972-2004 shows that precious metals (silver, gold, and platinum) had little to no correlation with US Large Cap Stocks on annual returns (-0.10). US SMALL CAP STOCKS 0.79 +1 US LARGE CAP STOCKS 1.00 Supply and Demand Supply and demand fundamentals are a primary reason investors look into silver. Siluer is used in over 10,000 industry applications. For more information, look at Part 2 of this series on Silver Supply and Demand. Stacking Silver: How to Invest There are 3 key ways to get exposure to silver in a portfolio; each have different benefits and levels of risk. 1 Silver Bullion Physical silver such as bars and coins. + Tangible, private, and give direct exposure to the silver price. Storage can be costly and carries risks such as theft and liquidity. Silver takes up significantly more space than gold for the same value. That said, there are alternatives to physically obtain silver bullion such as silver certificates and allocated/pooled accounts. 2 Silver ETFS Exchange-traded funds are investment funds that trade on stock exchanges. Silver ETFS typically trade silver futures, store silver bullion, or represent silver equities. ETFS are a simple and versatile way to get exposure to silver in a portfolio. ETFS have management fees and commission fees for each buy and sell. Some ETFS also have liquidity issues or could in the future. Silver Mining Investing in companies that are primarily mining or exploring for silver. 3 Major silver miners are liquid, provide leverage, and can add diversifica- tion if they have exposure to other commodities. Silver miners are profit seeking companies, and as with all equities, can also have growth upside or pay a dividend. Junior silver miners, while risky, offer tremendous upside if they find a new discovery or get bought out by a major. All companies are not created equal and therefore management is the biggest risk. Political risk, currency risk, and market cycles can also affect company valuations. Silver is a more volatile precious metal than gold. It trades in a smaller market with a higher percentage of industrial demand. Demand for silver as an investment has picked up since the financial crisis as it has shown it can serve as a hedge against financial distress, protect against market risk, and diversify a portfolio. There are more ways to own silver than ever before. Visual Capitalist is committed to providing independently researched content for educational purposes. Thank you to Endeavour Silver for covering the production costs of this project. Learn more at wwW.edrsilver.com ENDEAVOUR SILVER NYSE: EXK TSX: EDR Frankfurt: EJD VISUAL CAPITALIST Educating a new generation of investors on resource investing and management VISUAL CAPITALIST www.visualcapitalist.com Top 5 Sources: http://www.silverinstitute.org http://research.stlouisfed.org/fred2/ http://www.kitco.com/ind/Barisheff/nov172006.html http://www.bma.org.uk http://www.perthmint.com.au For a complete list of sources, please visit: visualcapitalist.com/sources THE SILVER VISUAL CAPITALIST SERIES PART THREE The History of Silver Supply and Demand Silver as an Investment Silver is like gold in many ways. Both are precious metals with long histories as currency. They are malleable, lustrous, ductile, resilient, and rare. Both also have interesting electrical properties. However, silver investors should be aware of the 3 main differences from gold. The silver market is only a fraction of the size of the gold market. This means less liquidity. Total Silver Demand (2011) Total Gold Demand (2011) Total Silver Traded (2012) Total Gold Traded (2012) $31 Billion $222 Billion $1 Trillion $9 Trillion Ag Au Gold and silver traded are LBMA figures based on daily average clearing value. 2. Silver is driven significantly more by industrial demand. 10% 46% SAg* Small, less liquid market 1800 45 1600 As you can see, the price of silver has become more volatile in recent years. 40 + 1400 35 Demand fluctuations between industrial and store of value uses 1200 30 1000 25 800 20 600 15 400 10 Higher Volatility. 200 00 '01 '02 '03 'O4 '05 '06 '07 '08 '09 10 '11 12 HMonthly average price Volatility of Average Monthly Returns 0.93% ag mean 2000-2012 12 10 This graph represents the distribution of monthly silver and gold returns over the last 13 years. 2 -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2 4 Within 3% of mean: Silver 45% Gold 70% 10 12 Within 8% of mean: 14 Silver 79% Gold 95% 16 18 20 1.25% au mean 22 In recent times, monthly silver returns have been within 3% of the mean less than half of the time. Silver is more volatile than gold, but for the strong willed investor this presents an opportunity to buy low and sell high. Silver Investing 101 Silver has had double digit gains in 7 of the last 10 years 70% 60% 50% 40% Il. 30% Silver 20% 10% S&P 500 0% -10% -20% -30% -40% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 In 7 of those years, silver outperformed the S&P 500. If bought in 2003, you'd have got a 500% return Investment in silver has risen dramatically in the last few years since the global financial crisis. Investors have more access to silver than ever before thanks to: More primary silver producers Casy access to bullion Silver ETFS Millions of oz Coins, Medals, and Investments 1000 800 600 400 Other Demand 200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ag Silver, like gold, is a precious metal that is considered a hedge against inflation and economic stress. In the recent, decade-long silver bull market, silver has had a -0.79 correlation with the US Dollar and a 0.90 correlation with increasing US money supply. Correlation Station GOLD 0.96 M2 MONEY SUPPLY 0.90 CONSUMER PRICE INDEK 0.88 OIL (BRENT) 0.86 US DOLLAR INDEK -0.81 10 YEAR TREASURIES -0.71 EURO INDEK -0.55 US T-BILLS (3 MONTH) -045 SEP 500 0.39 VOLATILITY INDEK 0.10 All figures correlation of weekly averages between 2003-2013 except CPI and Euro, which is monthly over same range. Euro was trade weighted to top 10 trading partners in 2010. 土 1 NONE AMOUNT OF CORRELATION PERFECT As the value of the US Dollar has decreased Silver vs. The Dollar over time, silver has been an excellent hedge. 160 $60 U.S. adjusted monetary base (in billions of dollars) 140 $50 2500 USD Trade Weighted Index 120 $40 2000 Silver Thursday 100 $30 1500 08 $20 1000 60 $10 Silver Price Silver Price '72 75 'B0 '85 '00 '05 "10 13 '94 "04 '13 06. 96. h8. As the monetary supply increases, so has the price of silver. Market Volatility & Portfolto Diversification Though the price of silver is volatile itself, silver fares well against general market volatility over the long term. Compare these correlations to the Volatility Index: SILVER 0.10 SGP 500-049 No observable relationship to slight positive relationship medium negative relationship (See below) 70 VOLATILITY INDEK 60 50 VS $50 40 SILVER PRICE $40 30 $30 20 $20 10 $10 SO 2000 2002 2004 2006 2008 2010 2012 Silver also helps diversify a portfolio, meaning less overall risk. CASH 0.04 PRECIOUS METALS -0.10 US INTERMEDIATE BONDS 0.22 US LONG-TERM BONDS 0.28 INTERNATIONAL EQUITY 0.58 In addition to our study above, this study from 1972-2004 shows that precious metals (silver, gold, and platinum) had little to no correlation with US Large Cap Stocks on annual returns (-0.10). US SMALL CAP STOCKS 0.79 +1 US LARGE CAP STOCKS 1.00 Supply and Demand Supply and demand fundamentals are a primary reason investors look into silver. Siluer is used in over 10,000 industry applications. For more information, look at Part 2 of this series on Silver Supply and Demand. Stacking Silver: How to Invest There are 3 key ways to get exposure to silver in a portfolio; each have different benefits and levels of risk. 1 Silver Bullion Physical silver such as bars and coins. + Tangible, private, and give direct exposure to the silver price. Storage can be costly and carries risks such as theft and liquidity. Silver takes up significantly more space than gold for the same value. That said, there are alternatives to physically obtain silver bullion such as silver certificates and allocated/pooled accounts. 2 Silver ETFS Exchange-traded funds are investment funds that trade on stock exchanges. Silver ETFS typically trade silver futures, store silver bullion, or represent silver equities. ETFS are a simple and versatile way to get exposure to silver in a portfolio. ETFS have management fees and commission fees for each buy and sell. Some ETFS also have liquidity issues or could in the future. Silver Mining Investing in companies that are primarily mining or exploring for silver. 3 Major silver miners are liquid, provide leverage, and can add diversifica- tion if they have exposure to other commodities. Silver miners are profit seeking companies, and as with all equities, can also have growth upside or pay a dividend. Junior silver miners, while risky, offer tremendous upside if they find a new discovery or get bought out by a major. All companies are not created equal and therefore management is the biggest risk. Political risk, currency risk, and market cycles can also affect company valuations. Silver is a more volatile precious metal than gold. It trades in a smaller market with a higher percentage of industrial demand. Demand for silver as an investment has picked up since the financial crisis as it has shown it can serve as a hedge against financial distress, protect against market risk, and diversify a portfolio. There are more ways to own silver than ever before. Visual Capitalist is committed to providing independently researched content for educational purposes. Thank you to Endeavour Silver for covering the production costs of this project. Learn more at wwW.edrsilver.com ENDEAVOUR SILVER NYSE: EXK TSX: EDR Frankfurt: EJD VISUAL CAPITALIST Educating a new generation of investors on resource investing and management VISUAL CAPITALIST www.visualcapitalist.com Top 5 Sources: http://www.silverinstitute.org http://research.stlouisfed.org/fred2/ http://www.kitco.com/ind/Barisheff/nov172006.html http://www.bma.org.uk http://www.perthmint.com.au For a complete list of sources, please visit: visualcapitalist.com/sources

The Silver Series: Silver as an Investment (Part 3)

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Silver has had double digit gains in 7 of the last 10 years. In this infographic, we look at the investment properties of silver as well as its chief differences with gold. Highlights include a stud...

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