Inflation hedge
Silver possesses a remarkable ability to act as a shield against inflation. During periods of sharp increases in metal and commodity prices, silver tends to rally swiftly. This characteristic makes silver an effective hedge against inflation, outperforming traditional investment options and providing investors with a reliable store of value.Industrial Demand
The modern world’s reliance on cutting-edge technologies presents a unique opportunity for silver investors. With critical applications in smartphones, solar panels, electric vehicles, automobiles, electronics, TV screens, 5G networks, manufacturing, bio-pharma, and medical technologies, silver’s industrial demand is on the rise. As advanced economies seek alternatives to reduce supply chain dependence on China, India’s growth trajectory further amplifies the demand for silver, making it a promising investment.
Supply constraints
Silver, despite its high demand, faces supply constraints as mining struggles to keep pace. The global shortfall in silver supply is expected to be 140 million ounces in 2023, down from 253 million ounces in 2022. This disparity between demand and supply is likely to support silver prices at healthy levels, allowing investors to capitalise on the market dynamics.
Peaking interest rates
As interest rates approach their peaks across advanced and developing economies, this may be an opportune time to consider silver investments. The US Federal Reserve, after substantial rate hikes, is speculated to be concluding its tightening cycle. Silver prices are poised to benefit from the pause in interest rate hikes, especially as other major economies follow suit, ensuring robust economic activity.Uncorrelated assets
One of the key advantages of incorporating silver into your portfolio is its low correlation with traditional asset classes like equities and bonds. As silver moves independently of these assets, it serves as an effective diversifier and reduces your portfolio’s overall risk.
ETF route
For retail investors seeking exposure to silver, the ETF route emerges as an ideal approach. Silver ETFs are traded on the stock exchanges, providing investors with a convenient and cost-effective means of investing in this precious metal. With a Demat and trading account, investors can easily buy and sell ETF units in small denominations; thus it offers liquidity and flexibility as well.
Investing in silver ETFs comes with several advantages. The fund house takes care of purchasing, ensuring quality, storage, and transportation of physical silver on behalf of the investors. Each unit of a silver ETF is backed by silver of 99.90% purity, eliminating concerns related to storage and theft. Investors without a Demat account can consider Silver ETF Fund of Fund, which operates similar to a mutual fund, allowing investment through SIP or lump sum.
In conclusion, silver, when accessed through ETFs, offers investors a unique opportunity for diversification, protection against inflation, and exposure to a metal with increasing industrial demand. The ease of investing through ETFs, coupled with the benefits of low correlation with other asset classes coupled with the supply constraints silver faces, positions the metal as a valuable addition to a well-rounded investment portfolio. As interest rates stabilise and economic trends unfold, considering silver investments through ETFs may be the silver lining your portfolio needs for long-term growth and stability.
(Chintan Haria, Principal – Investment Strategy, ICICI Prudential AMC.)
