Is Silver a Good Investment in 2021?

The markets have recently focused on a fight between individual investors from the WallStreetBets Reddit and hedge funds with large short positions on some U.S. small-cap stocks.

The madness may come into the next round. It feels a bit like a price tsunami. The individual investors have a new idea: driving up the relatively cheap silver price.

The question is now whether a silver rally can really happen？

To predict the possible outcome, let us look at the past to see if such a silver market phenomenon would be possible in the future.

In 1980, the Hunt Brothers became owners of about 1/3 of the worlds physical silver holdings via futures contracts involving physical delivery.

Their actions drove the price of silver from $5 to nearly $50 per ounce. Therefore, subsequent changes to the way futures are traded — by increasing margins — leading to a massive sell-off in the silver market.

What is the investment strategy of individual investors for silver in 2021？

Investing in silver ETFs that hold the physical commodity. The expectation is that buying shares in these ETFs will force investors to buy physical silver and drive prices higher. Silver like gold has strong fundamentals comparing to other commodities and a stable outlook due to rising demand and limited supply.

Moreover, the potential for price appreciation toward the highs of the 1980s or 2010s is nearly 100%. By comparison, gold reached all-time highs last year.It takes more than 100 ounces of silver to buy one ounce of gold.

Historically, this is a very high value. Just because something is cheap, like silver (compared to gold), doesn‘t mean it can’t get even cheaper.Nevertheless, this ratio should cool down in the medium term. So that silver is likely to make up for the valuation shortfall.

After penny stocks or stories were hyped before, the wave of euphoria is now spilling over into the precious metals sector. However, it is still better to achieve a strongly rising price with an individual share than with physical silver.ETFs currently hold around 908 million ounces of silver, which demand increased by about 300 million ounces last year.

“On the other hand, demand for silver ETFs — mostly used as a hedge against inflation (and more recently as a WallStreetBets target) — has been resilient, climbing 47% in the past year. The amount of silver held in ETFs stands at 905 billion troy ounces, close to an all-time high.” — according to Bloomberg

Hence, the shares of First Majestic Silver stock (one of the recent watching stocks of WallStreetBets) jumped up around 20–25% in trading for the last 5 days and are currently trading at $17-$22. The short interest in First Majestic Silvers stock is more than 20% of the free float.Still, it should be noted that the purchase of an ETF share does not result in the immediate purchase of silver by the fund.

The purchase of silver is carried out by specialized companies that trade silver for a block of shares. Then the fund shares are sold to investors on the exchanges.

This means that retail investors would have to pump a few billion of $ into the market to trigger a significant price movement.

You have already noticed that WallStreetBets investors (WSB) target stocks particularly, which have a considerable portion of the outstanding shares are sold short.

According to the stock market portal Seeking Alpha, a WSB post circulated on Twitter calling the silver market “one of the most manipulated in the world.”

Thus, there is a risk that the short sellers will have to buy back the stock when their individual loss threshold is reached to reinforce the previously deliberately forced rise.

However, the post and the price explosion in First Majestic is also noticeable in other silver mining stocks in a weakened way. In contrast, the silver price was hardly changed in the following days or weeks.

ETFs and physical silver purchases are only part of the financial market.

Don‘t forget also about the options market, which indicates possible movements’ extent. The volatility index for the silver market (based on ETF options) grew from about 40% to 70% in the last few days.

The reverse ratio index — the difference between the prices of 1-month out-of-the-money calls and puts — jumped to a record high in the 18-point range, indicating that many investors start building their positions for the final attack on the silver market. Thats now its price strongly goes down.

Looking at such volatility, I find that silver is more about speculation than investment.

Based on price action, it‘s clear that there’s a time to be in silver and a time to be out of it, which is most of the time.

Despite that, people used silver as actual money in the past. If you choose to invest in silver today, in that case, you should approach it with a speculators mindset since it does not generate a product or service.

Silver remains the value itself. It‘s a monetary metal; hence it’s relatively stable to beat inflation or devaluation. Its for holding.

The interesting fact, if you decide to do further research, you will find that the prices of gold and silver fall and rise in tandem.

Yes, gold is still considered a more common commodity investment than silver. Its because most central banks of the world all hold substantial gold reserves. But for individual investors, it means one thing:

No matter which one should be held during a time of financial turbulence in the market: both follow the same market trend.

One particular thing is that silver shouldn't be a #1 long-term growth asset. Its supposed to perform well only when the stock market is falling or when traders are actively speculating.

Because of that, the silver price may crash as quickly as it rocket! Therefore, its best to limit your portfolio holdings to no more than 5–10% of your all investment portfolio.

Never buy silver during a big take-off at the price that the average investor may do following the alerts from outside. You can set yourself up for a large decline.

It makes silver one of the more difficult commodities to profit from. Its hard to forecast when to buy and when to sell; plus, no dividends are included.

After all, if you are still willing to purchase the commodity, then the best way is probably through a silver ETF.

The advantage is buying the metal itself and quickly selling out through low-fees brokers. Thus, you won‘t need to be concerned with taking possession of the metal or dealing with silver mining stocks’ uncertainties.