Silver vs the Stock Market

Silver vs the Stock Market

Over the past couple of years, silver has emerged as a viable and profitable investment option. The stagnation and even decline in prices of the traditional investment options such as shares and bonds, during the recession. The widely reported increase in the price of silver along with other precious metals over the same period has only increased fascination with silver. However, there are many who have been struggling to understand the basic difference between the traditional stocks and silver investment. Here, we will contrast the basic and the deep lying aspects of the two investment options.

Basics

There is a very basic difference between the classification and categorization of stocks and silver trading. The stocks fall under the equities category, whereas silver comes under the commodities. The investment in equities means that the stockholder or the investor owns a portion of the company that has issued stock.  While purchasing commodities such as precious metals means the purchaser is buying a physical and distinct product.

How the price increases and the circumstances or the aspects which play major role in the purchase and sale of both are also very different. The commodities being physical product are sold for the speculative purchases. The investors place a type of bet to make money on the prospect of rise and fall of the price of a particular commodity over time. The investors make money when due to increase in demand for a particular precious metal, the spot price of that metal is increased.

The stockholders make monetary profit when the company or companies of which they own a portion due to their investment makes a profit or improves their standing in the market.  This facilitates the increase in demand to own the company, increasing the value of company and their own stocks in the company.

The commodities like silver doesn’t pay dividends, cash flow to investors, or produce income statements. However, when handled and managed by someone who has good understanding of market trends and demands can make a great investment and return enormous profit.

Trading

The stocks (equities) are bought and sold through a brokerage firm on the open stock market. The investor in order to buy stocks has to pay a small commission to the brokerage service that buys and sell on your behalf. In stocks, there is no expiration of the common stock, whereas in silver investment there is a possibility of expiration of future commodities. The stocks are yours as long as the company remains in business. The investor owns the company as long as it operates.

While, the stocks are bought in present, the silver is purchased in the future, which means that the investor purchases and sells a future delivery of a specific order, not for the immediate delivery unless you are buying bullion or physical metal itself.

In silver investment, the investor is trading future options through which he has to buy it at a certain price in the future before the date of the expiration. By making a certain investment in silver, the investor gets a right to buy at a certain price. The rise and fall in value according to demand for silver will determine the profitability or the lack of it.

Liquidity

The liquidity of the asset is how quickly and easily it could be bought and sold. In this aspect, the stocks have an undeniable and definite advantage over the silver investment. The stocks are highly liquid and could be sold or converted into cash very quickly and easily.

However, the same can’t be said about silver. To better understand this point, consider you have silver worth $100,000 and you have to sell it for an immediate need of cash. So, how quickly and easily can you do it? How many individuals would be interested in buying silver worth that amount? To have a better chance of selling, you would have to divide your silver into smaller parts such as 1000 ounce into 10 pieces of 100 ounces. But, for that you would have to pay commission to the agent.

However, if you have stock worth $100,000, you can sell it with ease. The smaller portion of the stock could be sold quickly without incurring any cost in dividing it into smaller portions. And, the portions don’t have to be of similar size and could be sold in any required proportion.

Experience

The prior experience needed for the investment in stocks and silver also varies. The individuals who don’t have any prior experience and are looking to start investing will have more likelihood of succeeding in stock investment than the silver investment.

The volatility and unpredictability of the silver makes it a big headache for the prospective investor.  And, as it has already been explained the silver investment is in the future which makes it harder for the investor to analyze the trends and fluctuations. The lower liquidity means in case of sudden fall in rate the inexperienced investor will find it very difficult to save his investment by selling.

Fundamental factors

The price of a stock is dependent on a large number of factors which are virtually non-existent for silver. It depends on company earnings, legal actions, change in laws and trade regulations, broader market behavior and the comments by CEO or the board members.

However, the silver other than the supply and demand in the market is not affected in any way whatsoever by the factors mentioned above.

Supply

There is also vast difference in the supply of both investments. The supply of the stocks of the company doesn’t face any danger of extinction or running low under any case. The companies are in continuous process of issuing new stocks to raise more capital which would help in expansion of the business.

However, over the past 30 years, the silver has been used more than the silver has been produced. This has led to a phenomena called “silver deficit”. Though, the silver supply doesn’t face any imminent danger of getting exhausted, it is surely running low.