The Best Way To Invest In Silver

I have analyzed the fundamental parameters of this important metal—demand, supply and reserves—and recommended not only investing in gold, but also in silver, with a long-term perspective. I will compare the different ways to invest in silver:

1. Silver bars and coins
2. Silver future contracts
3. Silver ETFs and ETNs
4. Shares of silver companies

First let us compare the historical return of the different investment instruments. The table below presents the historical price appreciation and the Compound Annual Growth Rate (CAGR) between December 12, 1996, and July 20, 2012, for the following investing instruments: silver continuous leading future contract; silver continuous futures contract adjusted for rollover of the expiring contract; and the stocks of these companies, which also consider the dividend distribution: Pan American Silver (PAAS) and Silver Standard Resources (SSRI). Silver ETFs did not yet exist in 1996, so this calculation does not take them into account. The price appreciation of silver bars and coins should have been the same as the unadjusted futures contract.

The table clearly shows that the return from holding silver bars, namely the return of the unadjusted futures contract, 470% or 11.84% annually, was by far the best. Long-term investors in futures contracts should roll over expiring contracts. Because of the contango effect, the return was only 196% or 7.23% annually, without taking in account trade commissions. The return of holding shares of the silver company Pan American Silver was 134.5%, or 5.63% annually, and that of Silver Standard Resources was 176%, or 6.75% annually.



 The return from investing in the silver ETF, iShares Silver Trust, 91.7% or 69.9% annually was better than the return from investing in future contracts because the fund invests in physical silver. So there is no loss because of the need to roll over contracts. The return of the fund was less than the unadjusted futures contract because of the trust's expenses and liabilities.
Conclusion
Buying silver bars and coins might be a good investment, but because the price of silver is only 1.7% the price of gold, it needs much more storage place. Furthermore, depositing silver bars in a bank safe costs money, and keeping them at home costs an additional insurance fee. The ETF SLV is also a good investment in silver, and someone very bullish about silver can invest in the ProShares Ultra Silver ETF (AGQ), which is double leveraged to the price of silver.

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