December 02, 2011 00:00 By Ladawan Charoen-Rajapark
Investors have long been familiar with investment in commodities, especially oil and gold, through mutual funds.
Silver, as an alternative precious-metal investment to gold, is less well known.
Silver attracts investors’ attention because it has low correlation with other asset classes such as stocks and bonds. It is suitable for hedging against inflation and the US dollar while offering good returns during economic crisis. So, silver is a strong candidate for any portfolio.
Demand and supply regarding silver in 2010 came from the following sources:
Most of the demand – around 55 per cent – came from industry, where silver is used to coat mirrors and as a conductor of heat and electricity. The jewellery industry and minting of coinage accounted for 19 and 12 per cent of demand, respectively, while photography-related applications (X-rays, celluloid film) sucked up about 8 per cent, and silverware 6 per cent.
Most of the supply (70 per cent) came from silver mines, with the largest producer in 2010 being Mexico, followed by Peru, China, Australia and Chile. Old silver scrap, derived from industrial and jewellery recycling, accounted for another 20 per cent. Producers hedging supply accounted for a further 6 per cent, and the remaining 4 per cent came from government sales.
An increase in demand for silver, especially in industrial applications, has encouraged fresh exploration for mines. Most analysts forecast silver’s price to rise, but with high volatility.
Currently, investors can invest in silver through three channels:
_ Buying physical silver, such as bullion bars and coins. Silver bars and coins are not popular in Thailand where there are only a few silver stores and the purchase price carries VAT.
_ Investing in foreign silver exchange-traded funds (ETFs): For silver ETFs, your chosen fund will invest in silver bullion bars, such as iShares Silver Trust (SLV). You can invest directly in foreign silver ETFs, or through a private fund in Thailand.
_ Investing in silver Futures: silver Futures trading launched in June on the Thailand Futures Exchange (TFEX). However, they are still unpopular among local investors due to their lack of familiarity with silver Futures. Elsewhere, silver Futures are more popular, with trading busier in places such as the Chicago Mercantile Exchange (CME) and Multi Commodities Exchange of India (MCX).
As a commodity asset, however, silver’s price is very volatile compared to that of gold. Anyone considering investing in silver should study and understand the factors that affect movement in its price, and also follow the market closely.
For investors who have no time to follow the markets, a good option is to invest through a private fund where managers will follow the market for them.
Ladawan Charoen-Rajapark is managing director of Asset Plus Fund Management.