Silver has often been called the poor mans gold, taking a back seat to gold when traders looked for a safe-haven investment. Silver is considered a precious metal but not as rare as gold. While silver prices have always been far below the value placed on gold, prices of the two metals have generally tracked together as the factors that affect gold also tend to affect silver.
Silver, however, has a wider range of uses and is priced for its industrial uses in electronics, photography, jewelry and elsewhere in addition to its financial role, increasing its significance for an investment portfolio.
Like gold, there are a number of vehicles for investing in silver in addition to silver futures and options. Those who choose to invest in physical silver can buy silver bullion, silver coins, silver medallions or silver certificates backed by silver in vaults.
Silver traders who prefer to express their interest in silver prices through stocks can invest in mining companies including penny stocks or in silver exchange-traded funds.
If you trade silver, you want to watch gold and anything that influences gold prices as the two markets tend to move together. Particularly important for the prices of both precious metals are the government economic reports such as quarterly gross domestic product, monthly Consumer Price Index and Producer Price Index figures that measure the inflation rate and any other reports that reflect the countrys economic growth. Economic reports from other nations can also provide clues about silver demand.
Watch the spread between the gold and silver prices to move to one extreme or the other and expect it to come back to normal, buying silver and selling gold at the high end of the spread, for example.
Silver is an excellent commodity to have on hand if you are expecting high inflation and/or chaotic economic conditions because silvers lower values provide more flexibility for purchasing smaller items. For that reason, some people prefer to hold silver coins.
Be careful when holding silver futures overnight. In the volatile market conditions that have marked silver trading in recent years, the price of silver can make big moves from one day to the next. An unexpected crisis can occur at any time anywhere in the world, causing traders to look to the gold or silver markets to preserve their wealth.
It is not uncommon for silver prices to open 20 or 30 cents higher or lower than the previous days close $1,000-$1,500 per contract and silver futures have been known to move $1 or even $2 intraday $5,000 to $10,000 per contract. Thats hardly a poor mans contract.