Paper Silver Stocks vs Silver Bullion: Key Differences

Silver Stock Risks

Silver mining stock exploration risks include finding no silver or not enough high grade silver ore to be profitable over the short, medium, or long term.

Silver mining stock feasibility risks include silver mining companies which may or may have not yet discovered silver, yet even if identified some silver in the ground may not be profitable at current silver spot prices to mine profitably given the costs associated.

Silver mining stock management risks include any silver mining company as they often face large upfront costs to employ directors, explorers, and silver miners. As well there are the ongoing operating costs to mine silver. Often poor silver mining stock company management can destroy what might otherwise be a viable asset under better stewards and leadership.

Silver stocks have ongoing silver pricing risks as silver prices move up and down in historically volatile price patterns. Individual silver mining companies can either remain flat, experience positive leverage-to-price increases, or go out of business if silver prices fall too low.

Silver mining stocks have geopolitical risks as government regimes and political situations can make silver mining unstable, lead to unreasonable demands from governments, even a potential confiscation and or nationalization of silver mine assets are not without historic precedent. As well, ever increasing silver mine royalty fees from a host nation can hurt silver mining stock profitability in time.

Silver mining equities can face financing risks during bear markets and even bull markets, as banks often refuse to finance operations for various reasons. If share prices of silver mining companies are too low, raising additional equity becomes extremely dilutive to existing silver mining stock shareholders (they basically have their mining share values debased).

Silver mining share environmental risks are multi variant as silver mining companies often work in remote areas that are ecologically sensitive (e.g. mountains of Peru and Mexico). As well, silver mining dam and leaching pool failures can and do happen, resulting in serious environmental degradation, possible exorbitant fines, and lawsuit litigation costs eating into potential profits.

Silver mining shares often have extreme price volatility with even bigger moves up or down when compared to general stock market volatility. As well, most US traded stocks and silver mining shares often do not correlate in price direction either. Over the last 5 years the S&P 500 stock index has increased substantially while silver mining stocks have simultaneously fallen and gone to all time low price points.

Silver mining stocks have limited liquidity as they are only traded during market trading hours, as well smaller silver mining stocks can be both difficult to buy or sell during open market trading hours. Small silver mining stocks can at times also be impossible to sell when there are not substantial bidders for the shares you are selling.

Publicly traded silver mining stocks and their companies often face efficiency troubles with silver mine engineering problems such as mine collapses, mill and silver ore process problems, local silver miner labour strikes, increased energy costs or inputs, and political backlashes with new government political regime changes.

Silver mining companies often shortsightedly lock in poor silver price agreements that can end up destroying silver stock shareholder value if and when major changes in silver mining operating costs related to silver bullion prices occur.

Unlike silver bullion, silver mines cannot be easily moved and thus silver stocks face locational risks from local uprisings, potential wars, political upheavals, and natural disasters which are all common problems that silver mining companies face as they work in limited nations in which recovering silver ore from the Earth is still extracted economically.

Silver Bullion Risks

The risk of having one’s silver bullion stolen is real even if one’s silver bullion is hidden with prudence.

This risk of silver theft remains real whether or not one chooses to take direct discreet delivery, buy locally, and or have one’s silver bullion professionally vaulted in various locations.

The value of silver bullion vs fiat currencies actively used and still valued by human beings today is an ongoing ever changing phenomenon. Major government and monetary fiscal policies are a major contributor to the fluctuation in fiat currency values and hence silver bullion values simultaneously. Historically speaking, there have been times in when silver bullion rockets in value higher as monetary systems and their issued fiat currencies come under severe question.

Of course, physical silver supply demand fundamentals affect the price and availability of silver bullion around the world. It is highly possible in the future that physical silver bullion demand drives so high that acquiring reasonably priced amounts of silver bullion becomes difficult again for the average person.

As silver mining outputs continue dropping and silver ore grades are getting lower and lower year after year (e.g. see page 27), the liquid supply of available physical silver bullion to buy possibly becomes less and less.

To find a trustworthy counterparty to buy silver bullion from is not a given. Many would be silver bullion buyers have fallen prey to various bad silver industry practices over the years.

Critical to know how to perform silver bullion buying due diligence, whether or not one is buying silver bullion locally or from various online silver bullion dealers.

As savvy silver bullion buyers likely know, silver futures contracts pervert the silver bullion price. Large financial institutions such as government partnered central banks, hedge funds, and large commercial banks can adversely affect the spot price of silver.

For many decades now, there have been way more silver proxy derivatives traded than physical silver bullion on a notional basis. Although there have been (e.g. silver bullion prices in the fall of 2008) and likely will again be eras when the physical silver bullion market, makes and or drives the ongoing price of silver.

For now, and in general, the ongoing spot price of silver is a reflection of mostly silver derivative trading on silver futures contract exchanges (e.g. COMEX, LBMA).

Silver ETF vs Silver Bullion Performances
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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...