Pros and cons of investing in silver: is silver a wise investment?

For many investors, silver is the most logical alternative to gold. That is easily explained. The precious metal is tangible, globally tradable, and the entry price is considerably lower.

However, silver is not a one-dimensional investment. The market is dynamic, and practical matters such as VAT and storage space play a major role when purchasing.

Is investing in silver a wise choice for you? To help you make the right decision, we have listed all the facts. In this article, we discuss all the pros and cons of investing in silver. We also make an interesting comparison with gold.

The advantages of investing in silver

Silver occupies a completely different position in the financial markets than gold. The precious metal has a unique dual role. On the one hand, it has functioned for centuries as a reliable monetary anchor to protect purchasing power. On the other hand, it is an absolutely indispensable raw material for the modern technological industry.

This special combination creates a market foundation that we do not see with any other investment product. This offers investors four very powerful advantages:

1. A low and accessible entry price

Physical silver is fundamentally cheaper than gold. This makes the precious metal the perfect choice for novice investors or investors with a smaller budget who want to build up wealth periodically.

You can easily spread your purchases over time. This lowers the risk of a wrong entry moment and makes building a physical portfolio highly accessible.

2. Driven by structural industrial scarcity

Silver is technically unparalleled in terms of thermal and electrical conductivity. Current data from The Silver Institute shows that industrial demand has well exceeded the 700 million ounce mark. Without silver, the mass production of solar panels, electric vehicles, and medical equipment is simply impossible.

Because the supply from global mining is inelastic and reacts very slowly to this explosive demand, analysts foresee a significant market deficit for the coming years as well. This physical deficit forms a rock-solid foundation for structural value appreciation.

3. A significantly higher return potential

The total market value of the global silver market is relatively small compared to the gold market. When new capital flows into precious metals during economic turmoil, this has a much larger percentage impact on the silver price.

During a rising market (a bull market), silver historically almost always performs stronger and faster than gold. This offers you as an investor a much higher upside potential.

4. Tangible protection without counterparty risk

In times of persistent inflation, regular savings quickly lose purchasing power. Physical silver is a tangible asset that cannot be printed endlessly by governments or central banks.

Moreover, physical precious metal in your own possession carries zero counterparty risk. You are completely independent of the creditworthiness or the survival of a bank or financial institution to preserve your accumulated value.

Silver has an accessible entry price and offers high return potential.

The disadvantages: Why you (perhaps) should not buy silver

At The Silver Mountain, we attach the highest value to transparency and honest advice. Buying physical silver offers fantastic opportunities, but it is certainly not an investment that suits every type of investor. Silver has a number of specific characteristics and cost structures that you must understand well beforehand.

To prevent disappointments, we discuss the four most important disadvantages or objections to investing in silver below:

1. A volatile and cyclical price

The current silver price moves significantly more violently than the gold price. This is because the market is smaller and silver is highly dependent on industry. In the event of a global economic recession, the production of electronics can decline, which temporarily depresses the demand for silver.

This high volatility means that the value of your portfolio can fluctuate considerably in a short time. As a silver investor, you need a strong stomach and an investment horizon of at least several years.

2. A higher spread than gold

The 'spread' is the percentage difference between the exchange price (spot price) and the final price you pay or receive at the dealer. Because silver has a relatively low absolute value, the fixed production costs of minting a coin or casting a bar weigh much heavier in the final selling price.

As a result, it generally takes a little longer before your silver investment breaks even compared to an investment in gold.

3. Physical volume and weight

Silver requires an enormous amount of volume to represent the same financial value as gold. To illustrate: an investment of one hundred thousand euros in gold fits easily in your jacket pocket.

That same financial value in silver quickly results in more than a hundred heavy kilograms of metal. With larger capitals, you must therefore think very carefully about logistics, maximum carrying weight, and spacious, external vault storage.

4. Unprofitable VAT on regular silver bars

This is the biggest fiscal pitfall for private investors in the Netherlands. The Tax Authority legally considers cast silver bars as an industrial raw material.

This means that when purchasing a silver bar, you always immediately pay the high VAT rate of 21 percent. This is an immediate loss on your investment, as you will never get this VAT back in a subsequent sale to a dealer.

Advantages and disadvantages of silver at a glance

Buy gold or silver? (comparison for investors)

One of the most frequently asked questions in the precious metal market is whether you, as an investor, are better off buying gold or silver. Although both precious metals successfully protect your wealth against inflation, they are absolutely not direct substitutes for each other. They serve a fundamentally different purpose within your strategic investment portfolio.

Gold is the ultimate defensive anchor. It is relatively price-stable, extremely compact to store, and is used by central banks worldwide as a primary monetary reserve. Investors buy gold primarily for security, peace of mind, and long-term wealth preservation.

Silver, on the other hand, is much more offensive. Due to the lower entry price, the smaller total market value, and the gigantic industrial demand, it is much more volatile. Investors choose silver when they are looking for market dynamics and active wealth growth.

The gold/silver ratio as an indicator

Professional analysts and traders almost always use the gold/silver ratio to determine which metal offers the best opportunities at a specific moment. This ratio simply shows how many ounces of silver you need to buy exactly one ounce of gold.

The natural, geological ratio of these metals in the earth's crust is approximately 1 to 10. However, if we look at the financial markets, this ratio has often fluctuated well above 1 to 80 in recent years.

For many experts, this massive gap is the mathematical and historical proof that silver is currently fundamentally cheap and significantly undervalued compared to gold.

Why buy silver specifically instead of gold?

There are three specific situations in which an investment in silver makes more sense for many investors than an investment in gold:

• Focus on accessibility: You want to start building physical wealth, but you want to do this in smaller, manageable steps. Silver makes periodically buying more with lower amounts highly accessible.
• Focus on industrial growth: You want to benefit very specifically from current market deficits. Silver benefits directly from the ongoing energy transition and the enormous demand from the electronics and automotive industries.
• Focus on relative upside potential: You have an investment horizon of several years, you accept temporary price fluctuations, and you want to benefit maximally in percentage terms from a future recovery of the gold/silver ratio.

In practice, it is rarely a hard choice between the two metals. A modern and smart portfolio almost always contains a balanced combination. In that case, gold functions as the robust, defensive foundation, while silver takes on the role of the offensive growth accelerator.

For a clear overview, we have summarized the core differences between the two precious metals for you in the table below:

Gold is considered to be more stable, where silver is an offensive investment with a more volatile price.

What is the best way to invest in physical silver?

When you have made the strategic choice to purchase physical silver, you face an important decision as a private investor regarding the form of the precious metal.

The Dutch Tax Authority makes a very strict distinction between silver bars and silver coins. A wrong choice in this area will immediately cost you a large part of your investment.

The pitfall: 21 percent VAT on silver bars

As mentioned earlier in this article, the tax office views a cast or minted silver bar as an industrial raw material. Are you buying a silver bar as a private individual and do you want it delivered to your home? Then you are legally obliged to pay 21 percent VAT on the full purchase value.

Interesting? Here you can read more about the VAT rules when buying silver.

Because you will never get this VAT back in a subsequent sale to a dealer, you start your investment with a huge loss. This makes regular silver bars completely unprofitable for private individuals.

Fortunately, there are two excellent, tax-advantaged routes to circumvent this tax levy completely legally:

Route 1: Silver coins under the margin scheme

For investors who want to hold their physical silver themselves or store it at home in a safe, the silver bullion coin is the absolute standard. 

Globally recognized coins such as the Canadian Maple Leaf, the Austrian Philharmonic, and the Australian Kangaroo fall under the favorable margin scheme in the Netherlands.

Route 2: VAT-free silver in a customs bonded warehouse

Do you want to invest a larger capital and would you rather benefit from the low production costs of heavy silver bars? Then 'VAT-free silver in storage' is the perfect solution. In this construction, you buy large, industrial silver bars (for example, 1 or 15 kilos), but you do not have them shipped to the Netherlands.

Instead, the bars are safely stored in your own name in a highly secured and independent customs bonded warehouse in, for example, Switzerland. Because the silver never enters the customs zone fiscally, you pay zero percent VAT on the purchase value.

Your silver is one hundred percent allocated (physically present and your legal property) and fully insured. This way, you benefit from the lowest price per gram, without having to search for a safe, physical storage location for tens of kilos of silver yourself.

Conclusion: Is investing in silver wise?

Investing in silver is an excellent strategic choice, provided you understand how the market works. The energy transition ensures persistent market deficits, which offers silver a rock-solid perspective. It is perfect for investors looking for a tangible asset with a high return potential and who can tolerate temporary price fluctuations.

Always bypass the fiscal pitfall of VAT-taxed bars by smartly choosing silver coins or VAT-free storage via Edelmetaal Beheer Nederland. For optimal wealth accumulation, we recommend a powerful combination: gold as your robust foundation and silver as the dynamic growth accelerator of your portfolio.