Commodity trading can be immensely profitable, especially when it comes to precious metals like gold and silver. These two precious metals have been linked to currency for most of human history. While they have industrial uses (especially silver), their prices often have more to do with speculation, fear trading, and inflation.
There are a few key factors that will determine whether you can turn investing in silver into a profitable endeavor: when you buy this precious metal, when you sell it, and where you sell it. The old saying “buy low and sell high” seems straightforward enough. However, understanding silver price trends and the driving forces behind them will help you understand what high and low prices for this commodity look like. Silver prices move in cycles and investors often make mistakes on either end, selling too low and buying too high. That’s because they’re reacting to price trends and not to their own margins.
RELATED ARTICLE: ALL THAT GLITTERS: SHOULD YOU REALLY BE INVESTING IN GOLD?
#1 Learn the Cycles
Silver, like many commodities including gold, tends to operate in cycles. It can spend periods of time in a bear market, where major silver short sellers like JPMorgan drive down prices despite limited supply and high industrial demand. Then it can abruptly turn and gain traction quickly. Silver cycles both up and down often last several years at a time. These long silver price trends also tend to follow and then outpace gold prices.
#2 Don’t Overstay Your Visit
There’s a complicated relationship between investing and psychology. This relationship is often the downfall of investors. Part of learning how silver cycles work is learning that you can’t always get out at the top. Overstaying your visit in the silver market means that in your ambition to ride out the wave and sell at the last possible moment, you wind up missing out and having a hard time selling for peak prices. The climb to the peak of a cycle often takes longer than the descent.
One strategy that helps you avoid overexposing yourself is recalibrating your portfolio. Decide on a fixed percentage of your portfolio to devote to this metal. As prices rise, you need fewer ounces of silver to make up that part of your portfolio. You sell off the excess and consistently earn profits. If you know where to sell silver online quickly and easily, it’s not hard to recalibrate every so often and take considerable profits with you.
#3 Don’t Sell in a Panic
On the flip side of overstaying your visit is selling at the wrong time. The concept of loss aversion is an idea in behavioral psychology that people are more sensitive to loss than they are to gains. Even if the rest of your portfolio is making gains, you can obsess over one part that’s losing money.
The obsession and the fear of losing your principal means investors either wait too long or not long enough before selling. They can look at a stock (or commodity) that’s on a downward trend and hold out, refusing to take a small loss until it gets even larger (the sunk cost fallacy). Alternatively, they hit the panic button when prices go below their purchase price and they miss out on the bounce back. With a commodity, patience is your saving grace if you miss your break-even point. Unlike stock in a particular company, wealth from precious metals isn’t going anywhere, but its profitability is cyclical. Never sell precious metals in a panic.
#4 Keep Silver’s Volatility in Mind
Silver prices are known for their volatility. This makes it a precious metal that active investors can really capitalize on. However, it’s also one that’s not for the faint of heart. It rises and falls quicker than its more stable cousin, gold. Silver’s volatility also means that it can outpace gold, a precious metal whose trends silver closely follows. When gold is on a consistent upward trend, silver starts to catch up and closes the silver-gold ratio. Many precious metals investors like to invest in a combination of gold and silver for this reason. Or they might even exchange one metal directly for the other. Some online dealers, such as Silver Gold Bull, allow you to trade directly between the two metals without using cash.
#5 Know Where to Sell
Finally, in order to make a profit when trading in silver, you need to know where to sell. As an investor, you should be buying silver bullion: coins, bars, and potentially rounds should make up your holdings. This kind of silver should be sold directly to silver dealers. Cash-for-silver businesses, coin shops, and pawnbrokers won’t give you a fair value for silver bullion coins. Online dealers are more likely to give you the market prices pure silver bullion deserves. Do your research before you sell silver for profit.