Council Post: Is A Silver IRA The Right Call For Entrepreneurs In 2021?

By Tyler Gallagher, CEO and Founder of Regal Assets, an international alternative assets firm with offices in Beverly Hills, Toronto, London and Dubai.

We’ve heard it all before: Silver and gold investments are a hedge against stock market downturn. But is it true? 

Silver has a mixed history of success during recessions and bear markets. For instance, according to figures supplied by Suisse Gold, during the 1976-78 stagflation crisis, the S&P 500 fell 19.4%, while silver, by comparison, gained 15.2%. Those same figures show that the 2007-09 bear market, precipitated by the global financial crisis saw the S&P nosedive by 56.8% while silver managed to appreciate by 1.1%. During other recessions, however, silver has not performed so well. The dot-com bubble, the early 1990s recession, and the 1987 Black Monday crash all saw silver depreciate by double-digits.

Many investors and entrepreneurs have asked me whether a silver IRA is a wise investment decision through the end of 2020 and into 2021. Their questions motivated me to take a closer look at the data and gauge whether investing in silver assets in a tax-deferred retirement account is a wise decision given the current economic outlook. 

What Is A Silver IRA?

A silver IRA is an individual retirement account that includes, but isn’t necessarily limited to, silver assets such as physical bullion or paper-backed silver (i.e., silver stocks or ETFs). Like any IRA, the account is tax-deferred, which means you do not pay capital gains on the assets held within the account until you withdraw funds. Depending on your financial situation, you may be eligible to deduct your contributions from your income on your tax return. 

Silver IRAs are an excellent diversifier for investors with fixed-income and stock-heavy portfolios. Because silver isn’t correlated to stock market performance, holding some of your wealth in silver helps spread risk across a diversity of asset classes and lowers your susceptibility to a market-wide downturn.

Per IRS regulations, only silver held by an IRS-approved third-party custodian or trustee is eligible for inclusion in an IRA. Silver bullion held in one’s own possession at home is ineligible and therefore subject to capital gains taxes. 

Silver: The Bearish Case

Silver has had a good year so far. The precious metal opened the year at $18.03 per troy ounce and, as of mid-September, is at $27.07. That’s a whopping 50.1% increase in nine months. Silver is clearly white-hot, but there’s no telling when the asset is due for a correction or cool down. 

It’s uncertain how well silver will perform over the next 12 months. Although the metal shows no signs of slowing down, its generally negative track record during recessions leads me to believe that silver prices could deflate quickly if the U.S. equities market suffers another prolonged downturn similar to what we saw in March 2020. 

Silver is used widely in industrial manufacturing. This is particularly true of photovoltaic solar panels, jewelry, electronics and cutlery, where over 800 million ounces of silver are utilized every year. When manufacturing declines, which is a hallmark of recessions, the price of silver will almost certainly decline. 

During the 2007-09 recession, the manufacturing sector output crashed by over 22% in Europe and 14.8%, on average, elsewhere. It’s no surprise, then, that the price of silver fell during this time, from about $17 an ounce to under $16 at the end of the bear market. 

The Bullish Case For Silver

Despite silver’s mixed performance during recessions, I’m generally optimistic about the precious metals in the short to medium run. If a global recession is warded off, we should expect silver to continue its bull rush in the coming months. 

Most experts and analysts agree that silver is headed for a price ceiling above the $30-per-ounce mark in 2021. CIBC currently forecasts a $32 price ceiling 2021, followed by a gradual price decline over the following two years. Technical analysts at Yahoo Finance who use the Fibonacci Price Amplitude Arc to analyze buy/sell signals, estimate a $32.50 peak level for silver in the short run, followed by a ceiling as high as $42.50.

Analysts have pointed out for decades that silver generally moves in the same direction as gold. The correlation between gold and silver leads me to believe that silver will trend up in the medium-run, as gold continues to eclipse all-time highs. If, as this Wall Street Journal article suggests, Warren Buffett’s Berkshire Hathway fund is increasing its long position on gold, then that’s evidence enough for me that gold and silver are currently worthwhile holds.

Tips for Investing In A Silver IRA

No financial investment is without its share of risks — silver included. There’s always that chance that your investment will lose value over time. This is as true of silver as it is of any other investment vehicle. However, silver is not correlated to the U.S. stock market, which makes it a tool for diversification. That’s where the value of silver shines — in diversifying one’s holdings so that risk is spread across multiple asset classes. 

Investors should be aware of counterparty risk and the risk of theft or loss when investing in silver. Fortunately, you can mitigate these risks by investing in reputable, IRS-approved silver IRA companies that use trusted custodians and vaults that fully insure each transaction.

The Bottom Line

Whether you invest in a silver IRA in 2021 depends on your individual risk tolerance. Entrepreneurs who want to minimize market risk and hedge against stock market decline would do well to invest in a silver IRA. However, those who are pessimistic about the future of the global manufacturing sector may want to hold off until the industrial forecast for 2021 and beyond is clearer. 

Remember, silver is a safe-haven asset that generally follows the price movement of gold. Investing in gold or silver IRAs can help protect your wealth from shocks in the equities market like we saw during the March 2020 Covid-19 crash. However, if you decide to invest in a silver IRA, make sure you choose a trusted, IRS-approved third-party custodian to vault your bullion. Otherwise, you’ll be on the hook to pay capital gains taxes if your bullion is deemed ineligible for inclusion in a tax-advantaged account. 

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.