Much research on this subject has shown a variety of information on the web about buying Silver. Unfortunately all of these articles seem to have an underlying agenda and tended to miss vital information out of their articles, advising you to buy the product advertised. Silver always tends to be the underdog to Gold, the ‘poor mans Gold’ as it is often referred to. This article attempts to give you all the relevant information necessary to make an educated decision.
Why Silver?
Why buy Silver? Silver has always been considered a secondary metal to Gold. Though it actually plays just as much of a part in our monetary history as Gold does. In fact we were on a Silver standard in Britain prior to the Gold standard and it lasted for a very long time. Silver is also linked intrinsically to our money supply through the word itself in 19 languages. For example in French the word for money is Argent from the Latin ‘Argentum’. In times of high inflation and a volatile economy Silver rises sharply in value consistently month on month, even faster than Gold sometimes!
So why is Silver rising in value? There are 3 main reasons. Due to the fact that you are measuring Silver in a currency that is moving. When an economy is on the verge of collapse Silver will rise sharply. As the currency you measure it in is steadily plummeting making it look like its rising much faster than it really is.
Inflation is really a misnomer, we use this word to express a rise in costs, when in actual fact this is a devaluation of the money currently in the system. To express this in another way, if you buy a loaf of bread for £1 and a year later it costs £2, it is not because you get two loaves of bread for your money, it is because the currency you are using to pay for it has halved in value.
Secondly like Gold, Silver is currently in high demand due to the state of the economy and peoples knowledge of Silver as a monetary substitute. So demand is pushing up prices as more and more investors put their money in to Silver as a safe haven against inflation and recession.
Thirdly unlike Gold, Silver gets used up in its industrial and commercial applications, so there is a lot less Silver to recycle when it reaches the end of its product life. In fact above ground resources of Silver have declined by more than 95% between 1950 and 2010. This is putting huge pressure on the market as demand is outstripping supply.
Another reason expressed for holding physical Silver is that it is often used as a medium of exchange in times of monetary collapse. Fiat money (pounds, dollars, euros, etc) inevitably collapse as inflationary pressures becomes too much. This is explained in more detail in further articles. As paper money has no intrinsic value but Silver is a valued and physical commodity, people always switch to this as a means of exchange in troubled times. This happened as recently as 2004 in Zimbabwe.
What Silver? Coins, Bars or Paper
With so many options available to you, choosing what Silver to invest in can be a minefield. There are basically 2 types, physical Silver and paper Silver. I’ll deal with the pros and cons of these 2 separately.
Firstly, paper Silver. Paper Silver is unallocated meaning you never take delivery of it. Paper Silver can be Exchange Traded Funds, (ETFs), or Silver stocks. Effectively pieces of paper representing Silver held somewhere. Or alternatively a related asset to Silver that will rise in price along with Silver, for instance Silver mining stocks.
The advantage of Paper Silver is that with the use of leverage you can make a much greater profit on a movement in the market price, as well as being able to profit from increases and decreases in price (as long as you have predicted correctly). Therefore making a continuous income from Silver rather than just a rise in the value.
The disadvantages of Paper Silver is that it is a bit of paper representing Silver. It is not ownership of Silver and therefore it can go to zero (or near enough) if markets collapse, as they have done quite a few times in the recent past. Silver ‘loaning’ is where the holder of physical Silver Bullion can loan it out for others to trade with, unfortunately with no restrictions on the amount of times the same piece of Silver can be loaned out there are inherent risks.
Physical Silver can be sub divided into allocated and unallocated. Physical Silver is actual bars, bullion and coins of Silver. If they are sent to you to keep yourself then it is allocated. If the supplier / service provider retains the Silver in their own vaults it is unallocated as you never actually get to hold or see your Silver.
The advantages of physical Silver are that your asset is a physical commodity and can therefore never be worth zero. Silver has been used as a form of money for over 3500 years. The Gold and Silver standards have lasted in many countries for 100s and sometimes up to 1000 years. Also if you take allocated Silver, you are in full control of your asset. Your asset is also increasing in value whilst you hold it.
Disadvantage are that you will lose some of the value during buying and selling as there will be production and shipping costs.
If you do choose physical Silver, you now have the option of bars (bullion) or coins. As an investor this is a simple choice. Coins hold a ‘numismatic’ value which is a value based on their collectability and they also cost more to produce due to their more intricate construction. Silver bullion bars give you more Silver by weight for your money, therefore from an investment point of view they are an obvious choice. Also the bigger the bar, the more Silver you get for your money due to the reduced production costs.
Silver Price
What price should I be paying for Silver?
How do I work out if I’m getting a good deal?
All Silver is measured using the market price or spot price. This can be found all over the web and is also listed on the screen. The market price fluctuates all the time and is based upon the supply and demand worldwide in the markets. The London Fixing is also often used as a basis but this is exactly the same as the spot price but is fixed twice daily based on the spot price at that time.
Silver is measured in dollars and in troy ounces. Most websites will list it in a local currency, but they are just converting it for convenience. A troy ounce is 31.1035 grams as opposed to the standard 28g for an imperial ounce. So if you see a price of $45 then this represents the spot price of $45 per troy ounce. Spot prices are the price for bullion traded between governments, physical Silver cannot be bought at this value.
The cheapest Silver is of course paper Silver, mining stocks generally start around 30% of the spot price at the inception of a mine where prices are based upon the geologists predictions of the amount of Silver in the mining area. Of course the risk is that you can get zero if the geologist is wrong or more if he underestimates the deposits. ETF’s and others are generally sold at spot price with bids just over or under depending on prevailing market conditions.
Physical Silver will ALWAYS be over spot. If you find it for less its a scam, trust me, I get offered it all the time. Read the Fake Silver page for more information on spotting fakes and why its done. Unallocated Silver where you own a tiny percentage of a very large bar will be the closest to spot as you do not have production, shipping or insurance costs to be added. This is generally less than 1% over spot price with small margins on the buying and selling as the Silver never actually moves from the safety of the vault.
Physical Allocated Silver will be provided by a Gold dealer (it is rare to find a dealer exclusively dealing in Silver or a Gold dealer who doesn’t also do Silver). This can be in sizes from 5 grams up to 5 kilograms, the price will be based on the spot price but will include costs for production, shipping, insurance and a profit margin. Depending on the size of the order margins can vary from 70% for a 5 gram bar down to less than 5% for a larger order. Remember that VAT must be added on all Silver purchases!
How to buy Silver
Paper Silver, mining stocks and ETF’s can be bought through a broker or trader and there are literally 1000’s to choose from. To reduce margins you can trade yourself, though I would recommend that you get sufficient training before undertaking this venture. Again there are 100’s of courses out there on options, stocks and puts, all with their own patented money making methods.
Physical Unallocated Silver can be bought online, there are a few companies out there doing this. Consideration should be given to the margins for both buying and selling and if there are any joining or subscription fees. Unallocated Silver Bullion companies only deal in 400 oz bars so if you wish to take delivery of your bar you will need around many thousands for one bar.
Physical Allocated Silver can be purchased from a Gold dealer, as mentioned before the pricing will be based upon the order size. Ensure you buy from a reputable dealer with a proven history. Ring around to get the best price, its easy to compare if you’re trying to buy the same amount of Silver from each dealer. Do remember prices fluctuates each minute so you’ll need to be quick!
Though it is possible to buy online from auction sites and private individuals I would suggest that you avoid these methods due to the prevalence of fakes in the market. Its just too easy to fake one small coin that you can sell for £50.