Investing in silver bullion
From Silver Bullion
Investing in Silver
Silver is known as a precious metal and because it is so common, not many people are aware that it can be used as an investment and as a safe hedge. For over four thousand years, silver has been used as a form of money and store of value.
For the typical investor, silver bullion can be an effective means of diversifying investment assets and protecting money against the inflation.
Silver is relatively cheap compared to gold which has risen to more than a $1000 per ounce.
Reasons for investing in silver
The purchasing power of the U.S. dollar has steadily declined over the years. By increasing the number of dollars in circulation the U.S. government also reduce the value of a dollar in terms of goods and services.
Demand for silver bullion is increasing where as the silver production from mines are not producing enough for supply.
Silver bullion it is hard asset with fantastic characteristics:
- negative or weak correlation to price movements in the financial markets, especially the stock market;
- excellent liquidity with bullion markets trading continuously around the globe 23 hours per day and with no determination of market value required by investor upon resale;
- has retained its purchasing power during both inflations and deflations, a key characteristic in a time of domestic Dollar devaluation.
Alternatives of investing in Silver bullion:
1. Silver bullion bars - silver in the form of bars that are at least 99.5 percent pure.
2. Silver bullion coins issued by a government mint (American Silver Eagle coins, Canadian Maple Leaf coins etc - they are very liquid bullion coins).
3. Silver bullion rounds - round pieces of silver similar to a coins but they not considered legal tender. Silver rounds may be issued by private mints or governments.
4. Storage Accounts or Certificates - bullion is kept in storage and the investor can take possession within a few days if desired.
5. Accumulation plans - enables investors to accumulate bullion on an average basis, but the investor does not own the physical silver.
6. Forward Contracts or Futures - an agreement made on an exchange to take or make delivery of silver bullion at a set date in the future.
7. Options - it is the right (but not the obligation) to buy or sell a silver on a specified date in the future.
8. Exchange Traded Fund (ETF) - a basket of equities linked to silver, i.e. the physical silver bullion, producers, refiners, etc. ETFs are traded on exchanges throughout the trading day.
9. Mutual Funds - an open-ended fund that holds a basket of silver-related equities that are priced once daily.
Why silver billion better than gold billion?
Silver has always generated a greater percentage increase than gold during precious metals bull markets.
If you are less than $10,000, buy exclusively 1-oz silver bullion rounds. If you want invest larger amounts buy silver bullion and gold bullion together.
At current prices, an investing in silver bullion results about fifty times the bulk and weight than the same investment in gold bullion. Large investments in silver bullion create storage and handling challenges for most people.
Why invest Silver?
Investors buy silver bullion for one of three purposes: for survival purposes, as an investment or as an inflation hedge.
Investors who buy for investment purposes look for price increases of silver bullion.
Investors who want protection against inflation buy silver bullion as inflation hedges.
Investors who buy silver and gold for survival purposes fear the worst. Those fears include the Federal Reserve printing so many dollars that the dollar will become worthless, which is the history of all paper currencies not redeemable in gold or silver. Fear of a financial meltdown, which would close banks as in Argentina and Paraguay in 2002, is another.
Invest in silver bars, coins or rounds?
This depends on your level of investment. It is wise to diversify and hold a blend of government guaranteed, brand name and private label silver bullion bars, coins and rounds.
American silver eagles and Canadian Maple Leafs are the best known and most liquid bullion investments but they also have the highest premium over silver of any bullion product.
Silver bullion rounds have one of the lowest mark ups over silver, less than half the mark up of American silver eagles.
Exchange - Traded Funds (ETFs)
Advantages:
For investors who seek exposure to the physical silver market, but have no desire to possess the metal or pay direct insurance, assay, and storage costs, ETFs offer an alternative. They have major exchange listings and trade like equities. Investors can buy shares in a trust that owns the silver bullion.
Disadvantages:
Because the ETFs are created to reflect the price of the silver, the market price can be as unpredictable as the price of silver on any given trading day.
Silver Bullion Bars
Advantages:
Usually the least expensive. Convertible into cash. Internationally negotiable. Price is widely quoted. Bars are very liquid bullion.
Disadvantages:
Must be stored securely. Possible need for assay at time of sale. Yields no interest.
Silver Mining Stocks
Advantages:
Offers capital appreciation opportunities. Dependent on the company's management and operating strength. May yield a dividend.
Disadvantages:
May require greater investment than small physical bullion purchases. Requires knowledge of equity market.
Silver Mutual Funds
Advantages:
Many mutual funds offer investment programs in silver and precious metals...Diversified holdings among dozens of companies.
Disadvantages:
May require greater investment than small physical bullion purchases. Requires knowledge of equity market.
Silver Bullion Coins
Advantages:
Relatively inexpensive, some less than US$10.00. Small and easy to store...Instant convertibility into cash. Easy to transport. Internationally negotiable. Prices quoted widely.
Disadvantages:
Must be stored securely. Yields no interest. Premium over bullion bar prices.
Silver bullion rounds
Advantages:
Prices can range from least expensive to most expensive...Small and easy to store...Easy to transport.
Disadvantages:
Similar to silver coins, but not always easily convertible to cash unless they bear the mark of a reputable refiner.
Silver Certificates or Storage Accounts
Advantages:
High liquidity, but at competitive prices. No storage risk. No sales tax. Prices widely quoted. Invest by dollar amount.
Disadvantages:
Several days' delay in delivery of silver. Silver not in physical possession of owner.
Silver Accumulation Plans
Advantages:
Invest as little as $100...Discounted commission rates...Highly liquid...No sales tax...Offers dollar cost averaging...No storage fees.
Disadvantages:
Silver not in physical possession of owner.
Silver Futures Contracts
Advantages:
Speculative appeal. Leverage reduces capital tie-up. Liquidity. Contracts widely quoted. No storage risk.
Disadvantages:
Many trading limitations. High risk factors. Unlimited loss potential. Requires market expertise.
Silver Options
Advantages:
Speculative appeal. Leverage reduces capital tie-up. No storage risk. Clearly defined risk.
Disadvantages:
Trading limitations. Highest risk. Less negotiable and less liquid. Investor must be willing to sustain the loss of their entire investment in a commodity option. High degree of knowledge required.
