How to Invest in Silver
What You Absolutely Must Know About Silver
So You Can Make Money in Silver
Silver and other precious metals are popular investments. Bullish investors have moved into silver with enthusiasm. They know that silver is important in industrial manufacturing, and jewelry. But the attraction of silver in these uncertain times is its use as a hedge against inflation, deflation and currency devaluation. Massive government deficits, and loose money policies have put the U.S. currency under pressure. To protect one's wealth from inflation, market bubbles, increasing taxes, a pension crisis, budget deficits, trade deficits, the debt mountain, financial scandals, and weak currencies, investors move into gold and silver. The more money that is pumped into the economies, the more money that is issued, then the less valuable the U.S. dollar becomes. Investors look for alternative investments to protect themselves against the depreciating value of money. One silver bull exaggerated, "None of these currencies are worth anything. We have printed money like drunken sailors and that leads to inflation."
America the Beautiful 2010
Silver Coin Investment
- You Can Make Money Investing in Silver
- The Demand for Silver
- How Much Is Silver Really Worth?
- Silver Is a Volatile Investment
- How to Invest in Silver Coins and Bars
- Silver Coins for Investors
- Silver Bars for Investors
- Invest in the Stock of Silver Mining Companies
- Invest in Silver ETFs Exchange Traded Funds
How You Can Make Money Investing in Silver
Silver, like all precious metals, may be used as a hedge against inflation, deflation or currency devaluation. People ask how they can invest in silver as a safe haven from financial turmoil and a weak dollar. Speculators also want a piece of the silver bubble. There are many alternatives for silver investors. You can buy and hold the physical silver in the form of bars and coins. You can buy silver mining stocks whose shares are traded on public exchanges. There are silver mutual funds for investors. You can buy silver ETFs, which are financial derivatives that trade on stock exchanges. For the experienced investor, there are also silver futures and stock options that are publicly traded.
America the Beautiful Reverse
Silver Coin Investment
You may be considering silver jewelry and sterling tableware as silver investments. For bullion investors, the value of silver jewelry and tableware is determined by the melt value of the silver they contain, which is usually only a small fraction of the price you pay for an item. These articles lack a ready market for sellers, and their value is primarily as collectibles. In normal times, silver jewelry and tableware are generally not suitable for silver investing.
The Demand for Silver
Silver is often used as an investment. For more than four thousand years, silver has been regarded as a form of money and store of value. Now the demand for silver is in industrial applications, silver jewelry, bullion coins and exchange-traded funds.
5 Years of Silver Prices
The demand for silver is supported by its industrial use. About 50% of all silver goes for industrial uses. Silver is in everything from circuit boards to coinage to dentistry to cloud seeding to medicine. Silver is the best conductor of electricity, the best heat transfer agent, the best reflector of light, an excellent lubricant and a catalyst and alloy. Although photographic uses of silver have declined since the digital camera, silver is being used in a number of applications, in electronics, RFID tags for stock control and ID cards, solar panels, and wood preservatives. Silver is a biocide that inhibits bacteria growth, as in medical use, food hygiene, and textiles. Many commercial products like mobile phones, computers, washing machines, vacuum cleaners and refrigerators use silver. Silver is even being used in textiles to inhibit body odor. Industrial demand will grow as silver-zinc batteries replacielithium-ion batteries in electric cars. The newest trend is the use of nano-silver particles to deliver silver ions.
Demand for silver as a safe haven for wealth is increasing. Investors remember when it was illegal for individuals to own gold, and when the U.S. government in 1933 confiscated all gold coins, bullion and certificates, for a fixed price of $20.67 an ounce. Since then gold coins have ceased to circulate as money. Because of its many industrial uses, silver is less likely than gold to be confiscated by a government. The U.S. Mint continued to turn out silver coins as legal tender until 1965. In 1997, Congress changed the law so that silver investments are allowed in IRA plans.
How Much Is Silver Really Worth?
How much is silver actually worth? One way investors value silver is to compare it to the price of gold. The prices of silver and gold move in concert with a kind of slingshot effect, but silver is much more affordable than gold. Historically, the silver-gold ratio was 15:1, meaning that 1 ounce of gold bought 15 ounces of silver. In 1980 the ratio was about 80:1 for a while. Today, in 2010, the silver-gold ratio is 65:1, which means that 1 ounce of gold buys 65 ounces of silver. You can see that the price of silver has not kept pace with gold, and has a lot of catching up to do. Investors expect a major increase in silver prices to bring the silver-gold ratio down to 50:1. It would take an enormous silver price run-up to return the silver-gold ratio to low historical levels.
Prices of Gold and Silver over 40 Years
Silver Is a Volatile Investment
Before you invest in silver, review its history of volatility and risk. The chart above shows the roller coaster history of silver prices during the past five years. Like most commodities, the price of silver is driven by speculation as well as supply and demand. Compared to gold, silver prices are notoriously volatile. What makes silver prices more volatile than gold? The dollar value of the silver market is much smaller than the gold market, because an ounce of gold is worth 65 times an ounce of silver. But ounce for ounce, annual silver sales are 8 times gold sales. The Hunt brothers, famous oil tycoons who once tried to corner the world silver market, caused the price of silver to jump to $50 an ounce temporarily in 1980. The behavior of investors today still contributes to volatility in the silver market. In May, 2010, the spot price of silver jumped 5% in one day, and possible market manipulation was investigated. If you invest in silver, stay nimble.
U.S. Five Dollar Silver Certificate
How to Invest in Silver Coins and Bars
You can invest in silver by owning the physical metal or by owning financial assets with prices based on silver. If your preference is to own the silver bullion itself, you can purchase bullion coins and bars. Of course, when you invest in silver, you collect no income, no dividends and no interest, and you pay the cost of storage and insurance. Silver prices and silver content are always quoted in troy ounces, a holdover standard from medieval days. It is never necessary for you to convert troy ounces to avoirdupois weight. But just for the record, one troy ounce (ozt) is equal to 31.1034768 grams or about 10% more than the avoirdupois ounce.
The silver content of silver bullion coins is usually 99.99% pure, with slight variations. The value of silver coins and bars is determined by the spot price of their silver content. A dealer will quote two prices, the bid price if you are selling and the ask price if you are a buyer. The the difference, or spread, between bid and ask prices is the dealer's profit. Silver coins are sold at a premium of 15% over the spot price, because of the cost of fabricating coins. Silver bars are sold at a premium of about 5% over the spot price of silver.
Silver Coins for Investors
Among the many silver coins, investors look at the one-ounce silver coins, like the American Silver Eagle, the Canadian Silver Maple and the Austrian Silver Philharmonic. These contain about 1 troy ounce of silver and sell for a small premium above the spot price of silver. In 2010, the U.S. Mint introduced the new America the Beautiful Silver Bullion coins for investors with a weight of 5 troy ounces and a face value of a quarter.
There are other silver coins available to investors. Among them are half-dollars of 90% silver already in circulation, the 1964-issue Kennedy half-dollars, Ben Franklin half-dollars, and Walking Liberty half-dollars. Circulated U.S. silver coins from before 1965 have 90% silver and are called "junk silver coins" by coin collectors. Junk silver coins are often sold as bullion silver investments because they can be refined. Note that proof silver coins and uncirculated silver coins sell at higher prices as collectibles, and are not suitable for silver bullion investors.
Silver Bars for Investors
If you want to make a larger silver investment, consider silver bars, which are most popular in the 10 ounce and 100 ounce sizes with 99.99% silver content. There are also the 1,000 ounce silver bar, and small 1 ounce silver rounds for a starter investment.The bars are easier to handle than coins, and allow you to keep your wealth in a small space. Silver bars that are hallmarked by the refiner are easy to resell.
Invest in the Stock of Silver Mining Companies
Silver mining companies are small and their shares are volatile. The shares often move in tandem with the price of silver, but the investment risk is high. Mine delays, cost overruns and speculative news can turn share prices topsy-turvey. You can also invest in gold mining companies which produce silver as a by-product of gold mining.
Strong Silver Stocks from our Screen 10/15/2010
|Symbol||Company||Industry||Relative Strength||P/E Ratio|
FRMSF ||First Majestic Silver Corp||Silver|| 97.00|| 42.40||SLW|| Silver Wheaton Corp|| Silver|| 94.00|| 52.40
|SVM||Silvercorp Metals Inc||Silver||91.00||34.10|
|EXLLF||Excellon Resources Inc||Silver||88.00||130.90|
|EXK||Endeavour Silver Corp||Silver||88.00||105.10|
|HL||Hecla Mining Co||Silver||85.00||21.80|
|SMNPF||Scorpio Mining Corp||Silver||85.00||3.50|
|GPRLF||Great Panther Silver Ltd||Silver||79.00||36.30|
|PAAS||Pan American Silver Corp||Silver||74.00||36.40|
Invest in Silver ETFs Exchange Traded Funds
You can also invest in silver without holding it physically. ETFs, Exchange Traded Funds, are set up as a trust that owns financial assets, similar to mutual funds. The units of the ETF represent a claim on the physical silver in its vault. ETF units trade on stock exchanges as conveniently as shares of any company stock. This give you the advantage of minute-by-minute liquidity. You can buy and sell silver ETFs through any stock broker. The price of each unit of a silver ETF closely mirrors the spot price of silver. The expenses of storing silver and managing the trust are a small reduction to the value of the ETF. These ETF trust units are financial paper that allow you to speculate on silver prices, but they depend on functioning markets for liquidity. In a doomsday scenario, the investor would want physical silver in his or her possession. Even if your silver is held in a bank safety deposit box, you could be denied access to it.
SLV Silver ETF Prices over 5 Years
Silver ETFs are a good way to invest in silver, because of their convenience and low cost to own. The iShares Silver Trust ETF, the world's largest silver ETF, trades on the New York Stock Exchange with the symbol SLV. Its $5.5 billion holdings in silver have JPMorgan Chase in London as custodian.
The ETF Physical Silver Shares trades on the New York Stock Exchange under the symbol SIVR. ETF Securities Ltd. is one of the largest ETF providers in Europe, with some $16 billion under management. Each SIVR unit is about the equivalent of one ounce of silver in U.S. dollars, and is backed by physical silver in a London vault. Management fees are about .45%.
There are also silver mutual funds and silver index funds suitable for the average investor. The advanced investor may want to consider silver futures and stock options trading on exchanges.
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