Sunday, December 17, 2017

Investing in Silver

Silver is a precious metal but not many people are aware that it is a form of investment. Academy Silver barMany take it for granted that silver is common. "Money is still king" as the saying goes.

In fact, how many people do you know, who owns silver. How about yourself - Do you own any silver?

For thousands of years, silver, not gold, was the coin of the civilized world. One of the most complete histories on silver can be found in the book “The Silver Bonanza” by Franklin Sanders and James Blanchard. The book begins with the following quote from Milton Friedman: “The major monetary metal in history is silver, not gold.”

There are evidence of silver being used as money way back to 4,500 years ago. From the book “The Silver Bonanza”, silver was already mentioned in the Bible. During the reign of King Charlemagne, silver was the only legal tender metal.

The early colonial America preferred silver over gold and rigged the gold-silver ratio to encourage the flow of silver into the US. Back then, it ratio was about 15 to 16 ounces of silver to exchange for one ounce of gold in the rest of the world.

Silver is also used widely for commercial purposes and is known as "industrial metal". And because it is so common, from jewelry, cutlery, household items etc, it is often "dismissed" as a form investment or as a safe hedge. But the fact is, for over four thousand years, silver has been used as a form of money and store of value. Dating to to the Roman empire, coins were made of silver and gold.

The increase interest in ownership of physical started only in recent years. It was in the later part of year 2007 that silver started to pick up popularity and momentum in the US because of the financial crisis. By the first quarter of 2008, silver was in such demand that at one point, many coins stores and dealers ran out of silver. The fear of bank failures and losing confidence in the paper currency cause a flight to silver and gold

Since then, the interest for ownership of silver has generated much attention and gaining interest globally. This has also caused the premium of silver to rise about spot price substantially. It used to be sold at near spot

Take a look at the chart of Silver for the last 10 years. In year 2000, silver was slightly above $4. If you had invested in 1000 ounces of silver, it would have cost you about $4500, perhaps a month's salary for some people. In early 2008, when silver was at $20, your silver investment would have reaped about $15,500 profit. But assumed you did not sell it at $20 but at the lowest at $10 in December 2008, you would still have made $5,500 profit, more than double your initial investment.

 

 

Even today, while Silver is still below $20, it is still a good investment because it is under-valued.

It is relatively cheap compared to gold which has risen to more than a $1000 per ounce

 

24 hour $US Dollar price per ounce.

[Most Recent Charts from www.kitco.com]

 

There are a few methods that people invest in Silver. 

Physical Silver
This is one of the most traditional ways of investing in silver and it can be easily stored at home in smaller quantities. Usually comes in Bars, Rounds or Coins.

Depending on which countries you reside in, physical silver can be bought and sold over the counters at major banks, e.g. Switzerland, China.
These Silver Bullion usually has a purity .999 fineness.

Other forms of physical silver are junk coins. For example in the US, some silver coins before 1965 has about 40% - 90% of silver.  You can read more about Junk Silver coins here


Exchange Traded Funds or ETFs
An exchange-traded fund (ETF) is an investment fund traded on the major stock exchanges. It is traded like stocks but it is not. ETF tracks an index, such as the S&P 500, DOW, Gold, Silver etc

It is attractive because it is low cost and highly liquid.

The most popular Silver ETFs are
SIVR - ETFS Silver Trust
SLV - iShares Silver Trust
DBS - PowerShares DB Silver


Silver Certificates
You can also buy silver certificate instead of physical silver. It is also another form of investment which allow investors to buy and sell the silver without the hassle of actual transfer/delivery of physical silver. The Perth Mint do offer this type of investment and the Certificate Program (PMCP) is the only government guaranteed silver certificate program in the world


Derivatives
"Spot Price" is the common term that you will get to hear very often when buying precious metal. It usually refers to the price of "futures" contracts traded on "futures exchanges" operating in a number of countries such as New York, Chicago, London, Zurich, Hong Kong and Sydney. In the US, COMEX (Commodity Exchange) is the leading commodity exchange for precious metals and is a division of the NYMEX (New York Mercantile Exchange).


Some reasons why it is worth considering investing in silver.Silver Bars

1. The Declining Dollar
The purchasing power of the U.S. dollar has steadily declined over the years and US is in debt to the tune of "Trillions". 1 trillion is 1000000,000000. That is one million, million - 12 zeros.

Ponder over this - when the government needs more money, they can make it out of thin air. Just run the printing machine and your get millions and millions of paper money

This was a speech by Ben Bernanke -

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm


2. Supply and Demand
Silver is widely used in the industrial sectors than other precious metals. It is used from car industry, electronics, jewelry, superconductivity, water purification, airline .. and the demand is increasing where as the silver production from mines are not producing enough. It's a supply and demand issue

Robert Kiyosaki mentioned that the annual silver supply deficits have run as high as 200 million ounces in boom years, and as low as 70 million ounces in years of recession, that even in years of decreased silver demand the mining supply on an annual basis did NOT meet demand.