Silver Investing 101
Reasons to Invest in Silver
Investing in Silver provides benefits very similar to Gold:
- Value store
- Inflation hedge
- Protection from currency debasement
- Swing trade Silver Mining stocks
- Portfolio diversification away from traditional stocks and bonds
In addition to these benefits Silver offers greater potential than Gold for dramatically increasing wealth during the current secular bull Market trend in the Precious metals.
During the 2001 to 2011 rally Silver increased in price 12.5x while Gold rose just 7.5x.Silver’s outperformance factor this time could be even greater because the historic extreme in the Silver-to-Gold ratio (Silver is extremely cheap relative to Gold) will likely revert to the mean.
How to Invest in physical Silver
Start your Investment in Silver with a purchase of US dimes, quarters, and halves minted in 1964 and before.
These 90% Silver Coins are unflatteringly referred to as “junk silver” but they form the foundation of a Silver Portfolio for two reasons:
- They are the most useful form of Silver to have in a barter situation because of their wide recognition as something of value and their small denominations which make trading for a single loaf of bread or other day-to-day item possible
- 90% Silver Coins tend to have the lowest premium over the cost of Silver
Junk Silver is sold by face value, typically in bags containing $1000 worth of dimes, quarters, or halves (4 quarters, 10 dimes, or 2 halves equals 1 dollar of face value).
Regardless of the Coin, these $1000 bags contain about 715 troy ounces of Silver and weigh approximately 55 pounds.
As part of your Investment strategy for physical Silver, give some thought to storage.
Because Silver is so inexpensive, you can easily end up with more metal than you know what to do with.
Each of those $1000 bags of junk Silver is about the size of a large bread loaf (14” x 8” x 6”) so give some thought to where you would store something that size weighing 55 pounds.
Lowest Premium to the Price of Silver
After securing enough junk Silver, complete the physical portion of the Silver Portfolio with Bullion bars and Coins.
In general, the best choice will be the Silver Bullion product with the lowest premium to the price of spot Silver.
After junk Silver that will likely be 100 oz bars.
100-ounce Silver bars offer low premiums to the price of Silver and they also store more conveniently than junk Silver.
There is a potential downside to 100 oz bars, however, that Silver Investors should consider.
If Silver reaches the price levels being predicted by some analysts ($130 to $200 per ounce), selling a 100-ounce Silver bar will become a federally reportable event in the U.S. since any cash transaction over $10,000 requires documentation.
If this is a concern, pay a little bit of extra premium for Bullion products under 100 ounces.
One-ounce Silver rounds or bars are fine. Five- and ten-ounce bars are great as well.Always choose products from well-known companies like Sunshine Minting, Inc., A-Mark Precious Metals, Johnson Matthey Assayers and Refiners, United States Assay Commission, Engelhard, etc.) to prevent issues when it comes time to sell.
Silver Bullion Coins from the National mints offer another possibility, although the premium on these Coins is likely to be higher than other options. Here are some examples:
- American Silver Eagle
- Canadian Silver Maple Leaf
- Australian Silver Kookaburra
- Australian Silver Kangaroo
- Austrian Silver Vienna Philharmonic
Storing a Silver Portfolio
One of the functions of physical Silver is to serve as a medium of exchange in a barter situation.
Hopefully our society never devolves to the point where that becomes necessary, but there are many people expecting and planning for that outcome.
Barter goods must be in your personal possession so some amount of your Silver portfolio will be stored in your bug-out kit or 72-hour box of survival supplies.
Rolls of junk dimes or quarters are excellent for this purpose.
Desktop or Dresser
One of the reasons for Investing in Silver is to appreciate its visual and tactile beauty.
I like to keep a few US Silver Dollar coins and a 10-ounce hand-poured Silver Bullion bar on my desktop.
The Coins are elegant works of art that I enjoy and the bar provides a very solid reminder of what real value feels like in a world gone crazy with Fiat currency, perpetual debt, and negative interest rates (NIRP).
Other options for storing physical Silver
Most Silver Investors are going to have more physical Silver than they can store in their bug-out bag or on their desktop.
The obvious question becomes, “What do I do with the rest of my physical Silver?”
Here are a few options:
- Bank safe-deposit box - Ask your bank for its terms on safe deposit boxes. Some banks specifically prohibit the storage of Precious metals. Be discreet, just get the term sheet from your banker and leave without asking questions.
- Commercial vault service - Available in large cities – search for “vault storage”
- North forty - Old dirt road out past farmer Joe’s barn, third tree to the left… ‘nuf said.
Silver certificate accounts
Another option for Investing in large amounts of physical Precious metal is Silver certificate programs like the ones offered by The Perth Mint.
While these types of accounts do not offer the personal possession we would prefer, they may provide a solution for large Investors since there is no limit to how much metal an individual can store.
Although the programs for allocated metal are more expensive, Investors are encouraged to pay the extra fees required to have specific metal allocated and stored in their name.
Speculators and industrial Silver users are able to trade futures contracts as derivatives of the physical metal.
Futures and options on futures are not recommended for most Investors and those financial vehicles are not covered here.
iShares Silver Trust ETF (SLV)
The iShares Silver Trust SLV ETF is designed to follow the price of physical Silver.
The Fund does this by buying and selling physical metal as shares of SLV are bought and sold.
While SLV is an easy way to gain exposure to the price of Silver, it is not recommended as a substitute for owning physical Silver.
Investors should also be aware that SLV sells physical Silver out of the Fund to cover storage expenses and management fees.
These sales are a continual erosion of the Fund’s value and can result in tax liabilities for holders of SLV.
Best ways to Invest in physical Silver
If we had to rate the best form of physical Silver as an Investment we would place personally-held junk Silver at the 'most-preferred' end of the scale and certificate programs at the 'least-preferred' end.
SLV would not be on the list because it does not fulfill the role of physical metal in a Silver Portfolio.
Here’s what the list might look like:
- Personally-held junk Silver
- Personally-held Silver Bullion bars and Coins
- Physical Silver held in a local safe deposit box or commercial vault
- Physical Silver held in a remote commercial vault
- Allocated Silver certificate program
- Unallocated or pooled certificate program
Silver Mining stocks
Mining stocks tend to magnify the price movements of the underlying Precious metals by 2-to-3 times.
After securing the physical portion of the Silver Portfolio some Investors will want to speculate in the stocks of companies that mine Silver.
Finding Silver miners to Invest in is challenging, however, for two reasons:
- The price of Silver has been so depressed in recent years that it has been unprofitable to mine the metal. Some Silver miners switched their focus onto Gold and, in some cases, even removed Silver from the company name.
- Most Silver is found in the ground along with Gold and the base metals Copper, Lead, and Zinc. Even companies that attempt to focus on Silver tend to have significant revenue from other metals. For example, First Majestic Silver Corp is a primary Silver miner but the company only earns about 60% of its revenue from the white metal – the rest comes from Gold, Lead, and Zinc.
The objective when picking Silver stocks is to find the Miners with the greatest exposure to the price of Silver.
Ideally we would choose companies earning 100% of their revenue from Silver, but those companies don’t exist for the reasons stated above.
First Majestic is actually one of the purest Silver miners, with approximately 60% of the company’s revenue from Silver.
There are just a few select Silver miners that we focus on as long-term Investments and speculations.
Refer to white paper and newsletters for specific guidance.