An Introduction to Investing in Silver

One of the posters on our forum, JekyllandHyde, produced this article on investing on silver. I thought it was really good and serves as a perfect introduction for investing in silver and definitely worth publishing on this blog – He agreed to let me use it and all credit goes to him! If you want to discuss this in more depth, register and head on over to the forum – Gracias!

If you want to submit an article, either get in touch with me in the comments section or forum. Cheers.


 

This is an introductory article for newcomers (and oldtimers) for the various investment forms of silver that are available. Please feel free to discuss this article in the thread below.

Silver comes in many forms – bullion, coin, scrap, silverware, even paper, and varying finenesses – a new stacker might be at a loss knowing where to start, or what sort of silver they should be acquiring. The first question that should be answered is “WHY are you buying silver” – is it for investment purposes, wealth protection, nest egg, fallback stash, or even for some survival scenario! Once you’ve answered this question, you will be in a better position to decide what silver to acquire and from where.

Bullion Bars

The most commonly recognized form of investment silver to most people would be bullion bars. Condition really should not matter with bars – they are for all intents and purposes merely a lump of metal that is eventually destined for industrial purposes. What matters is the purity and weight – if possible get .999 or better fineness. Some countries have laws that dictate whether or not a metal is investment grade depending on the fineness. This is important when it comes to taxes! For example, in Australia silver needs to be .999 or higher to be classed as investment grade, and therefore not subject to GST. Check your local, state, and federal laws to be on the safe side. Commonly available weights are 1oz, 10oz, 20oz, 1kg, 50oz, 100oz and 5kg – even 1000oz bars are available. Larger sizes like 5kg and 1000oz bars may not have an exact weight, e.g. 5.005kg, and they are usually priced according to the exact silver content. Amongst casual investors though, perhaps the most commonly held sizes are 1oz, 10oz and 1kg.

Bars may be minted, milled or poured.

Occasionally bars gain a collectors status, and their worth can be more than their intrinsic value alone – usually they are historic bars, or bars associated with defunct mints or companies. For the casual or novice stacker though, these are best avoided as the premiums are subject to the whim of the markets.

Do consider liquidity issues when buying bars – larger sizes like 100oz or 5kg may be difficult to sell privately, particularly if a dramatic increase in the spot price occurs. The 1kg bar that is affordable today may be beyond the reach of many casual investors in a few years time if you plan on selling privately – so consider a mix of sizes.

Bullion Rounds

Another form of bullion are rounds – also known as generics. Usually 1oz in size (although available in larger sizes as well), these look like coins, but are privately minted. As they are effectively just a round form of bullion not issued by a government mint, they should not be priced any higher than the equivalent sized bullion bar, however they are usually minted and of a higher quality finish.
Some rounds have outlandish designs (e.g. Christmas or political messages) that may not appeal to a wide range of buyers, so consider liquidity issues when it comes time to sell. The 1oz size however is a very nice size for smaller sales if you do have to liquidate part of your stack. Best to stick to tame generic themes that don’t have the potential to offend or turn off potential buyers though.
‘Junk’ Coins

A sometimes overlooked source of low-premium silver is so-called ‘junk’ silver. This is an informal term used for any silver coin which is in fair condition and has no numismatic or collectible value above the bullion value of the silver it contains. The actual silver content of junk silver coins can vary quite a bit, even within the same geographical location. In American the actual silver content of junk silver coins can be 90%, 40%, or 35% depending on the coin.

You will need to research your local junk silver coins to see what is worth stacking. Also remember that the higher the actual silver content, the less space it will take up.

One difficulty with stacking silver in this form is liquidity – on the open market this silver often sells below spot, and is not always in favour. However it is the easiest and cheapest way to obtain fractional silver in Australia, with the occasional upside of a numismatic find amongst bulk purchases.

World Bullion Coins

Three very common world bullion coins are the American Silver Eagles (ASE), Canadian Maple Leaves, Austrian Philharmonics, and Australian Silver Kookaburras. These are all 1oz silver coins, and issued for bullion purposes. As a rule, these coins come loose in tubes of 20 or 25 depending on the country of issue, and have the appeal of international recognition. Expect to pay more per ounce for these government mint issued coins than generic bullion rounds, but there should never be a need to pay the same or more for these coins than for local Australian bullion issues.

Other forms of Silver

There are numerous forms of silver beyond that covered in the preceding paragraphs available for purchase – however by sticking to these recognized forms of silver, the average stacker will find themselves building a stack of recognized silver with generally good liquidity. Below are some of the more dubious forms of silver to acquire:

Graded Slabbed Coins

A common sight on auction websites are graded silver coins in plastic slabs, usually accompanied with guarantees and praise for their investment potential. Don’t be ripped off. Unless graded by a recognized tier one grading firm like PCGS or NGC, any grading is generally suspect. For bullion purposes, gradings have no meanings other than the potential numismatic premiums that a grading might attract, and for bullion coins in Australia, collectors of such items are few and far between. It is common to see world silver coins such as US Morgan dollars in plastic slabs from “no-name” grading firms – avoid paying anything more than spot price for such items – the slab is merely fancy packaging and a trap for the unwary. Another commonly slabbed coin is the American Silver Eagle – coins in MS-70 slabs from PCGS or NGC do attract massive premiums, but in the Australian market, the choice of such an investment could be questionable.

World Silver Coins

Most countries throughout the world have issued silver coinage at some time or other during their history. It’s not uncommon to encounter silver coins from Papua New Guinea, Great Britain, USA or New Zealand. For silver stacking purposes, these coins are often available under spot in Australia, but liquidity is an issue at resale time, and you may find it hard to recoup your investment if the spot price has not moved greatly. These coins are best left to collectors, unless you can obtain them for under melt value (which is the price a refiner will pay you, which is usually only a percentage of the spot price).

Sterling Silver

Sometimes bargains can be found in the form of sterling silver – whether it be in the form of flatware (cutlery), ornaments, commemorative issues… unless the items have particular historical or antique value for resale, paying spot for such items is a questionable investment. A better pricing guide is to find out the current melt prices that a refiner might pay for hallmarked silver, and use that as a pricing basis, ensuring that if you can’t resell the items as antique, you can scrap them and sell to a refiner. Be very wary of accidentally purchasing silver plate items over sterling silver – plated items have no value whatsoever from a refining perspective. There are numerous websites with good references on the various hallmarks, and you will soon learn to identify hallmarked pieces as sterling or plated. As a beginners guide, anything marked A1 or EPNS is merely silver plated – the relevant hallmark to search for on most Australian pieces is the lion with raised paw, indicating sterling silver of English origin.

In Summary

Hopefully this primer has given new stackers an appreciation of the physical silver scene. If after reading that and you’re still stuck, I think most readers would agree that the following three classes of silver would be a good place to start your stacking adventures if you were just looking for someone to tell you what to buy!

* World bullion coins (ASE, Maples, etc)
* Bullion bars or rounds
* Junk silver

 

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