Throughout the history, silver has closely followed gold
in terms of popularity. It has never lost its sheen even after its
discontinuance as a currency standard across various nations. Times of
economic uncertainty and rising demand have been the key drivers of its
price, more in present times than ever before. Once again the advantages of silver investing outweigh its disadvantages. If you look at silver as a safe investment, you have several options to consider:
Conventional Forms
- Silver bullion coins. Most of the mints around the world cast silver bullion coins along with gold coins. These are legal tenders, issued in varying weights, with indicative face values. However, their real worth is derived from the silver content they have. For instance, the American Silver Eagle (99.9% pure) weighs 1 troy ounce and carries a face value of USD 1. Popular silver coins include Canadian Maple Leaf, Mexican Libertad, American Silver Eagle, Chinese Silver Panda, Austrian Silver Vienna Philharmonic, British Silver Britannia, etc. Bullion coins represent the most authentic and liquid form of physical silver investment. The purchase price of these pieces includes certain premium that reflects seller’s margin, production costs and handling charges. It is best to purchase them directly from the mints, wherever possible, to ensure reliability and reduced premiums.
- Numismatic coins. Also known as collector coins, these coins are antique mintage with some special attributes or historical significance. They derive their value from their rarity, date of issue, grade (BS-1 to MS-70) or other factors, rather than from the silver content. The Cardinal Collection Educational Foundation, California bought the 1794 Silver Dollar for over USD 7.5 million in May 2010. This subjectivity makes numismatic units unreliable from investment perspective as you may not be able to resell them for the desired price.
- Silver bars. One of the most popular forms of investment, silver bar is more economical than coins or other casts. Economy at the time of purchase comes from lower cost of production and minuscule premium. However, the price saving is partially offset by higher transportation, handling and storage costs. Silver bars come in varying weights up to 15 kg and have high melt values. Most sought-after varieties are the 1 oz and 10 oz ones. These pieces can usually be traded with bulk dealers as they may not be readily available at coin shops due to handling problems.
Unconventional Forms
- Silver rounds. These casts are also coins with the difference that they are created by private players rather than sovereign mints. This explains why they cannot be considered legal tenders. Some of the coins are from bigger and better-known producers, while others are minted by some small firms. Typically, the ‘branded’ rounds carry a higher markup. One advantage of silver rounds is lower cost of production that translates into lower purchase price. Rounds also enjoy a liquid market.
- Silver junk coins. These mintages are antique US coins (issued as legal tenders) with little or no numismatic value, e.g. Morgan (Dollar), Standing Liberty (Quarter), etc. Junk coins continue to hold their status as legal tenders and their value is a function of silver weight and purity. They are often sold in bags of certain purity, say 90%, instead of single pieces and carry very small premiums. Silver junk coins are highly liquid when traded in small lots.
Derivatives
- Exchange traded funds. Exchange traded funds or ETFs closely resemble mutual funds in terms of structuring and functioning. Usually, the underlying asset here is silver reserves. ETFs are essentially open-ended type, as they can be freely traded over exchanges. Another variant of silver-backed securities are the close-ended funds as they can be resold only to the original issuer at predefined points of time or when the fund finally liquidates. iShares Silver Trust is the most popular physically-backed silver ETF. It is also the largest. It is essential to understand that not all funds are backed by physical silver holdings. The non-physically backed funds derive their value from silver futures, rather than the metal spot price, making them much riskier propositions, e.g., UBS E-TRACS CMCI Silver Total Return. One of the key attractions of an ETF is its liquidity, which is often higher than physically held silver. Another plus is that you own the metal in ounces depending upon your investment corpus – there is no minimum required investment. Also, you do not have to worry about handling and safekeeping of the physical metal.
- Silver futures. These are derivative instruments recommended only for investors with sufficient knowledge and experience. Like other futures, silver futures are exchange-traded, standardized contracts for future delivery of the metal at a predefined price. The benchmark rates for silver futures come from the COMEX or Commodity Exchange prevailing prices. These prices are set through an open outcry system.
Other Options
- Jewelry. Jewelry is one of the less profitable silver investments. A substantial part of the price of jewelry consists of designing and crafting charges that are sunk from silver investing perspective. Silver, being a fragile metal, often has to be mixed with other metals to gain strength for crafting. Of all the precious metals, silver tarnishes most readily. Therefore, silver alloys with lower melt value, such as sterling silver, are more popular for jewelry. It may not be wise to purchase jewelry for investment purposes, yet it is a good idea to sell off old or broken jewelry and artifacts as scrap silver. The returns here will be directly related to the amount of silver.
- Industrial forms. Silver that was originally designed for industrial use, such as wires, sheets, chunks, etc. represent the most unconventional form of investment. They may not enjoy an active market, yet may be sold to recyclers. These items will be valued directly on the basis of available silver content.
Eurion Constellation is a research and consulting firm serving businesses in U.S., Europe and India. The research services have a global reach with focus on industry / market / economic research, financial analysis, equity research, company valuations and report writing. The consulting wing in India focuses on the startup and SME sectors. Please feel free to get in touch for any business requirements. Visit http://www.eurionconstellation.com
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