Silver prices soared as high as $50 an ounce last year before experiencing a brief correction that took it back below $30.
However, despite this blip, mounting inflationary pressures, a weakening dollar, and emerging market demand will see silver retest its record highs in 2012. In fact, this time around it could even climb as high as $150 an ounce.
The white metal has already gotten off to a strong start this year and it's just getting started. So if you don't want to miss the next big bull-run, you might consider the following instructions on how to buy silver.
How to Buy Silver
Like gold, silver investments can be made in a variety of forms. Let's take a look at some of the most popular forms.
Physical Silver: Physical silver can be purchased in a variety of sizes and weights, which determines its price. Most typical are 1.0 ounce silver coins, like the Austrian Silver Philharmonic, the American Silver Eagle, and the Canadian Silver Maple.
Their prices vary slightly due to differences in silver purity, with the Silver Maple being the highest at 99.99% pure. You'll pay about a 16% premium over the silver price for coins due to the cost of fabricating them.
Another popular option is the 100-ounce silver bar, which commands a 5% premium over the spot price of silver.
These coins and bars are essentially bought for their silver content and not as collectibles. If you're looking to build a silver stash – either large or small – bullion dealers may be the easiest way for investors to do so. But do your homework first, and check them out before you buy. Also, avoid paying more than the premiums I noted above for either coins or bars.
Some investors wonder if they should buy smaller denominations, like 1/20th, 1/10th, ¼, or ½ ounce (gold) coins. The thinking goes like this: If ever these coins need to be used to transact and make payments, one would want to have smaller "amounts" to carry around. That's a valid rationale. Even so, keep in mind that you'll pay a premium to the actual silver content, since each individual coin has to be fabricated. I believe that, should we ever get to that point, you could just convert a one-ounce coin or bar into a number of smaller coins, and pay the premium, or perhaps receive whatever else is being used for transactions (a new currency?) in return.
A few dealers that have an established reputation are:
- Kitco.com: Premiums are fair and the selection is usually quite good. They have offices in both New York and Montreal.
- Asset Strategies International Inc: This dealer is located in Rockville, MD. Asset Strategies also offers gold storage options outside US borders.
- Camino Coin LLC (caminocompany.com): Burlingame, CA.
- American Precious Metals Exchange (apmex.com): Oklahoma City, OK.
- The Tulving Co. (tulving.com): Newport Beach, CA
- Gainesville Coins (gainesvillecoins.com): Lutz, FL.
Exchange-Traded Funds (ETFs) and Certificates: Another option for silver ownership is through exchange-traded funds (ETFs) or certificates.
ETFs are a convenient way to establish a claim on silver. A simple way to acquire a claim on silver is to buy units of the iShares Silver Trust ETF (NYSE: SLV). With some $5.5 billion in assets, SLV is the world's largest silver-backed ETF, using JPMorgan Chase & Co. (NYSE: JPM) in London as its custodian. SLV shares, which represent approximately 1.0 silver ounce each, are easy to buy and sell through your brokerage account.
You can also acquire "paper silver" through Perth Mint Certificates(PMC). Vault-protected and insured, PMC offers the only government-backed bullion storage program on an allocated or unallocated basis [this means stored separately for you (allocated), or stored along with everyone else's (unallocated)].
In an "allocated" situation, your coins or bars are removed from the mint's operating inventory, and placed in the Perth Mint Depository vault with your own account number. Allocated metals are not part of the mint's balance sheet, so you will pay storage fees. The government of the state of Western Australia guarantees the certificate.
Minimums are USD $10,000 for your initial PMC purchase, with subsequent purchases at the USD $5,000 minimum level. If you hold your coins, bars, and bullion on an unallocated basis, they can be converted into specific coins or bars and you can then take delivery, if you wish. The Perth Mint Certificate program is a solid way to gain international diversification for your silver holdings. For more information, check out Perthmint.com (note that Kitco and Asset Strategies also offer PMCs).
(The Perth Mint was established in 1899 when Britain's Royal Mint built a series of branch mints. These branches were set up in places throughout the British Empire where gold was found, eliminating the need to ship gold back to England to fabricate coins that would then have to distributed back through the Empire.)
Remember, though, despite the Western Australia government backing and long history, you have to realize that with PMCs you're still relying on someone else's promise. By contrast, with physical silver under your control, you've eliminated any counterparty risk.
The escalating interest in precious metals brought about by the rapidly accelerating fears about the US economic outlook has brought about a real increase in worries of gold-and-silver confiscation.
Back in 1933, in the depths of the Great Depression, US President Franklin D. Roosevelt signed Executive Order 6102, effectively forbidding the ownership of gold coins, bullion, and certificates by US citizens. This coerced the public to turn in their gold for $20.67 an ounce, which the government shortly thereafter "revalued" to $35 per ounce. What's especially interesting about EO 6102 is the absence of any mention of silver.
Now we can't know if there will ever again be anything akin to this Oval Office edict – much less what it might cover and might say. But going on the past, and considering the size of the silver market relative to gold, silver may be a way to own a precious metal that just might sidestep any risk of future confiscation.
However, if the government getting its hands on your hard-earned silver is a personal concern, then you may want to consider a particular kind of silver investment. One option may be to own silver that's held outside of your country of residence.
One example of this for US residents would be the Central Fund of Canada Ltd. (AMEX: CEF). It's a closed-end fund that owns physical gold and silver, and that's been around since 1961. It's domiciled in Canada, with its precious metals stored in the vaults of a Canadian-chartered bank. CEF often trades above its net asset value (NAV), but you should avoid paying more than a 5% premium. See www.centralfund.com for more information.
But my favorite "silver-only" fund is the ETFS Physical Silver Shares (NYSE: SIVR). Issuer ETF Securities Ltd. is one of the largest ETF providers in Europe, with some $16 billion under management. Each unit is about the equivalent of 1.0 ounces of silver in US dollars. As well, it seems to trade with a net asset value that boasts almost no premium or discount, and management fees are reasonably low, around 0.45% annually. The company indicates that the physical silver that backs the units is held in a vault in London.
As I've said before, there's no substitute for having some physical precious metals stored under your own direct control. And even the SIVR silver ETF shares are a paper claim on silver. But it does add another dimension to your precious-metals holdings, and accomplishes that with storage in another jurisdiction.
Peter Krauth is global resources specialist with Money Morning. He is a market analyst and expert in metals and mining stocks, with a special expertise in energy and resource-related investments. A one-time portfolio advisor who earned an MBA in finance from McGill University, Krauth is based in Canada.