At these current low levels in silver prices I’m seeing a lot of first time buyers enter the market, and many of them are getting into the alternative asset class of silver. If you would like to go over why you should own silver at these relatively low levels, please refer to this article.
Today, I wanted to create an overview of the pros and cons of the major forms of silver that are on many websites and available through such dealers as E-Bay and Amazon.com.
First, let’s cover the two most recognized types of coins. I think it’s important to understand what’s called a Sovereign coin, most of which can be seen here on my website for a point of reference. It’s also important to remember that Sovereign Coins cost more to purchase but also sell back to the dealers at a higher price.
A Sovereign bullion coin is a coin struck from precious metals and kept as a unit of value or an investment grade quality of higher than the normal purity. I’m referring to coins used the in day-to-day commerce such as quarters or dimes rather than being created for the Alternative Asset Class. These coins are usually struck by a recognized country.
As I deal in thousands of pounds of silver in this form, it is something I understand and would like to share with you a few thoughts about. Here’s the first little tip: Most of the coins you want to own should be in what’s called BU or Brilliant & Uncirculated condition. I recommend this condition and always stress that you try to buy newer coins as they stand a better chance of not being damaged or what dealers refer to as a "scruffies" or "scrapes" that get damaged over time. I always recommend storage in a safety deposit box from a bank that doesn’t have issues with coins. Oh, be sure to leave them in the container they arrive in as well as the added protection will help them maintain a pristine condition over time. Most Sovereign coins are IRA approved but always check before a purchase is done and use a reputable dealer as the few pennies you might save from a “discount house” could end up becoming a problem for you.
The second coin I’ll cover today is referred to as a "round." The round is not a Sovereign coin but rather is stamped or pressed to be one ounce of silver. Some rounds can be used for your IRA but remember purity is the issue to the IRS. Silver has been used as a coin since the time of the early Greeks so as a unit of value it has always held a value and in theory this still applies to this unit of silver today. The only issue I have with rounds is that you should buy rounds made by some of the more recognized mints. With silver coins the premium is the cost to you over what is referred to as the spot price of your metals. The price of silver is determined through trading in silver and also the derivatives markets and is set twice a day with the procedure known as the Silver Fixing Price. So here is the list of events that make the price of your metals higher than spot price. With rounds your net price is usually less than the government backed coins. These can prove to be a good investment but remember the resale value is usually less when selling them back to a dealer.
Manufacturing and delivery costs:
1. Fabrication costs
2. Packaging costs
3. Administration costs
4. Security costs
5. Storage costs
7. Sales staff
9. Transportation/shipping expenses
10. Profit margin in the supply chain
When you combine all of the listed factors above and consider the cost of production listed above, Sovereign or round coins are very inexpensive in the overall picture.
Silver bars / hallmarked
First here is a brief overview to help you get some clarity on Hallmarks or Hallmarking. Hallmarks are often confused with "trademarks.” Hallmarks are not the mark of a manufacturer to distinguish their products from other manufacturers’ products, which is the function of trademarks. To be a true hallmark, it must be the guarantee of an independent body or authority that the contents are as marked. Thus, a stamp of '999’ Fine by itself is not, strictly speaking, a hallmark, but is rather an unattested fineness mark. A globally recognized Hallmark usually adds not only certainty of product but adds value to the bar. Hallmarked bars from some of the top refiners such as Valcambi, Pamp, Credit Swiss and Perth Mint are usually the most globally recognized producers and are also the most sought after in the market place. I usually recommend these first for this very reason.
Silver Bar/ generic bullion ingot
These are sometimes referred to as Privately Minted bullion. The important difference here is these bars depend on the reputation of the refiner and are what’s referred to as a non-deliverable product. A non-deliverable product is a bar ingot that is not recognize by the major exchanges such as the Chicago Mercantile Exchange, London Metal Exchange (LME) or the Singapore Gold Exchange SGE. What this means to you is that they usually trade at a lower premium to a recognized Hallmark that I covered earlier. This in no way questions the integrity of the makers it just means their basically filling a niche market by delivering a less costly finished product. My last tip is that yes you can use the less expensive silver ingot bar for your IRA but as always seek out a dealer with a solid reputation that can guide you through the government regulations.