Special Report: How to Buy Silver

[Editor's Note: Silver surged 5.9% on Tuesday, netting its biggest one-day gain in months. And that's just the beginning of what will almost certainly be another big year for the white metal. With that in mind we wanted you to have this free report on how to buy silver. It's one of the most common questions we get from readers - and it's easier than you think.]

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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, with silver for March delivery surging 5.9% on Tuesday to settle at $29.57 an ounce – the biggest one-day gain in months.

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:

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.

Confiscation Fears

The escalating interest in precious metals brought about by the rapidly accelerating fears about the U.S. 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, U.S. President Franklin D. Roosevelt signed Executive Order 6102, effectively forbidding the ownership of gold coins, bullion, and certificates by U.S. 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 U.S. 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 U.S. 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.

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About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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  1. Benton H Marder | January 5, 2012

    I'd be very careful or even leery of any outside storage of precious metals. After all, customer holdings with MF Global disaapeared from segregated customer accounts. during the bankruptcy. The holders might get a checque one of these 9far away0 days, but they will never see their metal again. The moral is to take possession of the metals and store it oneself under one's own eye and control. We cannot really know the total fall-out of the MF GLobal scenario, which could cascade very badly.

  2. dom | January 5, 2012

    I have heard that owning silver etf's can be quite risky since they are backed by about only 10% of what the issuing bank, fund, etc actually holds in silver. Thus if there was a massive run on silver, the etf's would lose a lot of value or become worthless. Same holds true for gold.

    Any truth to this claim? I've been looking into buying silver too but am not sure based on this claim I've read and heard and others regarding the metal.

    Dom.

  3. David | January 5, 2012

    avoid paper silver.pooled and unallocated are horrible.slv is a scam.Study Ted Butler and GATA work.Also arvey Organ.Interestingly,one of the best way to own silver is pre 1965 usa currency aka as JUNK SILVER.Poor article by Peter.

  4. Timothy | January 13, 2012

    Owning physical silver is always a good idea but it is not practical to own $100K (approximately 200 lbs) and keep it in your home safe…

    Personally, I believe a combination of both paper (ETF's) and a small amount of coinage is the way to go. At least it is for my personal situation. Keeping that much bullion in your home is just asking for a theft. Most insurance companies require a special "Binder" to cover gold, silver, guns and many other items. If you call your insurance company they will confirm what I just said. Someone breaks into your home and steals all that gold/silver they can sell it anywhere without any problems at all…

  5. Capt Richie | January 15, 2012

    In my opinion, the primary reason to hold metals is to eventually trade them for paper money or to buy large ticket items under the table. Think about it: if things ever get so bad that gold and silver become the only acceptable money, the millions of people without these metals will become so desparate that there will be a complete breakdown of civilized society. In that case, food will become far more valuable than gold or silver. So, barring armageddon, the real challenge becomes timing the metals market to realize maximum gain, period. Everything else is hype.

  6. Ron | January 24, 2012

    Avoid paper silver.pooled and unallocated are horrible.slv is a scam… Why was this statement made? What is wrong with having pooled unallocated gold and silver?

  7. R.D. Cessna | February 1, 2012

    Would like to hear about people's experiences in buying silver coins.

    • wateaman | February 2, 2013

      If you are investing, silver rounds are sold at a lower premium over spot than coins, and you won't make up all the difference, in most cases, when you sell your coins. The easiest thing to do is visit with local coin dealers, purchase bullion from IRA approved mints and always, compare the price over spot your dealer offers you with the internet vendors, factoring shipping and insurance costs.

      I have had no problems purchasing silver using either option. Your local dealer may charge a little bit more over spot, but the convenience factor is higher. It may feel good buying local as well.

  8. Mitzi M | February 21, 2012

    If it gets so bad that you have to trade in silver & gold, wouldn't it also be wise to have barter? Like paper, toilet paper, rabbits, chickens, heirloom seeds, wood, water, matches, fuel, food etc.?

  9. Stan | March 28, 2012

    The site lists only US bullion dealers. A great canadian site is cachemetals.com. You can also allocate silver and gold to your RRSP and TSFA via cache metals on top of buying gold and silver. There are options for investing in physical precious metals.

  10. Billy Chiam | March 28, 2012

    In around 9 years, supply of silver will get lesser due to surge of investment and industrial demand. Before it is too late, it is a good time to own physical silver now.

    • Meredith | November 4, 2012

      I am interested in purchasing silver. I believe it will eventually out weigh gold

  11. rolf | April 19, 2012

    bring back the OTTOMAN EMPIRE

  12. mike | April 26, 2012

    silver is a huge bubble your better off investing in stocks

  13. MANJULA MANI | April 28, 2012

    IS IT EMERGING MANYDAYS BEFORE DONE THE EXPERIMENT

  14. Robert Ward | May 12, 2012

    If I was to purchase a few silver dollar coins how much would they cost? How much each one would cost/ What is denom amd price?

  15. sk | May 15, 2012

    it would be nice to have a follow-up report on silver, based on your research/ opinions of whether the downturn in silver is a result of the US economy's percieved recovery, or not-too-distant recovery, and so people no longer need to look at investing in the precious metal "safe havens" …
    Please forgive me, I've been living in Australia for the past 9 years, and am mostly out of touch with the current financial news. just starting to look into investing again, as i just emerged from a painful home-ownership in the US.
    Soooo, is silver in a bubble, like people are saying, or is it a good time to buy, ie china etc are buying. ??
    Thanks!

  16. HARPAL sINGH | September 9, 2012

    pL.SIGN ME FORE MONEY MORNING NEWS LETTER

  17. MANJULA MANI | October 10, 2012

    HOW TO MAKE GOLD. TAKE SOME SNAKE CRACKLARS IN BLACK DONE SHRUIDS ASHES COMING OUT LIKE SNAKE.TAKE THE SNAKE CRACKLAR AND PUT IT SUBMERGED IN BARIUM CHLORIDE AND BURN IT ON IT THE VARIOUS GOLD RING PUT WILL EMERGE MORE GOLD.ADDRESS-C/O RAM YASH SINGH,MANJULA MANI,T/111/34,NML COLONY,GOLMURI,JAMSHEDPUR-831003.BIHAR.INDIA.

  18. Chris | October 19, 2012

    Thanks for the info. I am looking at investing in Gold for my retirement fund, so this is useful information to me.

  19. MANJULA MANI | February 18, 2013

    ALSO KEEP A BEAKER FILED WITH BARIUM CHLORIDE NEAR BY THE HAND ON DESK.

  20. Asthra | June 3, 2013

    If you've bought silver coins, is it illegal to NOT claim it? As in show your receipt for tax purposes and show how much money you've made selling your silver?

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