Special Report: How to Buy Silver

May 15, 2012

By Larry D. Spears, Contributing Writer

In late December, silver dipped to a 12-month low near $26 an ounce, and traders who responded to the barrage of "buy" recommendations were quickly rewarded as the metal soared to a high of $37.18 just two months later.

Today, silver has pulled back below $29 an ounce, giving investors another chance to establish a position before the metal makes its next move higher.

After all, the fundamental case for silver prices remains as strong as ever.

The U.S. dollar continues to weaken, inflation remains a concern, silver demand from industry and emerging markets remains strong even as supply shrinks - plus we're facing growing uncertainty over the outcome of the 2012 elections.

It's a perfect recipe for higher silver prices - most likely even higher than last year's peak at $50 per ounce.

But what's the best way to play the next upmove by the "poor man's precious metal"?

For the purist seeking to hold metals as a long-term store of value and a hedge against inflation and global turmoil, the first choice is always the physical silver itself.

How to Buy Silver

For the smaller investor, this typically means one-ounce silver bars or half-ounce or one-ounce silver bullion coins - examples of the latter being the American Silver Eagle, the Canadian Silver Maple Leaf, the Chinese Silver Panda and the Australian Silver Koala.

These are produced by private mints and governments around the globe. The prices typically track the spot price of silver, plus a premium of 8% to 10% for bullion bars and up to 16% for coins, which covers the cost of minting and fabrication. The actual mark-up varies from coin to coin depending on the purity of the silver used, with Canada's Silver Maple Leaf being highest at 99.99% pure.

Larger investors can reduce the premiums to as little as 4% or 5% by purchasing the five-ounce, 10-ounce or one-kilogram coins offered by some mints, or buying 10-ounce or 100-ounce silver bars.

Be aware, however, that the premiums for all sizes will be considerably higher if you buy in small quantities or want to pay by credit card rather than with a bank draft or funds transfer.

For example, late last week, one leading U.S. dealer quoted 10 one-ounce Morgan silver bars at $31.16 each if purchased with a credit card, but priced 100 bars bought with a wire transfer at just $30.08 each. The premium on the two purchases over the spot price at the time was thus 7.98% versus just 4.23%.

Choosing a Silver Dealer

However you choose to buy physical silver, gold or other precious metals, the most important rule is to deal only with reputable dealers who have proven experience in the business and clearly stated policies and warranties - especially if you're purchasing by phone or online.

Several long-standing firms in the United States with solid reputations include:

  • American Precious Metals Exchange (apmex.com) - This Oklahoma City-based firm offers both bullion and collectible metals products, as well as storage facilities. Quotes are updated every 15 minutes during trading hours. Purchase online or call 1-800-375-9006.
  • Asset Strategies International (ASI) (assetstrategies.com) - This Rockville, MD firm has a large inventory of silver bullion products, and also offers regular metals markets commentary and analysis on its website. Sales representatives are available at 1-800-831-0007.
  • Gainesville Coins (gainesvillecoins.com) - Based in Lutz, FL, they provide an extensive selection of silver coins and bars that can be reviewed online or purchased via phone at 1-813-482-9300.
  • Kitco (kitco.com) - One of the world's largest metals dealers with offices in New York, Montreal, Hong Kong and elsewhere, Kitco provides a wide range of products and services, including real-time quotes and news updates. Purchases can be made online or by calling 1-877-775-4826.
  • SilverTowne (silvertowne.com) - Founded in 1949, this Indiana-based firm specializes in all types of investment silver, from collectible coins to silver bars in varied weights. Phone: 1-877-477-2646.
  • The Tulving Co. (tulving.com) - Based in Newport Beach, CA, Tulving provides 24-hour sales and service, tracking trading and price quotes in markets around the globe. U.S. and Canadian investors can call 1-800-995-1708.


Physical silver provides a long-term store of value, but it does carry some added risks - one of them being the potential for confiscation.

That possibility, similar to what happened with gold in 1933, is quite real. As such, if you're seriously considering silver as a hedge against future U.S. problems, you might consider choosing Canada or elsewhere offshore as a storage site for your metal.

Also, while it's easy to both buy and sell bars and coins with any of the above dealers, they're still a bit cumbersome for trading purposes, what with price mark-ups, storage, shipping and insurance costs.

How to Trade Silver

The ultimate trading vehicle is the silver futures contract - the most popular are listed on the COMEX Division of the Chicago's CME Group.

However, that's a high-dollar/high-risk instrument. A silver contract represents 5,000 ounces of silver, meaning a single contract is worth $144,300 or more at current prices. It also means a move like the $2.221 drop we saw on April 4 could cost you $11,105 in a single day - and that wasn't even the biggest one-day decline this year. Plus, you have to put up a margin deposit of $18,900 just to buy (or sell) one in the first place.

There are smaller U.S.-traded silver futures, but at 2,500 and 1,000 ounces, they still carry a high risk, amplified by lower liquidity, and require proportionately high purchase margins. Costs and risks, though limited, are also quite high for options on silver futures.

As such, a better vehicle for smaller investors wishing to play silver's next rally - or merely to hold as a longer-term proxy for the metal itself - is one of the exchange-traded funds (ETFs) or notes (ETNs) with shares backed by actual bullion.

The largest and most popular of these funds is the iShares Silver Trust ETF (NYSEArca: SLV), recent price $28.08. Its share price closely tracks the price of a single ounce of silver, usually trading at just a slight discount. As of the end of March, SLV held roughly 312 million ounces of actual silver, and it has a market cap of around $9.1 billion. It's also highly liquid with a daily trading volume approaching 2 million shares.

SLV's only real problem at the moment is that it uses JPMorgan Chase & Co. (NYSE: JPM) as its London custodian. Its share price plunged more than 50 cents at the opening last Friday on the news of JPM's $2.3 billion "hedging" loss. However, it recovered the entire loss later in the day and closed at its normal level relative to silver's price.

As such, you might want to consider one of the other silver ETFs, such as the ETFS Silver Trust (NYSEArca: SIVR), recent price $28.67 - or, if you're really bullish, the ProShares Ultra Silver ETF (NYSEArca: AGQ), recent price $43.08, which seeks to provide returns double those of silver itself.

Whichever method you choose, silver's recent pullback has provided a whole new opportunity to grab some profits from the next move higher, so don't miss your chance.

[Editor's Note: If you or anyone you know is thinking about silver, please read this. We've just released a report that exposes a massive scheme behind the price of silver.

What we found after six months of research will raise the hairs on the back of your neck.

It stems from a massive effort that appears to involve traders... investment banks... and, as some suggest, even the federal government itself. Right now, these factors are converging to push silver to a historic high.

Please go here to access this free report.

And, if you know of anyone who has a strong interest in silver, please forward this to them. They'll want to know the details.]
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4 Responses

  1. fallingman | May 15, 2012

    Come on.

    Pre-65 "junk" silver quarters and dimes are the obvious choice for physical silver. Why in the world don't you even mention junk? I'd love to know how they would go about confiscating their own damn coinage! It's legal tender. They issued it. It's supposed to be the same as clad coins. They can't have it both ways.

    And silver is used heavily in industry. Whose silver do you confiscate and who do you allow to own it. Practically speaking. confiscation would be a logistical nightmare. The government can't even deliver the mail.

    Congratulations for pointing out that Morgan is the custodian for SLV. Word to the wise…avoid like the plague. You don't mention, however, that there is a big short interest in SLV. If you think all the silver they're supposed to have is actually in their vaults, you're dreaming.

    You don't mention the obvious choice again…PSLV.

    Reply
  2. Rainy Day | May 15, 2012

    I am an avid bullion buyer and do most of my business online. There are pro’s and con’s to pretty much every site…. no site is perfect. Recently, I discovered http://www.providentmetals.com and have not had a bad experience yet. Their prices are fair and shipping has been fast so far. One of my payments took a while to clear but it was because I paid with a check, aside from that though, no problems. There are a couple of sites you recommended that I will NEVER buy from again. I'll leave it at that. Good Luck!

    Reply
  3. Doc William | May 15, 2012

    My circumstance requires I stay nimble, so I don't venture into physical inventory of silver, or gold.
    Silver, being highly volatile, I simply trade in SLV as my momentum indicators suggest, with appropriate stops in place. I learned long ago that chasing commodities just whets greed appetite and becomes a huge distraction to balanced and stable investing in the traderoom.

    Reply
  4. Wolfe | May 19, 2012

    silver 90% dimes has been one of the best investments I have ever made.
    Of course they were bought before silver made its run up.
    I have done business with many coin dealers since the 80's and now only use
    IRI. Silver markets are manipulated but so are markets in general.
    Silver coins have high margins from most coin dealers so it's buyer beware.

    Reply


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