Skip to main content

Silver investment not so simple

I had an email asking me whether I think silver bars are a good investment.

I responded that bars tend to be the low-cost way to purchase silver bullion.

That was not what the sender wanted.

He repeated the question, but it can only mean do I believe silver will go up if he buys it.

He signed the first email, “Robert” and did not bother signing the second at all.

I hope he gives more effort to what he is thinking of doing than sending a one-line email to me.

I don’t give specific investment recommendations as I am editor of a coin collector publication rather than an investment advisory letter.

However, coin collectors are not unaware of what goes on in the precious metals markets.

There have been a number of ups and downs since the 1960s. If you want to speculate on these price swings, I can offer the standard principles of investment.

So I responded to the email by writing:

1. Maximize the quantity of silver that you buy by buying the cheapest form, which is often bars, the bigger the better for maximizing value.

2. Think of how you will sell the silver that you do buy before you make the purchase. Can you sell it back to the firm selling to you? How close is the firm’s buy price to its sell price? The closer it is, the better, and it is an indication of which forms of silver are easier to sell.

3. Try not to buy mixed lots. Authenticity is important in transactions and a dealer who would be buying silver from you will pay you less if you have a hodgepodge, because it takes him longer to figure out what he is buying.

Five John Matthey 100-ounce bars would get a higher price than a mixture of bar sizes and makers totaling 500 ounces.

If you believe you need coins, again, try to have uniform salable quantities.

If you want American Eagles, stick to them.

If your want silver Maple Leaves, stick to them.

If you want what is called junk silver, that is pre-1965 U.S. coins that are made of a 90 percent silver alloy, try to have quantities in even $100 face values.

You will pay premiums to get these coins versus bars.

4. Don’t invest with borrowed money, or money you will need in the next year or two.

5. Don’t put more than 10 percent of your investable assets in precious metals.

6. Take delivery of your purchases. There are too many cases where silver stored for buyers has for some reason disappeared, or become inaccessible to the buyers when they want it.

7. Have a long time horizon.

Silver is more an industrial metal than a financial one like gold is so it is more prone to follow the economy down when recessions set in. As a result, silver tends to have more dramatic fluctuations. It is down nearly 70 percent from the April 2011 $48 high. Gold, on the other hand, is down 41 percent from its 2011 high.

Silver is at a six-year low. It was generally in a bear market from 1980 to 2001 then it spent 10 years going higher.

During the upswing, I once met a couple at an airport while I was having a meal and waiting for my next flight. They were doing the same. We swapped introductions. Because of my profession in the coin business, they volunteered that they had just sold some silver. They had owned it for over 20 years and basically broke even.

Because of market fluctuations, silver can disappoint you or reward you. Arrange any purchases so that a market decline will not force you to act contrary to your long-term view.

If you catch a future wave higher, you will benefit while at the same time knowing that you have not put your whole financial life at risk.

This is probably not what the email writer was looking for, but it is important for all silver investors to think about. Once they have, if they happen to read other blogs of mine noting that buyers are rushing into silver American Eagles, or ignoring them, they will treat these tidbits as information that might be useful in their long-term approach to silver investment.

Buzz blogger Dave Harper has twice won the Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."

• Like this article? Read more by subscribing to Numismatic News