A Silver Investment?

A silver investment could make a profitable and welcome addition to your portfolio of investments. Like gold, silver has an attraction as a precious metal and store of value however if you are considering a silver investment there is a little more to it than that so please read on....

Like gold, silver was used as a local currency and it is only relatively recently, in some instances, that silver stopped being used, for example the USA. This was because the actual value of the silver coin was more than the face value and could be melted down and sold as silver. Silver is not used as an international currency to secure government debt like gold is but instead relies on consumer spending and it's heavy industrial uses to prop up the price. For this reason silver and therefore a silver investment can be very volatile.

Silver has unique properties which restricts its substitution for other materials. Industrial applications include electronics, bearings, catalysts and batteries. However it is also used in photography, jewellery, silverware, water purification, solar energy and of course silver coins. Silver is a natural antiseptic and possesses anti-inflammatory properties which is well known by the medical profession, therefore use in medical supplies is common. Uses in electrical equipment and further applications expected in the future make a silver investment an excellent candidate for growth.

In early 2008 silver reached a peak of about $20 per ounce, however since that time the financial crisis has had a huge effect on demand for silver by consumers and prices dropped to about $9 late 2008. Having said that it has risen steadily and currently stands around $26 per ounce (late 2010). Although the market bottom has been missed there is still an excellent opportunity to make a profitable silver investment. Generally speaking when gold prices are increasing (lack of confidence) silver prices will fall or stabilise. When gold prices are falling and confidence increases in the economy silver prices increase. With this in mind I do not recommend investing in silver ETFs(exchange traded funds) in our present weak economy since they rely on a solid financial structure which has clearly not been around for some years.

Because of continuing uncertainty, devaluation of fiat currencies and even war, a strategy that maybe of interest to you is to trade the gold/silver ratio. This is usually done by keen gold bugs or hard asset enthusiasts but is of particular interest today. Basically you should not be particularly interested in the currency value of your holdings (because currencies are devaluing) but rather interested in acquiring more gold or silver. It works like this.

Towards the end of the 19th century the fixed ratio of silver to gold was 15:1. Since that time the silver to gold ratio has been floating. The idea is that you trade when there are extremes of ratios. For example if the ratio was 100:1 and you felt this was an extreme you would buy 100 units of silver with your 1 unit of gold. When the ratio changes to let's say 50:1 and you felt this was an historical extreme you would then buy 2 units of gold for your 100 units of silver. This way you are acquiring more units of precious metal irrespective of the financial system.

There is no doubt that the demand for silver is starting to increase so a silver investment is definately something to be considered. In our present fiat money system, with the dollar decreasing, investors are looking at commodities as a viable hedge against inflation and therefore a silver investment would be beneficial to your portfolio. Silver is actually quite scarce compared to gold so I think silver is quite possibly going to reach heights we have never seen before.

The ongoing devaluation of our fiat based currencies and the general fear of our economic situation especially in places like the US have prompted a huge surge in the purchase of commodities such as gold and silver. This in turn has worried people about the possible confiscation of gold and silver by their own government. If you live in the US this has certainly happened before. Although the confiscation of silver was side stepped last time anyone considering a silver investment or gold for that matter should be seriously thinking about storing it offshore ie a country in which you are not a resident. Rather than recommending one particular offshore provider who may or may not be ideal for your particular situation I suggest doing your homework at Qwealth who I have used in the past for a number of offshore solutions. I can highly recommend them.

How to Buy Silver

There are numerous ways to buy and trade silver. I personally recommend buying the physical stuff and like gold, on an allocated as opposed to unallocated basis. If you buy allocated silver and your provider goes out of business your silver is not on his balance sheet and therefore is safe. Unallocated silver is part of your provider's balance sheet and can therefore be legitimately used to pay his creditors. There is therefore a storage fee for allocated silver.

Silver Bullion Bars

This is the traditional way to buy a physical silver investment. There are hundreds of dealers so make sure you do your homework. Ideally you should be looking for a provider who supplies allocated silver and can store in an offshore location. Bars come in varying sizes from 1oz to 1000oz in weight.

Silver Coins

You will pay a premium for silver coins for the cost of fabricating them. Some investors like to collect coins or purchase them so they can be used as 'real money' if currency is devalued to such an extent that it is no longer used.

Silver Rounds

These tend to be .999 fine silver and are a cross between bullion and coins. They are however not considered legal tender.

Exchange Traded Funds

I have mentioned these previously. Since they are based on the existing financial system and since we are dealing with a fraudulent and failing system in my opinion you should stay well clear unless you are experienced in this type of trade.

Silver Mining and shares

Be careful with this one. On the one hand there are many lucrative opportunities with many profitable mines. On the other these mines extract other materials at the same time so your overall profit may be less than the increase in silver prices would indicate.

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