While gold, with its sky-high prices, gets most of the media attention, investors should be just as interested in how to buy silver.
Silver turned in a solid performance in the second half of 2012, rising from a June 28 low of $26.13 an ounce to its recent reading above $33.00. And, to steal a line from poet Robert Browning (or, if you prefer, Frank Sinatra), "the best is yet to come."
At least that's how Money Morning's Global Resources Specialist Peter Krauth sees it. He thinks the "poor man's precious metal" should set a new all-time nominal price record in 2013, potentially moving as high as $54.00 an ounce.
Krauth cites four factors in making this prediction:
- The continued high reading in the gold/silver ratio, which indicates silver is undervalued relative to gold based on historical norms.
- The prospect that four more years of President Barack Obama's policies will prove inflationary, devaluing the U.S. dollar and thus boosting the prices of hard assets like the precious metals.
- Growing investment demand as more fund managers purchase the metal to back a growing number of new exchange-traded fund (ETF) offerings.
- A continuing increase in industrial demand for silver, which is used in everything from solar-power generation and water purification to hygiene and specialized medicine.
Few other assets currently enjoy such broad bullish support – and that means now's the ideal time to either add silver to your portfolio or increase your existing level of exposure to the metal.
Here are a few tips on how to buy silver.
How to Buy Silver
As we told you in last week's story on how to buy gold, purists view holding actual physical precious metals like gold and silver as the only true means of hedging against inflation and gaining an effective long-term store of value.
For smaller investors, this typically means buying one-ounce silver bars, or half-ounce or one-ounce silver bullion coins, which include the American Silver Eagle, Canadian Silver Maple Leaf, Mexican Silver Libertad, Chinese Silver Panda and Australian Silver Koala.
These are produced by government and private mints around the globe. The prices typically track the spot price of silver, plus premiums 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 the highest at 99.99% pure.
Larger investors can reduce the premiums to as little as 4% to 6% by purchasing the five-ounce, 10-ounce, or one-kilogram coins offered by some mints, or buying 10-ounce or 100-ounce silver bars.
Note, 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, earlier this week, one leading U.S. dealer quoted five one-ounce American Silver Eagle coins at $38.64 each if purchased with a credit card, but priced 100 coins bought with a wire transfer at just $36.51 each. The premium on the two purchases over the spot price at the time was thus 11.61% versus just 5.46%.
Where to Buy Silver
Regardless of what you want to buy in the way of physical silver, gold or other precious metals, the most important rule is to deal only with reputable dealers with 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 U.S. 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, but its website is currently being redesigned so online information is limited at this time. However, you can talk directly with sales representatives by calling 1-800-831-0007 or 301-881-8600.
- 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 is quite real, as recently discussed relative to gold in Bill Patalon's Private Briefing. As such, if you're seriously considering silver as a hedge against future U.S. political or economic uncertainty, you might consider a storage site for your coins or bars in Canada or elsewhere offshore.
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 considering price mark-ups, storage, shipping and insurance costs.
How to Buy Silver for Trading Purposes
If you'd prefer to invest in silver for trading purposes, the ultimate vehicle is the silver futures contract—the most popular currently being listed on the COMEX Division of Chicago's CME Group.
However, that's a fairly high-dollar/high-risk instrument. A single contract represents 5,000 ounces of silver, meaning it's worth $165,500 or more at recent prices.
It also means a move like the $1.152 drop we saw in the March future on Nov. 30 could cost you $5,760 in a single day—and that wasn't even the biggest one-day decline in November. Prices dropped $1.786 an ounce on Nov. 2—a move worth $8,930. Plus, you have to put up a margin deposit of $12,100 just to buy (or sell) a single contract 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, have reduced liquidity, and require proportionately high purchase margins.
Options are also available on silver futures, but the costs and risks, though limited, are still quite high.
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 biggest and most actively traded of these funds is the iShares Silver Trust ETF (NYSEArca: SLV), recent price $31.88. Founded in April of 2006, the SLV share price fairly closely tracks the price of a single ounce of silver, usually trading at a modest discount. As of the end of October, SLV held roughly 317 million ounces of physical silver, and had a market cap of around $10.5 billion. It's also highly liquid with a daily trading volume approaching 4 million shares.
There are also several other silver ETFs, including the ETFS Silver Trust (NYSEArca: SIVR), recent price $32.60, and the Sprott Physical Silver Trust (NYSEArca: PSLV), recent price $12.98, which has been aggressively expanding its physical silver holdings in recent months.
If you're really bullish, you could also consider the ProShares Ultra Silver ETF (NYSEArca: AGQ), recent price $52.02, which seeks to provide returns double those of silver itself.
The final way to play the silver market is with silver mining stocks. However, there are a number of other considerations with mining shares, some not specifically linked to silver prices, and the stocks aren't as responsive to rapidly changing market conditions as are securities linked directly to the metal. As such, they're not likely to provide gains as significant as the metal itself in a 2013 rally.
No matter how you choose to buy silver, this metal's prospects look especially shiny in the year ahead, so don't miss this opportunity to polish up your portfolio's profits.