Investors buy Silver for Investment for three reasons: as an investment, a hedge against inflation, and for replacement of fiat currency. While many dividend growth investors see no value in holding the silver, because it pays no compounding dividend, I believe some precious metal gives extra-diversification to any portfolio.
Buying for investment is simply a supply/demand trade on the price increase. It’s a commodity trade counting on the silver spot to rise. Or, it could be buying a silver coin with numismatic value, again hoping for value appreciation.
As an inflation hedge, we can look back to the 1970s when inflation reached 13% and silver prices skyrocketed. During this period, people held silver to offset inflation, and as its price rose investors grew out of the woodwork. Of course, by the 1980s most personally held silver sold off at profit and went into paper investments.
For people who fear paper currency default, we should consider that central government around the world, including our own Federal Reserve, print money as a solution to stagnant economies. The threat of any countries paper money becoming worthless is real, since none are redeemable in gold or silver as they were at one time.
In 2002, we saw a severe financial meltdown in Argentina and Paraguay when banks closed, only to reopen later, but limiting the number of money depositors could withdraw. Argentines who converted cash to gold or silver coin were adequately protected during this crisis, while others were not.
Printing money, deficit spending, and endless debt increases have become the norm for leaders both at home and worldwide. For no other reasons than these, it’s wise to hold some assets in precious metals.
Best Ways to Buy Silver
Regardless of your reason for holding the silver, the aim is to buy silver priced on the weight of the precious metal. For example, silver bars and coin are priced on weight, meaning that 1-oz coin or 1-oz bar carry the same amount of raw silver.
You also want to buy silver that is.999 fine silver. The best source will be a reputable dealer and not eBay, Craigslist, etc. Avoid scammers by using reputable dealers like American Precious Metals Exchange, JM Bullion, Provident Metals, and others with proven business practices.
Silver coins are minted specifically by a central government and come with an official guarantee of both weight and silver purity. In the U.S., the American Silver Eagle is the only federally minted coin, but nations like Canada and Austria also offer coinage. Popular choices are:
- United States – American Silver Eagle
- Canada – Canadian Maple Leaf, Canadian Silver Cougar
- Austria – Silver Philharmonic
Silver rounds resemble coins but private mints make rounds and they’re not backed by a guarantee like government assurances. They are less expensive (lower cost over spot) and good for larger quantity purchases but are not legal tender (money). However, they’re tradable in a financial meltdown, as the weight of raw silver is all that matters.
For larger amounts of silver, bars are the best choice. Silver bars can run in 1-oz, 10-oz and 100-oz options. Larger silver quantities are also available in bars. Buying larger amounts offers a better discount off the spot price.
As with rounds, bars are not backed by the government. The goal, however, is to acquire larger amounts of silver at a lower premium that is easily storable and tradable at the market price.
Junk silver is really not what it sounds like – a ‘junk’ investment. It’s any old silver coin in fair condition without collectable value but with true silver content. In the United States, pre-1964 nickels, dimes, quarters, half-dollars and dollars carried 90% silver content. Junk silver is important since these coins have the lowest spot price of any physical silver.
Past actions from central banks often prove that they don’t have many weapons against financial stagnation. On the other hand, central banks have proven they can print and offer cheap money backed by nothing more than a promise.
Holding some amount of precious metal is prudent. Even for dividend growth and income investor, there is nothing wrong with holding precious metal, and silver provides the most affordable options.