Some people invest in precious metals such as gold and silver because they're tangible investments. Unlike a business, a gold bar or a silver coin has a value you can hold in your hand. A company may go out of business (or make wild profits), but people will always want gold and silver.
Silver is an interesting investment because its price fluctuates depending on how much is available and who's willing to pay for it. This is the law of supply and demand from basic economics: if there's a fixed amount of silver available, the more people who want to buy it, the higher the price goes. If there's more silver for sale than people want to buy, the price goes down.
Silver is often sold in terms of bullion (silver bars) or coins (minted by
various countries). The easiest way to buy silver is with a
pseudo-stock XAGUSD, which measures the cost of silver per ounce
in terms of US Dollars. (In other words, the stock market symbol for silver is
XAGUSD.)
The market price of silver varies. These are the prices of the most recent market's closing.
| Type | Current Price |
|---|---|
| Silver Spot Price | $22.826 |
| Silver Price per Gram | $0.73 |
| Silver Price per Pound | $273.91 |
Today's price is down -0.04% (-0.008) from its previous price. Remember, the spot price is what it costs to buy one troy ounce of silver.
What is a Troy Ounce of Silver?
Silver is traded in units called troy ounces, or "oz". All precious metals, including gold and platinum, trade this way. Through an accident of history, the common "ounce" is technically an avoirdupois ounce. A troy ounce is slightly heavier than an avoirdupois ounce; there are twelve in a troy pound.
A troy pound is slightly smaller than the 16-ounce avoirdupois pound; there are 14.58 troy ounces in a troy pound.
The current price of silver—also known as the spot price—is always measured in troy ounces. The technical definition of spot price is the price at which you can buy a commodity right now.
While it's more difficult to convert an ounce of silver into cash, some people believe that this illiquidity is actually an advantage. Then again, if a zombie apocalypse were to occur, cash dollars and physical troy ounces of silver might be equally useless. How much silver is worth per ounce depends on multiple factors.
It's instructive to compare the price of silver versus other precious metals. For example, see the historic ratio of the value of silver to gold. In recent times, gold has been worth much more than silver. For example, in 1980, gold was worth 37 times more than silver. In 2010, gold was worth 60 times more than silver.
Investing in Silver Coins
Because a coin is minted by a specific country with a specific design at a specific year, it may have a collectible value greater than the value of the metal itself. For example, a Morgan Silver Dollar contains less than an ounce of silver (so its raw value is between $15 and $20), but even in poor condition it can fetch several thousand dollars. In excellent or perfect condition, you might be able to sell such a coin for over half a million dollars.
You might hear this referred to as the numismatic value of silver; that means the value to coin collectors. While coins often have this numismatic value, it's possible that bullion minted in a particularly interesting way or from an interesting foundry may also have additional value over and beyond its spot value.
This type of investing, of course, is closer to speculation than buying a silver fund or bullion. Coins aren't fungible; each coin has a specific value from its condition, country of origin, and year. Buying coins and learning their history and comparing them to each other provides a lot of enjoyment for people; there really isn't any comparison between a share of Coca-Cola you bought in 1957 or one you bought in 1975.
If you are buying silver coins for an investment, the best coins to buy tend to be:
You do of course have the option of melting down a silver coin or piece of jewelry and selling it for the current price of silver per pound on the open market, but that's the lowest value you could get for anything made of silver. (If the coin is in terrible shape, it may have zero additive value beyond its weight.)
Junk Silver Coins
Not all silver coins have numismatic value, however. In the United States, many coins (dimes, quarters, and half dollars) had a high silver content prior to 1965. Rather than being circulated primarily among collectors, these coins were in everyone's pockets.
That's bad for collecting for two reasons:
- The supply is high; these coins aren't rare
- Most of the coins have 50+ years of wear and tear
The higher quality the coin—the fewer flaws and the less wear—the more valuable it is to a collector. The fewer coins in circulation, the more valuable any individual coin is.
Thus these coins are called "junk silver". They're still silver, at least in part. That silver content has value, even if the worn down coin won't get a second look at your local coin shop.
If you find yourself in possession of these junk silver coins, they're worth their percentage of silver content (probably around 90% for US coins) times the spot price of silver: essentially the cost of the metal itself.
Does Silver Investing Make Sense?
Investing in gold or silver has its disadvantages, but an investment in precious metals such as silver can be popular because a good is more tangible than a stock.
Popular isn't always right, however. Is it good to invest in silver?
Precious metals can be more volatile than stocks because the value of a precious metal is tied to available supply (what happens if a silver or gold mine in Canada strikes a new vein?) and industrial demand (what if a manufacturer corners the options market?). The COMEX branch of the New York Mercantile exchange handles metal trades (not just gold and silver, but copper and aluminum).
Storing bars of bullion or boxes of silver coins can be a hassle too, and liquidating them isn't as easy as clicking "Sell" at your online broker.
Ultimately, the value of silver depends on factors external to the metal itself, and these factors are difficult to predict. What's the economy going to do? What happens to the dollar? While these factors also affect businesses, you can analyze the businesses behind stocks with financial instruments such as free cash flow. Not so with silver or gold.
Precious metal investing may be worth a small part of your portfolio if you have an interest in it, but value investors can find better deals on better stocks, if you're willing to put in the research.
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