How to Invest in Silver

by Tom Cloud, Precious Metals Advisor

The physical silver market provides investors a variety of products. The choice of silver bullion product is largely a matter of the investor’s goals and resources. Particular silver investment products serve primarily as a store of value while others serve both as a store of value and could be used as money to be spent should barter become necessary as many people fear. Varying “premiums” (which include dealer premiums and commissions, all shipping costs and insurance) and IRA regulations are also important to consider when deciding between the different vehicles. Currently, the U.S. Internal Revenue Service (IRS) allows silver be included in a self directed IRA if certain rules are followed.

JUNK SILVER BAGS

One of the most popular ways to invest in silver is the 90% U.S. “bag” of junk silver. The word “junk” refers only to the value of the coins as a bullion investment and not to the actual condition of the coins.

These bags contain coins with a 90% silver composition (“coin silver”) and consist of U.S. dimes, quarters, and half-dollars dated 1964 or earlier. Each bag contains approximately 715 troy ounces of actual silver with a face value of $1000. Bags can be purchased in the following sizes: one-quarter, one-half, three quarters or full bag of silver.

An investor should expect to pay a $1.30 to $1.50 per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance) over the spot price of silver. Generally, an additional per ounce “premium” is levied for half-dollars over dimes or quarters due to the higher silver content, consumer preferences and the fact that fewer half-dollars were minted than dimes or quarters. This additional per ounce “premium” varies depending on market conditions.

There are several advantages when acquiring junk bags of silver. Firstly, the bag carries a low per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance) over spot price when compared to other silver investments. Secondly, junk silver was produced by the U.S. government and is U.S. legal tender. Thirdly, junk silver is internationally recognized as a trading medium and therefore, highly liquid. Additionally, junk silver is divisible, providing small increments when used for exchange. Bags of junk silver are NOT currently allowed in self directed IRA’s. For purposes of barter, NNA recommends dimes or quarters.

ONE OUNCE SILVER ROUNDS

Depending upon the source, a “silver round” can de defined in numerous ways. Here, I use the term “silver round” when referring to any one ounce silver bullion coin that contains .999 (99.9%) fine silver.

PRIVATELY MINTED SILVER ROUNDS

Privately-minted Silver Rounds are an inexpensive and convenient way to own silver. They are popular because of their varying appearances and low relative per ounce “premiums” (which include dealer premiums and commissions, all shipping costs and insurance). They are called “privately-minted” because they are manufactured by a private mint (i.e. Johnson Matthay, Engelhard, Credit Suisse and many other recognized smaller mints). Including a per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance), prices are generally $1.75 to $2.00 over the spot price of silver. While per ounce “premiums” (which include dealer premiums and commissions, all shipping costs and insurance) vary depending on the particular mint and market demand, privately minted silver rounds have their weight and purity (999 fine) stamped on them, making them easy to identify and to sell or exchange. Currently, I consider these coins to be the best buy if desiring your investment to serve as both a store of value (a purely “investment medium”) and a medium of exchange (as “money”). Privately minted silver rounds are not considered legal tender and vary in design. Privately minted silver rounds are NOT currently allowed in self directed IRA’s.

GOVERNMENT MINTED SILVER ROUNDS

Many countries — including the United States, Canada, and Austria mint official legal tender silver coins with .999 purity. The Silver American Eagle, Canadian Maple Leaf and Austrian Philharmonic are all one-ounce silver coins. When compared to privately minted coins, they do carry a higher per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance) since they are issued by governments. Currently the Silver American Eagle has a per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance) of approximately $2.85 to $3.25 over the silver spot price. Normally, both the Canadian Silver Maple Leafs and the Austrian Philharmonic are priced below the American Silver Eagles but higher than the privately minted Silver Rounds. When choosing government minted coins, it is important to consider both the higher per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance) when purchasing and the fact that these government issued coins lose a little more of their per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance), when compared to other forms of physical silver upon liquidation. Many investors prefer these coins due to the fact that they are globally recognized as a form of legal tender and ARE currently allowed in self directed (U.S.) IRA’s.

SILVER BARS

Silver bars are available in numerous sizes ranging from one ounce to over 1,000 ounces and are issued by major refiners. When only considering silver as an investment medium, rather than one with exchange potential, these bars provide an excellent store of value. Similarly to gold bullion, silver bars can be held within a fungible program and the investor is never required to take possession of this heavy metal. The per ounce “premium” (which includes dealer premiums and commissions, all shipping costs and insurance) is relatively low and ranges from $0.70 to $1.70 over the silver spot price. Silver bars with recognized hallmarks are preferred as they are more readily accepted for resale, making them more liquid. Additionally, they (depending on the refiner) are currently allowed in self directed (U.S.) IRA’s.

In Summary

Junk Silver Bags:

+ “premium”: currently $1.30 to $1.50 over spot

+ Easily recognized globally→highly liquid

+ Legal tender

+ Divisible into small increments

+ When purchased from NNA, per ounce “premium” is the same for all orders, regardless of “bag” size

– Not currently allowed in U.S. self directed IRA’s

– Relatively difficult to store/transport

Silver Rounds:

Privately Minted

+ “premium”: currently $1.75 to $2.00 over spot

+ Easy to identify→relatively easy to sell or exchange

– Not legal tender

– Not currently allowed in U.S. self directed IRA’s

Government Minted

+ Legal tender

+ Considered to have physical “beauty”

+ Currently allowed in U.S. self directed IRA’s

– “premium”: currently $2.85 to $3.25 over spot

– Lose more value upon liquidation

Silver Bars:

+ “premium”: currently $0.70 to $1.70 over spot

+ Size, uniformity great for purely investment (store of value) purposes

+ Currently allowed in U.S. self directed IRA’s (**Dependent on the refiner**)

– Not legal tender

– Relatively inconvenient for barter (becomes more pronounced with larger sizes)

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