Buying Silver – What you Need to Know
How much do you know about silver? If you are considering adding silver to your savings, here are a few things you need to understand before doing so.
Anyone interested in purchasing precious metals would be well-advised to consider all of their options. While gold is an excellent addition to your savings, it is also important to understand the value of alternate assets. Silver is a fantastic, and yet commonly undervalued, commodity.
While gold is the most glamorous of the precious metals, silver has both an aesthetic and a practical luster. Its industrial and technical applications are vast – it is an essential element in diverse manufacturing and medical uses. Electronics production, paper processing, water sanitation, food production, solar energy, nuclear energy, and aeronautics are only a few industries that require silver.
From a financial perspective, buyers should be aware of the numerous factors that influence the value of silver. If you’re interested in buying silver, you have to know the importance of spot price.
What does “spot price” mean?
While knowing the spot price of silver – or any precious metal – is essential to making the best purchase for your financial goals, spot price is a commonly misunderstood concept.
Silver spot price is the price of silver right now. It fluctuates constantly, since it is based upon the value of the metal in a particular currency upon immediate delivery, and it often changes during the length of the transaction process.
Spot price is largely influenced by futures contracts. Futures contracts are the agreed-upon prices for future delivery of a certain commodity. Once the product is delivered, both the buyer and the seller adhere to the contract price regardless of whether the market value rises or falls. The formula for determining the spot price calculates the dividend and interest rates, the futures market, and the days before futures contracts mature, as well as geopolitical events, and actions taken by the Federal Reserve. Additionally, supply and demand greatly impacts the price of silver, so when innovations in technology or industrial demands require the acquisition of silver for utilitarian purposes, the price increases.
The largest silver markets are the London Bullion Market Association and the North American markets. Different global markets can set different prices, but they are chiefly based upon the physical bullion prices set by the London Bullion Market Association and North American markets.
Are the prices of silver and gold related?
In addition to being different elements, gold and silver are priced based upon different factors. While the price of precious metals in general tends to rise and fall relative to the value of the dollar, the prices of gold and silver do not necessarily move up or down in concert; their values will occasionally diverge. Gains in silver value are more closely related to worldwide consumption (due to its greater industrial utility), while gold prices tend to move based upon its accumulation by central banks. However, buyers determining the best time to buy silver will sometimes consider something called the gold-silver ratio.
The gold-silver ratio is the number of ounces of silver it would take to purchase 1 ounce of gold. As of April 11, 2017, the spot price for silver is $18.07, while the spot price for gold is $1,256, so the gold-to-silver ratio is 69:1 – it would take 69.5 ounces of silver to buy 1 ounce of gold.
Fundamentally, both precious metals have a very long history of being stores of value, and while their values might not rise or fall together, they typically do move together.
What is the best way to buy silver?
When acquired as a physical asset (as opposed to on paper), silver has many benefits. However, when it comes to purchasing the physical metal, different mediums have different advantages and drawbacks.
Bars: Precious metal bars, whether they are silver, gold, platinum, or palladium, are rectangles of metal that are produced by private and some government mints in various weights. Bars can be purchased singly by the ounce – from one, all the way up to 1000 ounces.
Many buyers favor bars over coins due to ease of storage, inventory, and transfer. They can be stacked efficiently. They also tend to have the lowest premium (the price dealers charge over spot). However, while large bars will have significantly lower premiums than small bars or coins, they are more difficult to liquidate. Moreover, bars aren’t considered collectable, since they are essentially unadorned pieces of metal.
Coins: Coins are produced by government mints and have the status of legal tender. They can be obtained in pure metal weights of one-tenth, one-quarter, half-ounce, and full ounces. Some types of coins are not only valued for their weight in the precious metal. For example, some proof coins (coins that were struck to test the dies) and uncirculated coins can become collectable over time, but by in large, bullion coins are largely valued for their metal content.
Buyers might favor coins because of their relative ease of liquidity – unlike bars, they come in weights small enough to make sales convenient in the event of an emergency. But the premium is generally larger for coins, so buying 1 ounce of silver in coins will usually be more expensive than buying one ounce of silver in bars.
In addition to deciding which form of silver will best suit your needs, it is also important to consider whether you want to buy and hold the metals yourself, or possibly place them into a precious metals individual retirement account (IRA).
A precious metals IRA is what’s known as a “self directed” IRA – it allows the account holder to keep assets that aren’t typically held in traditional IRAs, including real estate, stocks, bonds, mutual funds, corporate debt, trust deeds, and mortgage deeds. Opening a precious metals IRA (or rolling over an existing IRA or 401(k)) helps you to not only diversify your portfolio, but gives you a tax advantage otherwise unavailable to you if you were to simply purchase your silver outside of the retirement account.
However, owning precious metals in an IRA means that the store of metal must be kept by a specially-appointed trustee.
Why should I buy silver?
Precious metals in general are excellent safe haven assets. People who are wary of putting their faith – and future – in a highly unstable stock market may find precious metals an excellent option for long-term financial security. However, silver in particular offers unique benefits.
Adding silver to a portfolio can offer considerable financial advantages. It requires substantially less capital than gold or platinum, and yet it has significantly more uses than most precious metals.
Here are a few more reasons why it may be a good idea to buy physical silver.
The dollar is weakening. There is a strong possibility that the price of silver will rise due to the reduction of the value of the dollar.
You have a tangible asset. Paper assets can become worthless overnight, and hackers can compromise seemingly secure firewalls, leaving you with nothing. Owning physical assets like silver ensures you have a durable commodity that will always have value.
Silver is not recycled. Gold can be, and is, recycled with no affect upon its chemical properties, and a huge percentage of the world’s gold currently in circulation is recycled – it is never used up. Silver, on the other hand, must be replenished. Numerous industries require silver; it is not interchangeable with any other natural or synthetic element.
To summarize, buying silver can provide considerable long-term security if you have a clear idea of how it can help you meet your financial goals. To learn if buying silver is the right choice for you and your retirement needs, please consult the specialists at Birch Gold Group for a comprehensive consultation just click here.