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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 01/12/2010 : 18:54:01
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Why Silver Premiums Are Critical to Your Bottom Line
Commodities / Gold and Silver 2010 Jan 12, 2010 - 06:10 PM
By: Dr_Jeff_Lewis
Investors looking for the best and most lucrative silver investment should be keen to buy physical silver that carries the lowest premiums. Consider these three reasons why.
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Premiums on Some Coins Can Evaporate
If you have purchased silver as an investment, you should already be aware that some types of physical silver carry higher premiums than others. More sought after coins, those produced in small quantities or those that carry value due to their status as a collectable, are often priced much higher than other silver coins. These coins are subject to changes in price that are not indicative of the market change in the price of silver, and thus, make very poor investments.
Many times, investors with little experience in coin collecting buy highly prized coins, not realizing that much of their value is derived from the rarity of the coin rather than the rarity of the metal. Should coin collecting become less popular, or the particular coin fall out of popularity itself, the coin will likely be worth much less than you paid for it. It may even fall as low as a few percentage points over spot prices, a hefty descent for most collection-worthy coins.
Premiums Can Rise and Fall
It is important to note that the premium on any silver coin can rise and fall with the typical supply and demand for physical metals. The spot metals markets (paper silver) and the physical metals markets often trade with differing prices. Physical metals are much more expensive due to the amount of demand relative to supply, as well as the fact that most people who buy physical metals buy silver coins to hold for long periods of time. On the other hand, buyers of paper silver often buy and sell quickly, improving liquidity and ensuring a lower price than physical metals.
Premiums for silver coins typically rise as investors seek true hard assets that they can hold in their hand, which occurs in weak economic climates. In healthier economic times, the premium may drop due to the fact that investors are more willing to gamble with paper silver rather than buy the real thing. However, with so many analysts and government agencies like the CTFC questioning if the amount of “paper silver” is in line with the amount of physical silver available, it makes more sense to own the physical, tangible version.
Ounces Matter Most
When boiling the strategies down to basic investing principles, it isn't the size, shape, or beauty of your silver coin investment that counts, but rather the amount of ounces that you have in your possession. One ounce of silver is worth one ounce of silver, regardless of the face stamped on each coin. Think of it this way: if you can cut your average premium cost from 8% to 4%, you'll get one extra ounce for each 25 you buy. What may seem like a measly 4% can account for dramatic sums of money in the long term.
By Dr. Jeff Lewis
Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com
Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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Think positive. |
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dakota1955
1000+ Penny Miser Member
2212 Posts |
Posted - 01/12/2010 : 23:01:04
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| that what I try to do buy as low over spot as I can as long as it silver |
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garnede
Penny Collector Member
USA
386 Posts |
Posted - 01/13/2010 : 19:34:21
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| The problem with high premiums is that if the metal price skyrockets from the purchase price then you loose a larger percentage of your profit when it is sold as silver and not a collectible coin. |
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Market Harmony
1000+ Penny Miser Member
USA
1274 Posts |
Posted - 01/13/2010 : 21:44:03
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This is a nice beginner-to-silver-as-an-investment article.
Some of the key points that he is missing is that premiums do not exist in the primary market as much as they exist in the secondary market. Primary market being the spot price, and secondary market being the person to person exchange. If you buy paper silver, your only premium is the brkoerage fee in and out of the trade. But for physical transactions, whether they are face to face or through markets like eBay and here at realcent, there is a considerably higher premium to perform the transaction. Let's break it down in theoretical numbers:
given: Spot silver = $18.00
To buy 1000 ounces of paper silver, you pay the spot price plus either a fixed amount (like Ameritrade's fee of $9.99 a trade), or $18,009.99. Silver goes up 50 cents, and you sell. Your proceeds are $18,490.01, a total gain of $480.02
To buy 1000 ounces of physical silver, your typical premium on 1 oz generic rounds (when buying 1000 at a time) will be about $1 per ounce, delivered. So, a total investment of $19,000.00. But, when silver rises to $18.50 and you go to sell, you will be able to sell at $19.50 in one large amount (shipping expense to the buyer), or you can sell in smaller quantities for higher premiums and still have the shipping expense as the buyers responsibilty. You reap $500 gain, or more. You've effectively increased your margin by 4%.
If you sell the 1000 oz paper silver in smaller lots, you'll have an additional $9.99 per transaction... so you reduce your potential gains even more.
Collectible coins, rounds, bars and other bullion have additional components to market value than only the spot price of the metal. The author only briefly mentions that interest and rarity play a key role in the value of a collectible of any type. Think about the Mona Lisa, and also about those old time Coke bottles. ML has super high rarity and low interest, but Coke has super high interest, but low rarity... collectible silver acts in the same manner.
The assumption made by the author is that as silver rises, interest in collectible silver does not rise. I would contend this point.
And to prove my point, I will be first in line, anywhere, when common BU Morgan Dollars sell for $31 when spot price is $40. Today's eBay prices for these same coins are about $25 to $29 each. |
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Why Silver Premiums Are Critical to Your Bottom Li
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