Wednesday, May 4th, 2016

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History of Silver Prices

Being a precious metal, silver has had a long standing history for over 4,000 years of being used as an investment, for trade purposes, as well as the use of money. This was known as the silver standard. The silver standard is a monetary system where the economic exchange unit was based on a fixed weight of silver. Starting in the 1700’s, countries begin to switch from the silver standard to the gold standard. By 1935, the silver standard period was over. Since then, silver has retained its value as a precious metal and is used for investment, trade, industrial, jewel, bullion and many additional purposes.

The Present State of the Silver Market: United States
The quick rise in the price of silver has been equated to an “economic warning siren” that let those whose wealth is made up of fiat dollars – know that their currency was/is being compromised and eroded. To avoid these large rises in value of precious metals (gold and silver in particular) legislatures and bankers have done their best to try and fix the price of silver. This has resulted in the price of silver being far lower than the actual value of silver. This also opened the eyes of many to the true and real value of silver – leading to further purchasing.

In today’s market, the price is manipulated to keep it at a lower price point. However, the demand is still increasing and consequently the actual value of silver – also increasing. In the end, it will be impossible to contain silver prices forever and a real breakout can take silver to numbers beyond all imagination. For those that can’t purchase bullion coins or bars, junk silver (explained below) is the next choice and often silver investors desire bullion as well as junk silver together. But be careful with any thoughts of melting junk silver for its silver content. The 1965 Coinage Act made it a crime to melt down any legal tender coins in order to gain a profit by selling their metal content.

Measuring the Value of Silver over Time
Silver and gold are often used side by side in a ratio comparison. In 1792 the United States fixed the gold/silver ratio to 15:1. However, across countries the average gold to silver ratio in the 1900’s was 47:1. One of the greatest gaps in value with regard to the gold to silver ratio in the 20th century was in 1940 when the gold to silver ratio was 97.3:1. Silver had another large plunge in 1990 with a ratio of 94.3:1, but has taken a mostly positive turn since then, and as of January of 2012 the ratio was 54.9:1. It should be noted that in 2011 Silver reached a 31 year peak with a value of $49.21 per ounce and a gold to silver ratio of 44.7:1.

Factors that Influence the Price of Silver
Simply put, the price of silver fluctuates based on supply and demand, speculation and ‘control’. However, the value of silver has a history of being volatile. This is due to silvers lower market liquidity as well as extreme demand changes. There are three major factors that affect the value of silver: supply and demand of the precious metal, economic influences, and speculation.

Supply and Demand
The value of silver is determined by how much of it is available as well as how much of it is in demand. When the fabrication demand of silver begins to surpass the mining industries ability to produce silver – the value of silver increases. The opposing situation would be when more silver is being mined than is in demand, in which case the value of silver will decrease.

Silver demand is also largely determined by the industrial uses of the metal. One of large industrial influences on the demand of silver used to be the photography industries. This has been offset by an increase in other industries like electrical appliances, photovoltaics, RoHS compliant solder, clothing and medical purposes.

The present demand for silver is largely attributed to a surge of applications for silver-based biocides in not just industrial, but commercial and consumer industries as well. Companies around the world are incorporating silver based products in current lines, such as; clothing, refrigerators, mobile phones, computers, washing machines, vacuum cleaners, keyboards, countertops, furniture handles and more. The newest trend is the use of nano-silver particles to deliver silver ions.

Economic Influences
As with most things, it’s not as simple as it sounds at first. The value of silver is not as simple as the push and pull between supply and demand. Silver is a store of value and a tangible asset, so the price and value can be easily affected by other more complicated economic factors. Such factors are; changing values of currency, inflation, and changes in deficits and interest rates.

Speculation: Big Traders/Investors
Compared to gold, the silver market is much smaller in size and value. The smaller size makes the market more volatile because depending on what the large investors do at any certain time – the value of silver can change on a dime. Also, like any market where investor’s behavior can largely change the value of the trade, speculation about what investors, demand, and sales will do has an effect on the market value of silver.

How to Buy Silver

There are multiple different forms of silver investments. These can easily be split into two categories: Tangible and intangible silver investments. Depending on which form of investment you are interested in, the steps to buying it will vary greatly. The next section is broken down into the different types of tangible and intangible silver investments to be considered.

Physical Silver

Distinguishing Real Silver from Fake Silver
Silver marked .999 is supposed to be pure silver. This says that 999 parts of the 1000 parts are silver. You can test it to be sure this is the case. There are test kits you can purchase and also two easy free ways to test the purity of silver.

First, if you take French’s Brand yellow mustard and put a small amount on the silver. Then heat the mustard either in the sun or with a lighter. French’s has a high concentration of sulfur and when sulfur and pure silver are heated together a reaction takes place that leaves a dark mark on the silver. If this happens, it is pure silver. This dark stain cannot just be wiped off but can be cleaned off using vinegar.

The second test can be done by placing and unlit match on the surface of the silver. Then use another match to light the one sitting on the silver on fire. The same dark mark discussed in the mustard test will appear in this test if the silver is pure. As with the first example, you will need to use vinegar to clean it off.

Troy Ounce
Before getting started on what forms you can find physical silver in, you should understand what silver tends to be measured in. The weight of silver is often discussed as a troy ounce. One troy ounce is 31.1 grams and one troy pound is 12 troy ounces. The weight in troy ounces should be stamped on bars and coins. There are multiple coins that are very well known that many investors buy e.g., American Silver Eagles. These coins are minted according to standards.

Silver Coins
Amongst new investors, silver coins and silver rounds tend to be the preferred form to buy silver. This is because it is easy to know where the coin came from, how much it weights, and what it is worth. They are also very easy to store and often the appearance of the coin appeals to collectors and investors. Examples of these coins are the one ounce 99.93% pure American Silver Eagles and the one ounce 99.9% pure Canadian Silver Maple Leafs.

Coins are either “fine silver” or “junk silver”. Fine silver is just as it sounds, a better quality of silver while junk silver are the coins that don’t have as much of a percentage of silver in them e.g. pre-1965 Quarters, dimes and half dollars. Although half dollars do have 40% silver from 1965-1969.

Few Easy Rules to Follow:

  1. A general rule for US coins is that any dimes, quarters and half dollars made before 1965 are 90% silver and half dollars from 1965-1969 are 40% silver. These coins are affectionately called junk silver. Typically, $1.50 face value of junk silver (minus 40% half dollars) equals approximately an ounce of silver. Basically, 15 dimes or 6 quarters or 3 per-1965 half dollars equals approximately one ounce of silver
  2. Foreign junk Silver coins are also available. They are known as sterling silver coins. They were minted in Canada and the UK until 1919 and until 1945 in Australia. These silver coins contained 92.5% silver and come in the following pieces: Crowns, Half-crowns, Florins, Shillings, Sixpence, and three pence
  3. Canada also produced silver coins from 1920 to 1967 with a silver content of 80%

Silver Rounds
Silver rounds are often compared to coins due to their shape. They are sort of a cross between a silver bar and a silver coin. Various different mints make silver rounds and they (by a general rule) contain a troy ounce of silver. Unlike coins they cannot be used as a legal tender.

Silver Bars
When you are looking to buy bars you might also hear them referred to as wafers. These are one and the same. When it comes to buying bullion bars you are best to buy the larger bars. They have less of a mark-up as compared to their smaller counterparts and therefore your return on investment will be greater for the larger bars. The bars will be marked with the mint it was made at as well as the number associated to how pure the silver is. As discussed earlier a rating of .999 or greater is preferred. In some countries, bars can be bought over the counter at a local bank. In other countries, this is not the case.

Sample Bar Sizes:

  • 1000 oz troy bars – These weigh roughly 68 pounds but can vary in weight by 10% or so, as the bars can range from 900-1000 actual oz. These are COMEX and LBMA good delivery bars
  • 100 oz troy bars – These bars weigh 6.8 pounds. You will find that these are usually the more popular bars for investment purposes. You will also find that the more popular brand in these bars cost a bit more than the not so popular bars
  • Bars with varying weights – When buying these bullion bars you will need to do more work to figure out the actual value of the bar – as these silver bars tend to cost less than other silver bars
  • 1 kilogram bars
  • 10 oz troy bars and 1 oz troy bars

Silver Nuggets
If you are not an experienced silver investor, it’s recommended that you not buy nuggets or if you do – have someone who is experienced counsel you. Nuggets are pretty rare and not often sold by those who own them because of the rarity factor. You should go with caution when working with someone claiming to be selling a nugget. It is important to have it tested and appraised by an expert before proceeding with a purchase.

Silver Jewelry
If you are buying silver jewelry as an investment, it is important that you know how to spot and test pure silver versus silver that is mixed with other components. Buying silver jewelry as an investment makes it more difficult to assess the value of the jewelry based on weight and quality as compared to buying a bar or coin where the weight and value are set and obvious. However, if you are experienced it is often easier to find a good deal on silver jewelry when buying from antique stores, estate sales, and garage sales. The reason behind this, is that far too often – people sell quality silver jewelry and don’t realize its value.

Numismatic Versus Bullion
When buying silver there are two different forms of physical silver that you can purchase, numismatic or bullion.

Numismatic coins are typically coins that coin collectors are interested in. Their value is based on multiple different variables: the mint they were made at, how rare they are, that issue date, and the condition they are in.

Bullion coins is a reference of the coins (bars and nuggets can be bullion as well) value as a raw material. these coins have a universally accepted weight and therefore the value of the coin is based on the amount of silver in it. This makes bullion coins easy to cash in and trade because you don’t have to be a numismatic expert to know the coins worth. Numismatic coins of course have these same properties, but have the additional elements that make them more complicated.

Top Tangible Silver Dealers
You can purchase physical silver anywhere that silver can be found from antique stores, to coins shops, pawn shops, thrift stores, online, etc. These four are the top silver dealers of today:

  • The US Mint
  • Kitco
  • Monex
  • Apmex

Non-Physical Silver

Exchange Traded Silver Products
Exchange traded silver funds are funds backed by the value of silver at the time traded on the major stock exchange. There are three forms of silver exchange traded funds: ETFs (exchange traded funds), ETNs (exchange traded notes), and CTFs (closed-end funds.

The Following Funds Are Backed by Physical Silver:

  • Central Fund of Canada (TSX: CEF.NV.A, NYSE: CEF) and Silver Bullion Trust (TSX: SBT.UN, TSX: SBT.U)
  • iShares Silver Trust (NYSE: SLV)
  • ETFS Physical Silver (LSE: PHAG, LSE: PHSP)
  • Claymore Silver Bullion Trust (TSX: SVR.UN)
  • Julius Baer Physical Silver Fund (SIX: JBSICA, JBSIEA, JBSIUA, JBSIGA)
  • Sprott Physical Silver Trust (NYSE: PSLV, TSX: PHS.U)

Silver is also traded in the “spot market” with the XAGUSD for the United States and XAG for all others. A spot market is a public financial market where instruments or commodities are traded for immediate delivery. This can be compared in opposition to a futures market where the commodities are traded but not delivered until a future date.

Silver Accounts
Silver accounts are not available everywhere. Most Swiss banks offer silver accounts. The way they work is you basically have an account where silver can be bought and sold just like currency. However, the customer in this case, does not actually own the silver, they just have a claim against the bank for a certain quantity of silver. Depending on which bank/investor you go through some will and some won’t allow you to redeem your investment in actual silver.

Derivatives and Futures
Derivatives are used as a way to “extend credit” from one entity to another under specific conditions. Futures contracts are those contracts between two parties where there was an exchange of some sort of asset, in this case silver, of a standardized quality and quantity. With the exchange the price that is paid at the time of contract is called the futures price. There is a term set that is ended on a specific delivery date; the value of the investment on that delivery date is set as well. In both of these cases the contract would be based on silver being the exchange medium.

Silver Mining Companies
If you buy a mining stock or invest your money in mining company – you are not actually investing in silver. You are investing in that company. Many silver mining companies don’t just mine silver. They are often involved in varies mining operations. It is recommended that if this is something you are interested in – you seek the counsel of an investment advisor that can to guide you in the right direction.
When buying silver there are two different forms of physical silver that you can purchase, numismatic or bullion.

Exchange traded silver funds are funds backed by the value of silver at the time traded on the major stock exchange. There are three forms of silver exchange traded funds: ETFs (exchange traded funds), ETNs (exchange traded notes), and CTFs (closed-end funds).

The Following Funds Are Backed by Physical Silver:

Silver accounts are not available everywhere. Most Swiss banks offer silver accounts. The way they work is you basically have an account where silver can be bought and sold just like currency. However, the customer in this case, does not actually own the silver, they just have a claim against the bank for a certain quantity of silver. Depending on which bank/investor you go through some will and some won’t allow you to redeem your investment in actual silver.