Physical Silver vs. Paper Silver
Should I choose physical silver or paper silver? This is one of the first questions most first-time silver investors ask themselves before investing in or buying silver. In reality, you can go for both physical and paper silver, but it’s not recommended. Silver Bullion is of the opinion that most forms of paper silver present unacceptable risks.
Forms of paper silver…
Forms of paper silver include: Silver certificates, silver exchange-traded funds, silver shares, silver accounts, silver derivatives, silver spread betting, etc.). In fact, most forms of paper silver are simply not representative or backed by real silver, especially bank silver certificates, pool accounts and leverage accounts. E.g. it’s a fact that the amount of paper silver or “short” silver exceeds the actual or real amount of silver by a very large margin.
For example: Silver derivatives, especially silver futures, are deemed by us and many others as a scam similar to the “paper gimmick.” It’s no secret after all that the amount of paper silver or “short” silver exceeds the actual amount of silver by a very large margin. If this is not a clear sign of how easily paper silver can be manipulated and how speculative it is in nature, then what will it take to convince you?
Yes, paper silver can be great if you want to be in and out of the market in a matter of seconds and are chasing only paper profits (or losses!).
Even if paper silver comes with a guarantee that it’s fully backed by physical silver, any guarantee is only as good as the person/entity that provides the guarantee. So you have to ask yourself, do I trust the likes of J.P. Morgan Chase when they tell me that my paper silver is fully backed by physical silver? Hell no! They’ve already been exposed as thieves and lying bastards by Andrew Maguire, an independent British precious metals trader. As far as we’re concerned an investment in paper silver simply doesn’t offer the same advantages/benefits as an investment in physical silver (or physical silver ownership).
In fact, we see the trading of paper silver not only as a means to illegally manipulate the silver market and steal peoples’ money, but as something that is not representative of the silver market or an investment in actual/real silver by any stretch of the imagination. It works pretty much the same as with counterfeit/false religion. They always use it as a vehicle to debase true religion (physical silver), to give people the idea that true religion (physical silver) is of no real value (or doesn’t exist!). Physical silver (true religion) deals with reality; while paper silver (counterfeit/false religion) is mostly about a game of fables and fantasies which are totally removed from reality
Physical silver is something with intrinsic value, something which retains its intrinsic value despite market ups and downs, the mood swings of people, fiat currency crises and what have you. In fact, the true silver investor stays clear of or avoid paper silver like the plague itself. He/she is familiar with the various risks attached to an investment in paper silver (or the trading thereof) and simply finds it inconceivable to even consider going down that road, especially considering the following:
- Default risk: The silver investor who chooses to invest in or trade paper silver is exposed to the default risk of the issuers of paper silver. These issuers are all exposed to default risk which refers to the risk of not being able to meet one or more of your financial obligations. The moment a paper silver issuer defaults, chances are good that the investor who holds paper silver issued by the specific issuer will neither see a return on his money, the return of his money or any silver for that matter. The reason for this is because the issuer will not be able to redeem the paper for silver. Yes, they can be bailed out, but only in more paper. This is inflationary at best and comes with no guarantee that more pain will not follow. History has proven that payment in paper or fiat currency, at some stage or another, always quickly loses value as a result of hyperinflation caused by virtually uncontrolled “quantitative easing” (a.k.a. money printing). The problem with paper is that there is always a lender of last resort. It’s nothing short of a scam. It’s nothing short of a scam, because it is not made up or backed by anything of intrinsic or real value. It can only work in a debt-based currency system up to a certain stage before the whole system collapses. History has proven that those who realized this in time and switched to physical assets such as gold and silver were well ahead of the rest. This enabled them not only to protect their financial wealth, but to provide for their families during times of extreme economic and political difficulty. This is unlike physical silver, that not only offers protection against hyperinflation (and deflation!), but also protection against the default risk faced by both the issuers and holders of paper silver.
- Bankruptcy risk: The silver investor who chooses to invest in or trade paper silver is exposed to the bankruptcy risk of the issuers of paper silver. Bankruptcy risk is different from default risk in the sense that it refers to the inability to meet all financial obligations. The silver investor who chooses to buy and hold physical silver is protected (except if the physical silver is held in ‘safe custody’ at a bank or elsewhere unsafe).
- Broker risk: The silver investor, who chooses to invest in or trade paper silver, especially silver derivatives such as silver futures, is exposed to broker risk. Silver futures contracts are normally bought via a broker. The broker normally only does a trade once money is available in your account at the brokerage. Broker risk refers to the risk of them stealing money out of that account. The silver investor who buys physical silver is not exposed to this risk (except in the instance where he/she insists to buy it through a broker). This is not to say that your money cannot disappear when you try to buy physical silver from an unreliable seller, but with an unreliable seller your risk is limited to one transaction. Silver Bullion recommends, firstly, that the silver investor makes use of one seller when buying physical silver (as far as possible), and secondly, always make sure that the first couple of transactions are done for very small amounts (‘risk premiums’), amounts small enough so that when the seller pulls a fast one on you, you don’t risk bankruptcy or something worse.
- Exchange risk: The silver investor who chooses to invest in or trade paper silver, especially silver futures contracts, is exposed to exchange risk when he/she trades through an exchange. Exchange risk refers to the risk attached when a relevant exchange (e.g. futures market exchange) “changes the rules” and it negatively affects the honest silver investor. COMEX, a division of the New York Mercantile Exchange (NYMEX), changed the rules pertaining to silver futures in January 1980; this caused the silver price to collapse to the benefit of the Silver Users Association. It negatively affected many silver investors who held silver futures contracts and left the door wide open for abuse. Now if you hold physical silver, they can change the exchange rules as many times as they like, but it won’t affect you as bad as it affects silver investors who hold paper silver. In fact, when they push down the silver price through their manipulation of the silver market, they make it cheaper for the silver investor to buy physical silver at levels well below its true worth.
- Confiscation risk: The silver investor who chooses to invest in or trade paper silver is more exposed to confiscation risk than the silver investor who chooses to buy and hold physical silver. Governments can more easily confiscate paper silver than physical silver since it’s traded via official channels. Physical silver on the other hand can relatively easily be moved from point A to point B if needed, especially in the form of silver coins. This is a great benefit if one quickly needs to move physical silver outside the jurisdiction of a hostile government. Physical silver in the hands of the individual is much safer than physical silver stored in a safety deposit box at a bank or depository. The reason for this is because it’s much easier for a hostile government to confiscate the silver of 5000 or more people pooled together than the silver of 5 million people spread out in 5 million homes, especially when the silver is locked up and stored in hidden places. Be sure to visit the relevant section of our website for more info relating to silver storage.
- Silver market manipulation: Nowadays paper silver is more used in silver market manipulation than physical silver. The main reason being is the fact that they don’t have stockpile upon stockpile of physical silver to dump unto the market this time around. If you buy paper silver, you’re helping to divert demand away from physical silver with something that is not silver by any stretch of the imagination. By all means, if most or all paper silver was covered by physical silver, it would not have been a problem, but now it isn’t the case. E.g. J.P. Morgan Chase traders in London have allegedly sold gold (and silver) on paper to the tune of USD5.5bn without any physical gold or silver available to back any of the relevant sales. This is not only illegal and immoral in our book, but a blatant scam. Make no mistake however; growing physical silver shortages are going to defeat the paper market and force the holders of paper silver into bankruptcy sooner or later, especially naked short sellers. This will most definitely affect the whole paper silver market at the end of the day. In fact, it won’t surprise us if it all blows up in their faces and when that happens, you don’t want to be caught off-guard with worthless paper silver in your possession. The holders of physical silver will surely have the last laugh and reap the ultimate reward for holding unto physical silver through thick and thin over the years. The saying “what comes around goes around” is also going to be true for the silver market. This makes it essential to buy physical silver, since you will not only protect your wealth, but you will surely help to end one of the greatest financial scams of all times.
- Paper is not silver: Paper silver is not really silver; at least not fundamentally. It is at best a promise of silver and not a good promise we should add, especially considering that a conservative estimate indicates that for every 100 ounces of paper silver held there is only 1 ounce of actual or physical silver available (at the time this was written). In many cases where they provide a guarantee that the paper silver they are selling are backed by physical silver, the guarantee is up to scratch if you dig a little bit deeper. This is especially true during times of crisis, economically and otherwise. A guarantee is after all only as strong as the guarantor or entity that provides the guarantee. Physical silver on the other hand is the “real McCoy” that one can hold, touch and feel. Physical silver is money and represents real payment. In fact, it provides real protection against failing paper promises or fiat currency failures for that matter. Yes, they can sell you fake silver if you are not careful, but there are ways to get around it.
- Paper silver is unlimited: Paper silver, or paper promises, is virtually unlimited since it can be created endlessly or at least until the bubble bursts. This is exactly why they choose paper silver as a vehicle to illegally manipulate the silver market when they ran out of physical silver to dump unto the silver market. Physical silver on the other hand is limited and has to be mined. It cannot be created out of thin air; neither can it be printed or created through any other means. Given the high industrial demand for physical silver and the fact that physical silver is limited, it’s should be clear to all that physical silver is valuable and that silver price levels must go up to levels where supply and demand are in equilibrium, despite the relentless onslaught of the naked short sellers on the silver market. This is an excellent reason to acquire or buy physical silver, especially at levels of around $18 per fine ounce (at the time this was written). This is why the true silver investor perfectly understands the necessity to stay away from paper silver. Scammers and speculators are into paper silver. The true silver investor doesn’t speculate.
- Paper silver opens door for fraud: It came out in a legal proceeding that paper silver opens the door to wide-spread fraud in the broker industry. E.g. storage fees are charged while the silver does not exist. This is “standard business practice” in the broker industry.
- Leverage risk: Leverage is in reference to any technique used to multiply gains (and losses!). One can thus safely assume that leverage risk refers to the risk of multiplying losses. Silver investors who hold or trade silver futures contracts, which is a form of paper silver, expose themselves to leverage risk. They can get margin calls which are in essence a “demand by a broker that a customer deposit enough to bring his margin up to the minimum requirement” (WordWeb). This creates an increased chance of loss that simply does not exist if you buy physical silver and pay for it in full. Yes, with silver futures contracts you can be lucky and multiply your paper profits, but then we can go back to the argument of paper profits or payment made in paper. Paper is not silver and never has been silver despite the best of promises or so called “guarantees.”
- Risk of margin increases: The silver investor who chooses to hold or trade silver futures contracts, a form of paper silver, is exposed to the risk of margin increases. The risk of margin increases, which is different from leverage risk posed by margin calls, refers to the risk of seeing an increase in the margin required to maintain the down payment rate on silver futures contracts as the silver price increases. The silver investor who buys and holds physical silver is not exposed to this risk. Yes, he or she will pay more for silver as the silver price increases, but when the silver is bought and paid for, any increase in the silver price adds to the value of the physical silver the investor holds.
- Time risk: The silver investor who chooses to invest in or trade silver options, which is a form of paper silver, is exposed to time risk. Time risk refers to the risk of silver options expiring worthless as a direct result of the silver price not moving up fast enough within a required space of time, which is normally a short space of time. The silver investor who buys and holds physical silver is not exposed to this risk. Physical or real silver can last for thousands of years, and even when it tarnishes, the tarnish help to protect it from further tarnish. Yes, if you are the type of silver investor who buys and holds physical silver for quick profits, then you are surely also exposed to time risk. The reason being is because the silver price can fluctuate substantially, especially over the short term. This only leaves room for speculation at best, something the true silver investor tries to avoid at all cost. He/she is not in the market for short-term gains. Losses over the short-term is a real possibility, especially given rampant silver market manipulation.
- Gambling risk: The silver investor who chooses to invest in or trade paper silver, especially silver futures contracts, is exposed to gambling risk. Gambling risk in layman’s terms refers to the risk of losing a bet. It’s after all no secret that with silver futures contract one gambles at best, and that any paper profits one make, is a direct result of a loss suffered by someone else (or vice versa). It adds nothing of real value to help people; it’s all about selfish gains at someone else’s expense. Risk cannot be reduced with silver futures contracts since gambling and risk have different definitions. Gambling is about a zero sum game where two people make a bet with each other. One always turns out to be the winner and the other always turns out to be the loser. Yes, life is risky, but it’s not a zero sum game. This is why the true silver investor always buy/acquire physical silver, not only does it minimize risk, but it helps to add something of real value to help other people. E.g. when the silver investor buys physical silver, the seller gets paid or rewarded, even if payment is in fiat currency. It’s not a case of any of the parties having to suffer a loss for the other to profit; it’s a win-win situation. The seller has the choice to sell or not to sell at a certain price, even if the seller has to sell as a result of financial difficulty, chances are good that he/she will receive a market related price, especially when sold at eBay. This is more than can be said of investing in or trading paper silver, especially silver futures contracts.
- Moral risk: The silver investor who chooses to invest in or trade paper silver is exposed to moral risk. Moral risk refers to the risk of enslaving or negatively affecting others as a direct result of your gain, especially considering that a lot of paper silver trading has to do with outright gambling. Now some might not find it morally wrong to enslave others or seen morality as part of investing, but if you cannot apply your morality to your life, especially when they are not holding a gun to your head or threat you with prison time or anything down those lines, then what can one say about your morals? By buying and owning physical silver, you are not only taking responsibility of your own wealth, but you are helping to take dominion over what God has provided to be used in a monetary system based on honest weights and measures. Honest weights and measures, because it leaves little if any room for the “paper gimmick” to be deployed. It makes it virtually impossible to steal the fruits of hard labour without the application of physical force. It leaves those who do not want to work out in the cold and those who are willing to work, not only with the means to provide for themselves and their families, but to store the wealth created for centuries to come.
- Tax risk: The silver investor who chooses to invest in or trade paper silver is exposed to tax risk. Tax risk refers to the risk of having to pay tax when you least expected it. Trading accounts for one are not anonymous; they do not only have your contact details, but enough personal details to enable authorities to track your investment in paper silver. It makes it easy as pie for them to apply capital gains taxes or any new tax they might suitable to confiscate or destroy your wealth. It’s however possible to buy and sell physical silver anonymously, except of course if you’re a complete idiot and insist that they know about every ounce of silver you buy and sell. Make no mistake; it’s not about advocating that you shouldn’t pay honest taxes, but rather about not wanting to pay taxes that are designed to destroy and enslave. Silver is money and to tax money is not only absurd, but outright thievery. One has the God given tight to protect oneself against such absurdness and thievery. Anyone telling you differently are completely insane and not your friend, but is instead condoning and advocating a system of evil.
- Market risk: The silver investor who chooses to invest in or trade paper silver is exposed to market risk. Market risk refers to the risk of losing your wealth as a direct result of the collapse of a paper market or exchange, especially during times of crisis such as war and famine. The investor holding paper silver is greatly exposed to this while the investor who chooses to buy and hold physical silver is not exposed to this risk. This is not to say that the true silver investor is not or will not be exposed to war and famine; it’s rather to say that he/she will have a much better chance of survival, financially and otherwise. E.g. physical silver, especially in the form of silver coins, can without delay be traded to another person without the need for an intermediary and transported over borders if needed. This is not true for paper silver; therefore market risk exists where paper silver is held. Needless to say, physical silver, like physical gold, is not only the ultimate store of wealth, but it’s the ultimate form and expression of just or righteous power/authority. The moment they start to confiscate gold and silver, through the “paper gimmick” or any other means, whatever reason they give for doing so, you can bet you’re dealing with a bunch of thieves who are only out to lie, steal and murder!
- Paper silver is not real money: Paper silver is not real money and can never be used as money in the true sense of the word. Real money is not printed on paper and doesn’t grow on trees either. Real money is any commodity chosen by the free market to serve as a medium of exchange. It’s not a promise to be paid or a debt instrument where final payment is delayed forever, but rather a true store of value which has intrinsic value despite what the majority of fools have to say about it. Physical silver is money and can be used as a currency or medium of exchange, especially in the form of silver coins.
It should be clear to the responsible investor that most forms of paper silver should be avoided at all cost. It’s the breeding ground of greedy bastards, who are not only after your hard-earned money, but who seeks to destroy you and a decent way of life. They will do anything in their power to maintain this establishment of evil, but eventually it will fall and when it does, you don’t want to sit with paper silver.