What is the best way to invest in silver coins?
What is the best way to invest in or own silver coins? This is probably the first question the potential silver investor will ask after reading or hearing that silver coins, especially silver bullion coins, are among the most popular forms of physical silver to invest in or to own. This question in essence goes hand-in-hand with the following question answered in another section of the Silver Bullion website: How to best approach the silver market?
Common sense tells us that the following must be of importance when establishing what constitutes the best way to invest in or own silver coins:
Find a reliable silver coin dealer: It’s important to buy from a silver coin dealer who can be trusted and who is knowledgeable, not only in terms of knowing the silver coins that are for sale, but also in terms of knowing the best ways to get the relevant coins to you the buyer once purchased
Buy cash: It’s not always possible or easy, but if you can, try to buy your silver coins cash.
Dollar-cost averaging: This refers to the strategy where the silver investor, especially those with low budgets, accumulates physical silver by buying regularly or at different times at different prices. It is done in order to bring down the average cost of your silver purchases to a reasonable price. Investing in or buying silver coins, especially 1 troy ounce silver bullion coins, is an excellent means of applying dollar-cost averaging. Dollar-cost averaging has proven to work, especially in a silver market characterized by wild price movements as a result of silver market manipulation.
E.g. let’s assume you have a $1000 available to immediately invest in physical silver, and to keep it simple, we assume there are no P&P or delivery costs, premiums charged remain constant, no silver ingots available for sale, etc. Are you going to spend the $1000 all at once or are you going to make use of dollar-cost averaging? You have the option to buy 10 troy ounce silver bullion bars (silver bars) at a price of more or less $380 (at the time this was written) per silver bullion bar (silver bar). The silver price or spot price per troy ounce of silver is currently more or less $36.47 (at the time this was written). Now that gives you a premium of more or less 4% above the spot price of silver. In addition, you have the option to buy 1 troy ounce silver bullion coins in the form of American Silver Eagles at $43.50 per coin (at the time this was written) which equates to a premium above spot of more or less 19%.
Ok, let’s assume you decide to spend your $1000 immediately and as follow: You decide to immediately buy two 10 troy ounce silver bullion bars (silver bars) for a total of $760 or $380 each. You have $240 left over which you use to immediately buy five 1 troy ounce American Silver Eagle coins for a total of $217.50 or $43.50 each. You now have $22.50 left over of your original $1000, consisting of non-redeemable paper notes or fiat currency. How much did you spent on average per troy ounce of silver? ($760 + $217.50) ÷ [(2 x 10 troy ounces) + (5 x 1 troy ounces)] = $977.50 ÷ 25 troy ounces = $39.10 on average per troy ounce of silver. In other words, by buying immediately, your average cost per troy ounce of silver works out to more or less $39.10.
Now let’s assume for a second that you have chosen to apply dollar-cost averaging instead, to buy silver at different times and at different prices, instead of spending all your money at once. You decide to buy one 10 troy ounce silver bullion bar (silver bar) immediately for $380. You have $620 left over. The silver price or spot price of silver is currently at $36.47 per troy ounce of silver and increases to $38.00 per troy ounce of silver a week after your original purchase. You decide to buy two 1 troy ounce American Silver Eagle coins at $45.22 ($38 plus 19% premium) each or for a total of $90.44. You now have $529.66 left over. A week after your latest purchase, the silver price drops to $34.50 per troy ounce of silver. You decide to buy a total of three 1 troy ounce American Silver Eagle coins at $41.00 ($34.50 plus 19% premium) each or for a total of $123. You now have $406.66 left over to invest in silver. Now let’s assume the silver price increases to $36 per troy ounce of silver another week later. You decide to buy a 10 troy ounce silver bullion bar (silver bar) for $374.40 ($360 plus 4% premium). You now have $32.26 left over of your original $1000. How much did you spent on average per troy ounce of silver? ($380 + $90.44 + $123 + $374.40) ÷ [(1 x 10 troy ounces) + (2 x 1 troy ounces) + (3 x 1 troy ounces) + (1 X 10 troy ounces) = $967.84 ÷ 25 troy ounces = $38.71 on average per troy ounce of silver.
In other words, by applying dollar-cost averaging, your average cost per troy ounce of silver worked out to more or less $38.71. You have managed to save $1.39 per troy ounce of silver on average ($39.10 – $37.71). Note that in each instance you’ve managed to buy exactly 25 troy ounces of silver. Now it must be said that the above example is not the ultimate example of the benefits of dollar-cost averaging. In fact, we recommend that silver investors wishing to apply dollar-cost averaging, stick to silver coins and avoid silver bullion bars (silver bars) altogether, except of course if you have a substantial budget available for silver investing and do not wish to go for a “double play.” This is despite the fact that silver bullion bars (silver bars) can normally be bought overseas at premiums much lower than that of silver bullion coins such as American Silver Eagles. It’s after all no secret that the silver investor can get a “double play” when investing in silver coins, especially silver bullions coins such as American Silver Eagles, Canadian Silver Maple Leafs, Mexican Silver Libertads, Chinese Silver Pandas, Australian Silver Kookaburras, Australian Silver Kangaroos, British Silver Britannia and Austrian Silver Vienna Philharmonics. The same cannot be said of silver bullion bars (silver bars) that have little or no collector’s value (numismatic value) attached to it. Silver bullion bars (silver bars) normally consist of chunks of silver which only have the name of the mint, purity and origin stamped on it. It is true that in instances where silver bullion bars (silver bars) can be bought at relative low premiums, that one can get it at the least cost per ounce in comparison to silver bullion coins for one, but then one should not forget about ‘hidden’ costs such as the cost of assay (analysis of components), delivery cost, insurance fees, etc. which can be substantial, especially if one considers that a silver bullion bar (silver bar) can weigh substantially more than a silver bullion coin and is also way more bulky.
“Double play” here is in reference to the prospect of having both the melt value of silver and collector’s value (numismatic value) working for you when you invest in silver bullion. It can be seen as a way of managing your risks. E.g. when you buy a silver bullion coin which has some form of collector’s value (numismatic value) attached to it, such as an American Silver Eagle, you can potentially benefit from an increase in its silver melt value and/or an increase in the value due to an increase in the collector’s value (numismatic value). In addition, even if the coin doesn’t increase in value in terms of its silver melt value, which is highly unlikely (at the time this was written), you should still be able to benefit from an increase in the value of your American Silver Eagle based on the collector’s value (numismatic value) or vice versa.
Avoid external silver storage: Silver Bullion recommends that the silver investor avoids external storage of his/her silver coins as far as possible. This is not only to avoid storage and similar fees, but to retain full control over his/her silver investment or investment in silver. The last thing you want to do when hyperinflation is at the order of the day, when the store shelves are running empty, when large scale riots and civil disorder break out, is to queue at the bank (or elsewhere!) in the hope of gaining control over your silver! You will not only be fully exposed to possible silver confiscation and outright thievery, but you can bet you will be exposed to extreme physical danger as well.