Silver Bars

Today silver bars are so much more than just that, a silver bar. Mints still produce silver bars in the 100 oz and above category for industry and investment banks, but we can see an ever increasing supply of high premium collectors and private market silver bars. This of course is contrary to original idea of silver bars, which was to provide a low cost and easy to handle format for selling and shipping silver in large volumes. Silver products which was sold to prices far above spot was earlier reserved for collators artefacts, silver jewellery, and household silver items.

Now silver bars has invaded the turf of collectors coins and rounds. This is why it is so important to make sure you buy silver bars that are generic - without any numismatic value - when you buy silver for pure investment purposes.

Remember that as soon as you start buying collectors items the investment game changes. Although you most likely will get a return on the collectors silver bar, equal to the spot price of silver that day, you might still see your invested premium in the “collectors item” fly out the window as you liquidate you silver. This is because numismatic items might follow a different demand & supply curve than the ordinary silver spot price.

So, what are ordinary silver bars without numismatic value? Here are some examples:

Geiger Edelmetalle: This mint is located in Leipzig, Germany, and it produces low premium 1 oz silver bars to 100 oz silver bars. They also produce silver bars in grams, according to the metric standard.

Sunshine Minting. This mint has production facilities in both the US and China. They produce amongst other silver products, low premium generic silver bars.

Johnson Matthey. Amongst many other things, this company mines and refines silver and gold. They have production facilities in both the US and Canada.

Silver bars from all the companies above can be bought through all the major precious metal dealers online such as APMEX, KITCO, Provident Metals, etc.

How to store your precious metals?

One of the biggest problems and expenses associated with the purchase of physical gold and silver, is storage. The problem with storing physical gold and silver isn’t only limited to space and accessibility, but also safety. Both our own safety, and the safety of our investment. So what are the priorities when selecting storage, and what alternatives do we have for storing our precious metals?

First things first, priorities. There is basically four things we need to take into account when selecting storage for our gold and silver and those are, in order of importance, personal safety, the safety of our investment, the cost of storage, and the accessibility to our investment.

Personal safety is a clear first priority. Just image someone storing their gold and silver in their own house, when burglars, trying to steal the gold and silver, break in in the middle of the night when the whole family is at home and sleeping. The burglars are caught red handed and in the commotion that follows, one or more members of the family gets hurt or worse. Needless to say, no amount of gold and sliver can compensate for such a hurtful experience.

Safety of the investment is a clear second priority, this is because low cost storage and  accessibility to the gold and silver means nothing if the gold and silver isn’t safe. Lets say a gold investors chooses to store his gold in a precious metal dealers depository. He does this because it makes it easier for him to buy and sell gold, in other words his gold is more accessible to the market. The problem arises when suddenly the precious metal dealer goes bankrupt. The gold investor looses nearly all of his gold investment, except for a small amount covered buy his insurance. Market accessibility of our gold and silver means nothing, if we suddenly don’t have any gold and sliver to sell.

Storage cost is the third priority, because what is the point of having an investment stored somewhere safe and secure, if you can't make a profit on it. Storing our gold and silver in a fully insured remote depository is not feasible, if the cost of storage eats up the returns of our investment. Better to store the gold and silver in a bank box, or similar, where the gold and silver is just as safe, but a little less accessible, since you can only get to in during the banks opening hours.

The last priority is market accessibility. When we have found storage alternatives that provides sufficient safety for us and our family; our investment is stored in a location where the risk of loss due bankruptcy, fire, theft, flooding, earthquake, etc. is as minimal as imaginable; and the cost of storage is reasonable, we can start to sort out the options with the highest degree of accessibility.

The storage alternatives

Home storage

To store our Gold and Silver in a safe at home, provides excellent accessibility and low cost, but the personal security and the safety of your investment might not be as good as it should. There are several point that makes this alternative less attractive:

• Home security and surveillance is in most cases not strong enough to keep burglars away.
• There is a safety hazard involved in transportation of the gold and silver to and from the property.
• Since this in most cases are the residence of us and our family this provides a threat to loved ones. 

Safe Deposit Box

Storage in safe deposit boxes is considered very safe. The security and safety of both our investment and loved ones are almost as high as it can get. The cost of renting a safe deposit box is in most cases higher than storing gold and sliver at home but often lower than storing it at a third remote depository, or vault. Another bonus is that the IRS seemingly permits self directed IRA owner to store their IRA gold and silver in safe deposit boxes. Some disadvantages with safe deposit boxes is:

• There is a safety hazard involved in transportation of the gold and sliver to and from the location of the safe deposit box.
• Some might claim that the investment is less safe from circumstances like government confiscation and bankruptcy.
• The market accessibility when storing gold and sliver in safe deposit boxes is quite poor compared to both third party depositories and home storage.
• The cost of a safe deposit box is mid range but in most cases higher than if you choose to store it at home.

Depository or Vault

This alternative is the one that by far provides the safest way for us and our family to buy, sell, and own gold and sliver, since we never even have to touch it. All transactions are done remote either by the means of phone, internett, faxes, etc. The market accessibility is supreme as well since there is no transaction delay like sending you gold and silver by mail, personal delivery, or waiting for the bank to open before you can withdraw you gold and sliver from the safe deposit box.

• Safety of our investment, seems to be the greatest concern for most investors of physical gold and silver. Government confiscation, bankruptcy, accounting errors, fires, etc. is are all arguments for this storage alternative being less attractive.
• Depositories and vault has some of the highest storage cost. Even though you save money on transportation cost, if you buy form an online precious metal dealer that uses the same depository, many consider the drawbacks of cost greater than the pros of accessibility and personal safety.

Silver Bar 101

A silver bar is a rectangular piece of silver with even thickness. Silver bars come in difference sizes but their weight are often standardised into these sizes, 1 oz silver bar; 5 oz silver bar; 10 oz silver bar; and 100 oz silver bar. Larger silver bar does exist but their weight is usually not standardised as with the smaller silver bars mentioned above.

Any mint can make silver bars since they don’t bear any legal currency. The value of the silver bar is largely determined by the silver bars silver content. Every silver bar is stamped with the mints hallmark, the purity of the silver contained in the silver bar, and the weight of the silver bar. This information is there to make it easier to evaluate the silver bar. The size and shape of silver bars make them easy to transport and store, reducing handling and storage cost for both buyer and seller.

The silver bar is the perfect format when selling silver to industry, and large investors and silver depositories. Industry rarely uses silver in its original format. It is usually melted down and used in components and alloys; dissolved in acid baths and used for silver plating; pressed and shaped into jewellery and other pure silver products; etc. Large investors and depositories are interested in getting as much silver for their money as possible, and to do this they buy silver in the format of a silver bar. In this way they can acquire silver with prices very close to the spot price. They also greatly reduce their associated cost with storage, handling, transportation, etc. since a large silver bar takes up less space; are easier to transport; and easier to handle, than several smaller silver bars or silver rounds/coins.

With a silver market that is growing day by day, more and more silver mines are turning their focus towards the private investor, who is now offered countless silver products from mines all over the world. Since the silver bar in most cases easily beats both the silver round and silver coins on price, this makes the silver bar an easy decision for many silver investors, but there are certain aspects of the silver bar you need to be aware of before buying, like e.g: 

Silver bullion products, as the silver bar, is not tax exempt in the EU. A VAT of between 7% to 25% is added on all purchases of silver bullion products, making silver bars a very unattractive  investment for EU’s 730 million citizens.

Since a silver bar can be made by any authorised mint, there are many “un-popular” silver bars on the market. Even though the price of these silver bars are seemingly low, bear in mind that they can have a very large spread and can be very hard to sell, making your investment very unprofitable.

Buying large silver bars can also seam like a good deal, due to the reduced premium, but if you cannot diversify your silver entry and exit, and rebalance your silver investments as planned, a large silver bar vs. several small ones, can prove to be the least profitable option.

Interested in gold and silver investing? Click here and find out more.

Precious metals, a liability?

As stated by most financial gurus, one of the most important aspects of investing is to know the difference between assets and liabilities. Not knowing the difference, or simply ignore that an investment is a liability, can result in it being very hard for you to generate solid returns and a good cash flow on you invested capital.

Investors like Robert Kiyosaki continually bombards us with the message that your house is not an asset, it’s a liability, and in most cases he’s totally right in saying so. Because if we uses his wife, Kim Kiyosaki's definition of what’s an assets and what’s a liabilities we can see that, "An asset is something that puts money in your pocket, whether you work or not". So, with that clear, what is precious metals, assets or liabilities?

Even though there are exemptions to the rule, like gold lending and such between major financial institutions, physical silver and gold is not to consider as assets. I’m not saying you shouldn’t hedge your investment portfolio with precious metals and other commodities, I’m just saying that precious metals in its physical form, and most other forms as well, take money out of your pocket. Precious metals rarely generates a cash-flow for the owner. On the contrary, it usually generates an expense flow. First you have the up-front expenses, like the premium above spot, delivery, and money transfer cost, second you have the storage cost, and if you don’t have any storage cost (because you store it at home, etc.) your precious metal cash-flow will in best case be zero.

It think it was Albert Einstein who once said that, “Compound interest is the 8 wonder of the world”, and I very much agree with him. Take Warren Buffet, one of the worlds richest investors, he has amassed his wealth by acquiring income generating assets throughout his career. So what we want is to have as little capital tied up in precious metals since they are liabilities.

But if silver and gold are so bad for our cash-flow, why do we want them at all?

That is because they are very good hedging instruments against stocks, which is for most investors  their largest asset group.

The hedging mechanism of precious metals is simply explained as follows:

When the market experiences financial uncertainty, people get more cautious with their investments. The market picks up this as “the public has lost thrust in the market” and prices on stocks and houses starts to drop. People start looking for hedges and safe storage instruments for their currency and the proven hedge throughout time (if we are to believe the experts) are precious metals and commodities. And the earlier you shift you money from stocks, during a crash in the stock market, and into hedges like precious metals, the more currency you can save, or even better, make on the whole situation.

The problem here is of course timing. It is very hard to predict a market crash.

That is why the best strategy for most investors is to diversify their investment over several investment instruments, such as bonds, stocks, real-estate, cash, and commodities like gold and sliver. The price we pay to keep our investment safer, is to put some of our hard earned cash into liabilities, that hopefully will act as a hedge in the event of market collapses and crashes. But diversifying and rebalancing our portfolio continuously we dont’t have to worry about timing and market crashes since the loss in one category will be counterbalanced by another category.

Should I Buy Gold or Silver?

When investing in precious metals we are faced with one major decision, should we buy gold or silver? If we invest in the wrong metal at the wrong time, we could miss out on some serious profits, or even worse, we could see our investment dwindle to just a fraction of what it once was worth, while forever waiting for the prices to rise again. For me the solution to this problem is quite easy, and it has all to do with diversification and rebalancing.

Diversification is the mechanism of spreading our investments both over time, investment instruments, and volume, and as I will explain later, this is to our advantage when liquidating and rebalancing our gold and sliver investments.

But how can diversification help me choose if I’m to invest in gold or silver?

One of the ways to implement the principle of diversification is by spreading you investment over several items, instead of only one. This is one of the most common ways of using the principle of diversification within precious metal investing, since the price ration between gold and silver is so big. As you will see in the example below Jill gets 50 times more silver than Joe gets gold.

Lets take the example of Joe and Jill. They both have $10 000 to invest, and their investment portfolio is as follows:

Both Joe and Jill have invested in all the categories except one, gold and silver. We can now observe their different investment tactic in this category and the result of it.

First up is Joe, he’s unaware of the principle of diversification and with the gold prices at the time being $1000/ozt, Joe thinks it’s a smart idea to invest his 10% of the portfolio ($1000) in one single gold coin.

Jill on the other hand has both heard and read about diversification, and its many advantages, so instead of following her friend Joe’s example of putting all his eggs in one basket, she decides to spread out her investments of $1000 over a larger volume. She therefore buys 50 one oz silver coins, with the price of $20 each at the total cost of $1000.

Joe and Jill’s portfolios are scheduled to be rebalanced every month, to keep the correct proportions between the 4 investment categories. Since the last rebalancing neither Joe or Jill has had any increase of asset value in the stock, bond, or real-estate category, but both silver and gold has had an increase of 50%. This is good news for both Joe and Jill, however Joe has a problem with rebalancing his portfolio.

Since Joe only has one gold coin in his gold & silver category, he is forced to sell his entire gold holding of one gold coin, for $1500. He then has to buy back 7 gold coins, weighing 0,1 oz each, at the total sum of $1050. The $450 he made on his gold that month ($1500 - $1050 = $450), he then spreads proportionally over the other categories to keep his portfolio in balance.

For Jill and her diversified silver investment, the story is quite different. The only thing Jill has to do is to sell 30% (15 pcs) of her silver coins, and spread the earnings of $450 proportionally over the other categories, so that her portfolio is in balance. Since Jill only has to sell, unlike Joe who has to first sell, only to then buy back a proportion of what he sold, Jill’s rebalancing expenses is much lower than Joe’s. By using the principle of diversification in volume, Jill has therefore had a greater return on her precious metal investment than Joe.

As we can see from the example above a good way to maximise our return on silver and gold investments is to diversify in volume so that we can rebalance our portfolio for the lowest cost possible.

A rule to thumb I used when I started to invest in precious metals was “Start with small silver investments before I make big ones. First then, will I commence with small gold investments before I increased those to bigger ones”.