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How to Purchase Silver

By Edited Sep 21, 2015 0 2

Whether you choose to own silver to diversify a portfolio or to hedge against U.S. dollar inflation, you need to know how to purchase silver bullion without getting fleeced. Historically silver has been the main mean of exchange for most people, whereas gold had been reserved for the rich. China started using silver 2500 years ago, and in the United States silver formed a large part of dollar coins until being replaced by nickel. Owning silver in your portfolio should not cost you much if you follow the advice in this article.

Markups on silver assets range from nominal to outrageous depending on the form you purchase, so it is important retail investors and buyers know the various methods available to them before spending their first dollar.

Be aware that silver prices are quite volatile. Prices have recently increased or decreased by 7% in just two days. Do not be shocked to see the price of your order go up or down by 5% overnight in some cases.

Things You Will Need

The first step to making a purchase is to learn the spot price of silver. This information is readily available on web sites such as Kitco, Yahoo, or Google. A honest dealer will quote you and show you the spot price of silver while you are at the store, but you should be prepared nonetheless.

The next step is to decide in what form you want to own silver. Do you want to own it in physical or paper form? If you choose to own in paper form, call your investment advisor or log into your brokerage account and purchase the silver ETF quoted as SLV. The price of the ETF tracks very closely to that of physical spot silver, and the only markup you will experience is the annual management fee of the ETF and the commission you pay the broker to purchase the ETF.

Some people prefer to own physical silver but keep it in an insured and secured vault at the dealer. Perth Mint certificates are available to those willing to purchase $5,000 or more of silver at a time. The certificates are guaranteed by the government of Western Australia, and you will pay storage fees as well as a commission to the dealer who sells it, usually around 1.75% plus any 'administrative fee' depending on your dealer.

Should you prefer to own and keep silver in physical form, the cheapest form is to buy silver bullion bars from a reputable coin dealer or a precious metals broker. Markups on silver bars are the lowest, because they are the cheapest to make, weigh, assay and store. Markups on silver bars are around 2%.

After bars, one ounce bullion coins are the cheapest and most easily tradeable products. The best way to buy physical silver is to buy coins from a coin dealer. Markups on non-numismatic silver bullion coins range from 9% to 5%. The more you buy at once, the lower the dealer will mark up the coins.

Numismatic coins may cost much more because of their rarity and limited quantity. A 1975 Eisenhower silver coin can cost $499, compared to a new silver coin at $32. The markups on these numismatic coins are a matter of supply and demand, the condition of the coin, and how well you can haggle. You should buy numismatic gold coins ONLY if you are a collector and know what you are doing – not if you are a retail buyer seeking diversification.

Purchase your bullion coins from a national mint or a reputable dealer, such as Apmex or Kitco, and do not pay more than 9% over the spot market price of silver. The best forms to own are American Eagles, Canadian Maple Leafs, and Vienna Philarmonics.

Recently dealers are selling old US Dollar coins containing 80% or more silver. These are sold by the bag. Buy these at your own risk.

Jewelry and tableware is the worst way to buy physical silver as the markups are outrageous and they are not easily sold or traded. When you buy jewelry or tableware you receive no guarantee on how pure the silver is. Additionally you pay for craftsmanship and marketing costs, quite easily inflated and depreciable. Try selling your jewelry or tableware back to a jeweler and see if you get even half your money back.

Some gold dealers, such as Gold Money ®, sell gold and let you store it in their vaults for a monthly fee. The silver is purchased with a pool of money, but each gram of silver is then allocated to the buyer. Because these dealers buy in large volume and directly on a wholesale basis, they have low markups on the spot price. Buying pooled gold usually has a markup from 1.99% to 3.9% based on the amount of gold purchased (the more you buy at once the cheaper it is). Storage and insurance fees vary from dealer to dealer, but are usually cheaper than storing your gold in a bank vault.

If you decide to buy precious metals such as silver for economic or investment purposes, please buy the form of gold or silver that can be easily purchased, sold, and stored at the least amount of markup and commission. Silver bars, bullion coins, ETFs, Perth Mint certificates and pooled accounts are the best and cheapest methods to do just that. Stay away from jewelry and numismatic coins and you will be sure to get a good deal on your purchase and be able to resell it quickly should you need to.

Tips & Warnings

Make sure that you are buying .99 in fineness when purchasing silver bullion and bars. Some dealers are selling silver plated products or coins with a lot less silver content for cheap so do not be fooled.

If you choose to store purchase and store your silver at a dealer or digital purveyor, ensure that they are audited by independent third parties and are accountable to or regulated by a national body. They must insure their deposits by a third party, such as Lloyds of London. Lastly, a reputable dealer that stores your gold will usually have anti-money laundering practices and require you to provide identification and a bank reference before you do business with them.



Dec 13, 2010 4:15pm
great tips here on buying silver, especially the coins.
Aug 27, 2011 12:23pm
Helpful article for aspiring silver traders...
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