Investors looking for the best and most lucrative silver investment should be keen to buy physical silver that carries the lowest premiums. Consider these three reasons why.

Premiums on Some Coins Can Evaporate

If you have purchased silver as an investment, you should already be aware that some types of physical silver carry higher premiums than others. More sought after coins, those produced in small quantities or those that carry value due to their status as a collectable, are often priced much higher than other silver coins. These coins are subject to changes in price that are not indicative of the market change in the price of silver, and thus, make very poor investments.

Many times, investors with little experience in coin collecting buy highly prized coins, not realizing that much of their value is derived from the rarity of the coin rather than the rarity of the metal. Should coin collecting become less popular, or the particular coin fall out of popularity itself, the coin will likely be worth much less than you paid for it. It may even fall as low as a few percentage points over spot prices, a hefty descent for most collection-worthy coins.

Premiums Can Rise and Fall

It is important to note that the premium on any silver coin can rise and fall with the typical supply and demand for physical metals. The spot metals markets (paper silver) and the physical metals markets often trade with differing prices. Physical metals are much more expensive due to the amount of demand relative to supply, as well as the fact that most people who buy physical metals buy silver coins to hold for long periods of time. On the other hand, buyers of paper silver often buy and sell quickly, improving liquidity and ensuring a lower price than physical metals.

Premiums for silver coins typically rise as investors seek true hard assets that they can hold in their hand, which occurs in weak economic climates. In healthier economic times, the premium may drop due to the fact that investors are more willing to gamble with paper silver rather than buy the real thing. However, with so many analysts and government agencies like the CTFC questioning if the amount of “paper silver” is in line with the amount of physical silver available, it makes more sense to own the physical, tangible version.

Ounces Matter Most

When boiling the strategies down to basic investing principles, it isn't the size, shape, or beauty of your silver coin investment that counts, but rather the amount of ounces that you have in your possession. One ounce of silver is worth one ounce of silver, regardless of the face stamped on each coin. Think of it this way: if you can cut your average premium cost from 8% to 4%, you'll get one extra ounce for each 25 you buy. What may seem like a measly 4% can account for dramatic sums of money in the long term.

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments

Chuck
13 Jan 10, 02:12

bullion coins

a lot of money made has been in careful selection of modern US bullion coins. For example:

fractional 2008 gold Buffalos [1yr series]

fractional 2008 gold Eagles UNC ($10) [lowest mintage]

all proof gold Eagles [because none were made in 2009]

all proof silver Eagles [because none were made in 2009]

anyone could have bought these coins for the same prices as the coins idiots that give advice about coin premiums say to buy; the only difference in selection was intelligence, not price paid.

this is also true of a lot of older numismatic coins.

making blanket statements to dissuade people from proper and diverse selection of coins severely limits their earning potential.

furthermore, it exposes them to much more risk. Numismatic coins have a different price cycle than bullion coins. Should one need money, often one can liquidate a Saint Gaudens or $10 Liberty at a fair price, whereas at the same time would suffer a sever loss by selling a bullion coin or round. Many Morgan silver dollars have a different price cycle than silver bullion coins.

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