Silver in hand OR Silver "paper"?

As we have seen in many other different threads there are a lot of questions about the price of silver.

How does one buy? What should one buy? Should one buy? Why are prices where they are?

Now I am no financial wizard but I have been doing some reading, observing and listening.

A thread on another forum I visit discussed Kitco and buying in "pools". Basically buying silver on paper. You never have the physical product - you have it on "paper". It's much cheaper and so far easy to sell. Buy why?
I figure because people are still buying the "paper" so the funds are there. Now, what if several thousand people demanded the physical version? Could Kitco (or any other paper seller) supply it? I tend to doubt that very much.

Now look at physical silver. Let's say spot is at $11. Call a dealer that used to sell at $1 over spot and they want $4 over spot unless in very large quantities. Yes, it happens where I work everyday but why?

For starters the boss has way more than that into it. People sold like crazy when it was $18+ an ounce. Dealers bought like crazy. They certainly did NOT see it dropping $6 or so in a few short months.
Although it may, and should, balance out dealers just plain don't like selling at a loss. We still sell 2008 Silver Eagles at $22. Hey, the boss shelled out nearly $19 each for them. He's not willing to take that big of a hit.

Think it's just the "small" shops? Think again. Visit some of the bigger sites. You'll see that even buying in bulk where you once may have paid $1.75 or so over spot for silver eagles you'll now pay at least $3 over spot.

The discrepancy between "paper" and "physical" is huge. Maybe there's not as much physical out there as is let on?


Now take a look at 90% (junk silver) coins. Some people are still lucky enough to be able to pick up junk at near spot. Is it because the supply is still there? Personally I think junk is the best route to go in the long run.
No it does not command the same premium as ASEs etc. However, it costs a fraction and is REAL.
As price rise again (and I feel they will) the proportionate premium of bullion vs. junk should close greatly. Example: If silver shoots up to $20/ounce selling ASE's at 24 or so would work for dealers.
Junk would gain proportionally. If I can buy at 8x face then sell at 16x I've doubled my money.

I also look at ratios. Last time I bought gold the ratio was roughly 45/1 silver/gold.
Today it is roughly 71/1. Why is this? It has generally been hanging about 50-55/1.

Now I'm considering dumping a bit of gold in a trade for junk. I don't own much gold but if I could get junk silver at a 65/1 ratio I'd seriously consider it. For an ounce of gold I gain rougly 20 unces of silver which I feel has a lot more room to move up when all is said and done.

Lots of possibilities and no one has a crystal ball.

Thoughts, opinions?

clembo

 

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Yes, it's very interesting.

APMEX didn't have 2008 SAEs for sale on their website yesterday, but they've added them back on today. HOWEVER, last week they wanted $3.99 over spot. Now they want $4.29 over spot. Clembo, a lot of what you say rings true!

 

I would never buy on paper, but that's just my personal preference. I like to have the chunk of metal in hand.

 

There are three different types of people who buy precious metals. There is the collector who buys for the shear joy of owning it, the investor who expects to make a profit or uses it as a hedge against inflation, and the paranoid who believe that the end of the civilized world is coming where precious metal will again be the predominant money of the land.

I, and I believe most rational people, discount the third as not completely reasonable. Even if it were to happen, we would all have MUCH bigger things to worry about, and having a stash of silver or gold may quickly become a liability rather then an asset. As for investing, physical and paper silver are very similar. Both have pros and cons of course, with physical metal you need to transport and store a potentially large amount of metal for anything other then very minor investing, while with paper you pay fees for transactions and actions on the accounts but you don't have to even think about transportation and physical security concerns for your investment.


As for the gold/silver ratio, here is a graph of the silver price and gold/silver ratio since 1970:


As you can see the ratio varies quite a bit, and looking at this I would say that anywhere between 50 and 80 is the norm for the past 25 years, with the value being higher in times of higher inflationary risk, and lower otherwise.

I really think that right now the discrepancy between physical and paper silver is an artifact of the rapid drop in price. There are defiantly still places where you can obtain silver near spot, but as you already stated there are a lot of mostly smaller time operations and people who don't want to take a loss. Unfortunately taking a loss is a definite possibility when maintaining a large inventory of material that has a variable price. If they think that the value of the metal will go up then they are more then welcome to maintain a set price (this is known as a “limit” in financial situations), the value may go up to this point or just as easily go further down. I say... Suck it up and get on with it or you will be left behind very quickly.

~Droid

 

How are they getting away with doing that? How does one sell an item they themselves don't even have? I think those that would buy on paper aren't very wise investors.
Guy~

 

I've recently started picking up 1oz. bars to add to my coin hoard. Not for inverstment puposes, but just so I can have ounces and ounces of silver bars.

Not to mention silver coins is primarily what I focus on. I just love silver!

 

Not saying they are getting away with it Guy. I am sincerely doubting they could cover though.

My recent readings indicate many "paper" sellers may be facing some real tough times. Kitco, Perth and Barclays are all mentioned by Jason Hommel.

Put his name in a Google search and start digging.

No folks he is not my "source" of information. He is saying what a lot of us are looking at as a reality. As I stated in the OP we really talk about this a lot at work. I was leaning at physical silver already then read a very interesting article by him.

It's not an "end of rhe world" thing. It's a reality thing to me. Paper is paper. Silver is silver.

I also found it amusing that in his article he mentioned Apmex and Tulving as his "current favorites". I have a friend that just bought a bunch of war nickels from Apmex. I have bought from Tulving a few times in the past.

Real money for real silver. No punches pulled.

 

There is some good information here: http://en.wikipedia.org/wiki/Futures_exchange

Basically, as long as you make sure to re-sell your futures contract before the option closes (called "zeroing"), or by buying a contract that nullifies the one you already own, then you never have to touch any metal at all!

~Droid

 

The situation for the past couple of weeks at not being able to get junk silver at prices reasonably close to price worries me a bit. Basically, that's what I usually buy in good or bad times - for collecting purposes - I can't afford the MS-xx ones.

I'm worried that this experience will add a premium to junk silver (not a numismatic premium) but a "this is real hold-in-your-hand silver". So, yeah, I can SELL all day long at spot, but good luck buying at a reasonably similar price.

I think the buy/sell ranges for junk silver will be out of whack for the near to mid-term future.

 

I equate paper with worthless, except for a $1 silver certificates. A government can print all the paper it wants, but renege on the promise to pay out a dollars worth of silver, or even earlier $10 worth of gold; so what stops a commercial concern from doing the very same thing?

 

I prefer to buy silver I can hold in my hands in the form of coins. I can't buy enough silver to be a "real" investment, so I like to be able to appreciate it for what it is, a precious metal that holds history within its brilliant surfaces.

 

if you really want the answer to this the whole concept of buy and sell is completely flawed no matter what your medium of exchange is paper, silver, gold. It is very difficult to explain because it is very abstract but all the prices are made up. People will argue that its not made up but caused by demand and supply but even that is made up and there may or may not be artificiality into it. why do we use this system then because we dont have something better.

the same goes for things like stocks and bonds. People are happy with the promise to pay they dont really care about the physical aspect of it. We have been living in a fiat system since 1971 i dont hear people complaining where the dollars come from and can we get something for it. The nature of investments at its very core is to be better of tomorrow then you were today and for that some other variable has to change. Whether the fiat system succeeds or fails the underlying principle of investment wont change. you have to realize that people could do the same thing with soil or sand in the beach or salt ( and it has been done in the past) with the same results. Gold silver and any other metal has no value other than what we as a society put on it.

I will tell you why future expectations and market manipulation which is believed to be temporary in nature. They feel that the market will correct itself in the future and thats why they are not willing to. if the situation persists and prices stabilize for another year or so you will see bullion being traded for just over spot at whatever the spot is at that point in time

In a fair market he doesnt take a hit because he just replaces his silver for under spot and actually come out ahead sure the book loss will remain but he actually loses more by not selling. However i dont expect most dealers to understand this or the concept of book profits when its so counter intuitive and for people with limited capitalization can cause great financial ruin

The correct question here is how many people who buy the paper actually want physical. the answer will surprise you. they dont want physical they want the promise. as long as people believe in the promise it will work. the problem starts to occur when we over promise.

In theory you have doubled your money but have you really doubled it? odds are not as the purchasing power of money that you own now has dwindled. most of that will not be caught because if it was that obvious the fiat system would have failed already.

It had been 15:1 for tens of years but in a fiat system ratios mean nothing. IMHO its dangerous to go by ratios at least i would not advise anybody for it. they can change or be changed.

My advise to everyone here on CT is just this coin collecting and bullion investment are 2 different things. If you mix the 2 no one can predict what the final concoction will look or taste like but bitter or sweet you will be the one tasting it.

Beam me up scotty

 

It had been sticking around 50:1 and in that range for awhile now. But in a deflationary period like we seem to be headed into now, it throws all formulas into the wind. Gold seems to be a safer haven now than silver is in the eyes of the market forces.

Never mix coin collecting and investing. They are two very separate forces. Coin prices can be affected by bullion prices, but not the opposite. As a rule I do not advise ever investing in coins, they are wonderful collectables, but usually lousy investments.

 

I think those are good observations and good plans. The invisible silver pools might end up being the Enrons of the bullion world if/when enough people demand the physical and find out it isn't there. Bags of junk silver seem to go through periods of popularity and unpopularity and can probably be safely purchased when they sell around the spot price [or less]. I'd also rather have 65 ounces of silver than 1 ounce of gold. Playing the swings in the ratio is probably a good strategy.

 

The notion of gold to silver ratio is long gone since 2000+. One main and recent industrial use for silver has increased to replace lead solders due to health concerns. Gold on the other hand has lost its touch as technology for gold plating has gone to the level where it can go as low as 0.003nm (if I remember right).

If you remember platinum prices from the 1960s to present, do you know why platinum prices are so high? Yes, that's right. Mandatory government regulations on clean air act.

What is important is to be able to identify what are the key technologies that will have an impact on the usage or reduction versus the price of metal prices and factoring in external factors such as government regulations, ethical consumer demand, green factor etc.

 

Nicely said. Metals have always been a risky investment. Like someone said earlier, there really is no real value to gold and silver except what people will pay for it. They're not a necessity metal, like steel or iron. Invest in the enjoyment of collecting. Even long-term, you would make more off the same investment if the money were just gathering interest in a savings account.
Guy~

 

I third this sentiment. When I've tried to sell coins in the past, I'm lucky to get 60% - 70% of what I paid for them. That includes mint sets, rarities, errors, everything. Gold is usually the one exception, apart from the once in a great while exception (i.e., those lucky enough to have bought 1999 USA silver sets made out nicely, for instance). But I can't agree more with the statement that, overall, coins are a lousy investment (but nonetheless very fun to collect).

 

The bureau of printing and engraving has been doing it for years....

 

Hi Clembo,

 

Hey folks,

Some very good views on this and that's why I started the thread.

Guess I should have been a bit more clear that it wasn't really a coin collecting thread as much as investing in silver. We all know that is risky I believe.

I am a coin collector first and a VERY small time "investor". Lack of money has a lot to do with that

So that aside today the stock market takes a BIG dip while Gold and Silver see huge gains. Government bails out AIG and sends investors scattering.

http://news.yahoo.com/s/ap/20080917/ap_on_bi_st_ma_re/wall_street

They scamper over to the precious metals. Most notably gold and silver. NOW, did they do this on paper or physical. Paper I can assure you.

So NOW more are buying paper. How much paper can be sold? The physical is not there to cover it I'm afraid at this point.

Banks are on the brink folks. Yes, I may sound alarmist but it IS happening.

As I said I don't have much to invest but I am bringing a Krugerand to work tomorrow. Will most likely trade it for junk silver. I'll gain in the trade due to ratios and bet within a few weeks I'll gain even more.

What happened today was a paper price rise that will benefit those holding physical. It may balance out but as more dump into paper the physical holders will benefit most.

Silver in hand is the ONLY way I will go right now.