Tuesday, March 1, 2016

Buying silver coins strategically for your collection or as an investment

Silver coins are extremely popular, especially among collectors who are just starting out.

I need to preface this post with a little disclaimer. I am not, nor have I ever been, an economist. What follows are some of my views of the precious metal market.

Have you been buying bulk silver?

The spot price of silver is right around $15 per ounce and has held within a dollar of that for the past few months. Do you remember when it was above $30 per ounce? It wasn't so long ago, about four years.

Now that the U.S. economy has largely recovered (at least banks are going belly up anymore), precious metals prices have stabilized. But, keep in mind, metal values are really just a reflection of the currency being used to purchase them.

Country X's dollar is worth 1/10 of Country Y's dollar.
Country Y's dollar is worth 1/10 of Country Z's dollar.
So, you could say:
Country X$ = 1/100
Country Y$ = 1/10
Country Z$ = 1

If the value of silver (Compared to Country Z's dollar) is $15 per ounce it would take the following amounts to purchase one ounce of silver:
Country Z - $15
Country Y - $150
Country X - $1500

In a genius move, Country X grows their economy by 100% and the world takes notice. Suddenly their dollar has grown in value. Silver, the lame dog that it is, has stayed at exactly $15 per ounce. Now to purchase an ounce of silver in each country it costs:
Country Z - $15
Country Y - $150
Country X - $750

To those who live in Country X, it appears the value of silver has gone down, they can now buy an ounce for half the price they could last year. But the value of silver hadn't really gone down.

The value of precious metals stays relatively static* while the value of national currencies fluctuates. The housing bubble burst of the previous decade and its fallout caused the "value" of precious metals to rise as the U.S. economy tanked. Now that we're heading in a better direction, with the usual market swings, metals have stabilized.

Silver prices graph snipped from www.apmex.com

If you want to invest in precious metals, now is a good time to buy. I especially like silver because it swings just as wildly upward as other metals but it is affordable for most budgets.

Think of it this way; investing in precious metals isn't so much a gamble on metals prices as it is a hedge against mismanagement of the full faith and credit of the United States. You know, the way Congress likes to hold the debt ceiling hostage every couple years, things like that.

*I said above that the values of precious metals are relatively static, which is true. But supply and demand can affect metal prices as easily as it can affect that of other commodities. For instance, for the first time in my life, the value of platinum is significantly less than the value of gold.

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