Silver as an investment 3992138 225124498 2008-07-12T00:22:37Z Manicsleeper 279830 Silver, like other [[precious metal]]s, may be used as an investment. For more than four thousand years, [[silver]] has been regarded as a form of [[money]] and [[store of value]]. However, since the end of the [[silver standard]], silver has lost its role as legal tender in the United States. (It continued to be used in coinage until 1964, when the intrinsic value of the silver overtook the coins' face values.) [[Image:EngelhardSilverBar.jpg|right|thumb|175px|An [[Engelhard]] silver bar]] ==Silver price== The price of silver has been notoriously volatile as it can fluctuate between industrial and store of value demands. At times this can cause wide ranging valuations in the [[Commodity markets|market]], creating volatility. Silver often tracks the [[gold]] price due to store of value demands, although the ratio can vary. The gold/silver ratio is often analyzed by traders and investors. Over most of the 19th century, the gold/silver ratio was fixed by law in [[Europe]] and the [[United States]] at 1:15.5, which meant that one [[troy ounce]] of gold would buy 15.5 ounces of silver [http://www.dani2989.com/gold/goldsirverratio180027092004gb.htm]. The average gold/silver ratio during the 20th century, however, was 1:47.0 [http://www.dani2989.com/gold/ratiogoldsilvergb030105.htm]. [[Image:Ag annual average USD price 1792-2005.svg|thumb|right|300px|Annual average price of silver in [[United States dollar|US dollars]]. The large spike in 1980 was a result of the [[Hunt brothers]] failure to corner the market and [[Silver Thursday]].]] {| class="wikitable" style="text-align:right; font-size:98%;" |- !Year<br /><small>(to 31<sup>st</sup> December)</small> !Silver price<br/>US$/oz !Gold price<br/>US$/oz !Gold/silver<br/>ratio |- !1910 |0.54||20.67||38.28 |- !1920 |0.54||20.67||38.28 |- !1930 |0.33||20.67||62.67 |- !1940 |0.35||34.50||98.57 |- !1950 |0.80||40.25||50.31 |- !1960 |0.91||36.50||40.11 |- !1970 |1.64||37.60||22.93 |- !1980 |15.65||641.20||40.97 |- !1990 |4.17||423.80||101.63 |- !2000 |4.60||272.15||59.16 |- !2005 |8.83||513.00||58.10 |- !2006 |12.62||628.20||49.78 |} From September 2005 onwards, the price of silver has risen fairly steeply, being initially around $7 per troy ounce but reaching $14 per [[ounce|oz]]. for the first time by late April of 2006. The monthly average price of silver was $12.61 per ounce during April 2006, and the [[spot price]] was around $15.78 per ounce on [[November 6]] [[2007]]. As of March 2008, it has hovered around $20 per [[troy ounce]]. [http://www.kitco.com/charts/livesilver.html]. ===Factors influencing the silver price=== ;Private and institutional investors: * From 1973 the [[Nelson Bunker Hunt|Hunt brothers]] began [[cornering the market]] in silver, helping to cause a spike in 1980 of $49.45 per ounce and a reduction of the gold/silver ratio down to 1:17.0 (gold also peaked in 1980, at $850 per ounce) [http://www.silverinstitute.org/price/hist_priceuk.php]. However, a combination of changed trading rules on the [[New York Mercantile Exchange]] (NYMEX) and the intervention of the [[Federal Reserve]] put an end to the game. * In 1997, [[Warren Buffett]] purchased 130 million ounces (4,000 metric tons) of silver at $4.41 per ounce (total value $572 million). Similar to gold, the silver price has more than doubled in value against the [[United States dollar]] since December 2001 [http://kitco.com/LFgif/ag84-pres.gif]. On [[May 6]], [[2006]], Buffett announced to shareholders that his company no longer held any silver. In April 2006 [[iShares]] launched a silver [[exchange-traded fund]], called the iShares Silver Trust ({{nyse2|SLV}}), which as of April 2008 held 180 million ounces of silver as reserves. ;The large concentrated short position: The [[CFTC]] publishes a weekly [[Commitment of Traders Report]] which shows that the four or fewer largest traders are holding 90% of all short silver contracts. This level of concentration is unprecedented in any commodity and should arouse suspicion. Furthermore, these four or fewer traders are short a total of 245 million ounces (as of April 2007), which is equivalent to 140 days of production. [http://news.silverseek.com/TedButler/1176829703.php] ;Industrial demand: The use of silver in items such as electrical appliances and medical products has increased since 2001. New applications for silver are being explored in batteries, superconductors and microcircuits, which may further increase non-investment demand. The expansion of the middle classes in emerging economies aspiring to Western lifestyles and products may also contribute to a long-term rise in industrial usage.[http://www.moneyweek.com/file/28810/why-the-silver-price-is-set-to-soar.html] Even so, due to the advent of digital cameras the enormous reduction in the use of silver halide-based photographic film has tended to offset this. ==Methods of investing in silver== ===Bars=== A traditional way of investing in silver is by buying actual [[bullion]] bars. In some countries, like [[Switzerland]] and [[Liechtenstein]], bullion bars can be bought or sold [[Over-the-counter (finance)|over the counter]] at major [[bank]]s. Physical silver, such as bars or coins, may be stored in a home [[safe]], a [[safe deposit box]] at a bank, or placed in allocated (also known as ''non-fungible'') or unallocated (''fungible'' or ''pooled'') storage with a bank or dealer. Various sizes of silver bars: * 1000 [[Ounce#International troy ounce|oz troy]] bars &ndash; These bars weigh about 68 [[Pound (mass)#International pound|pounds avoirdupois]] (31 kg) and vary about 10% as to [[weight]], as bars range from 900 oz to about 1100 oz (28 to 34 kg). These are [[COMEX]] ''good delivery'' bars. * 100 oz bars &ndash; These bars weigh 6.8 pounds (3.11 kg) and are among the most popular with retail investors. Popular brands are [[Engelhard]] and [[Johnson Matthey]]. Those two brands cost a bit more, usually about 40-50 [[Cent (currency)|cent]]s per ounce above the [[spot price]], but that price may vary with [[market]] conditions. * Odd weight retail bars &ndash; These bars cost less and generally have a wider spread, due to the extra work it takes to calculate their value and the extra risk due to the lack of a good brand name. * 1 kilogram bars (32.15 oz) * 10 oz bars and 1 oz bars (311 and 31.1 [[Gram|g]]) ===Coins=== [[Image:2006 AESilver Proof Obv.png|thumb|140px|right|[[American Silver Eagle]] bullion coin.]] {{Main|Silver coin}} Buying [[silver coin]]s is another popular method of physically holding silver. One example is the 99.99% [[purity|pure]] [[Canadian Silver Maple Leaf]]. Coins may be [[minting|minted]] as either ''fine silver'' or [[junk silver]], the latter being older coins with a smaller percentage of silver. U.S. pre-1965 [[Half dollar (United States coin)|half dollar]]s, [[Dime (United States coin)|dime]]s, and [[Quarter (United States coin)|quarters]] are 25 grams per dollar of face value and 90% silver (22½ g silver per dollar). (All 1965-1970 and one half of the 1975-1976 Bicentennial San Francisco proof and mint set [[Kennedy half dollar]]s are "clad" in a silver alloy and contain just under one half of the silver in the pre-1965 issues.) Junk silver coins are also available as [[sterling silver]] coins, which were officially minted until 1919 in the [[United Kingdom]] and [[Canada]] and 1945 in [[Australia]]. These coins are 92.5% silver and are in the form of (in decreasing weight) [[British Crown coin|Crown]]s, [[Half-crown]]s, [[Florin]]s, [[Shilling]]s, [[Sixpence]]s, and [[British Threepence coin|threepence]]. The tiny threepence weighs 1.41 grams, and the Crowns are 28.27 grams (1.54 grams heavier than a US $1). [[Canada]] produced silver coins with 80% silver content from 1920 to 1967. ===Rounds=== Some [[hard money (policy)|hard money]] enthusiasts use .999 fine silver rounds as a store of value. A cross between bars and coins, silver rounds are produced by a huge array of [[mint (coin)|mints]], generally contain an ounce of silver in the shape of a coin, but have no status as legal tender. Rounds can be ordered with a custom design stamped on the faces or in assorted batches. ===Certificates=== [[Image:Silvercertificate.jpg|thumb|150px|right|U.S. $5 [[Silver Certificate]].]] {{Main|Silver certificate}} A certificate of ownership can be held by silver investors instead of storing the actual silver bullion. [[Silver certificate]]s allow investors to buy and sell the security without the difficulties associated with the transfer of actual physical silver. The [[Perth Mint Certificate Program]] (PMCP) is the only government-guaranteed silver-certificate program in the world. The [[U.S. dollar]] has been issued as silver certificates in the past, each one represented one silver dollar payable to the bearer on demand. The notes were issued in denominations of $10, $5, and $1 and can no longer be redeemed for silver. ===Accounts=== Most [[Swiss bank]]s offer silver accounts where silver can be instantly bought or sold just like any foreign currency. Unlike physical silver, the customer does not own the actual metal but rather has a claim against the bank for a certain quantity of metal. Many [[digital gold currency]] providers, such as [[e-gold]] and [[GoldMoney]], offer silver as an alternative to gold and work on a similar principle. Other electronic silver accounts include the [[eLibertyDollar]] and [[Phoenix Silver]]. Silver accounts are backed through unallocated or allocated silver storage. ===Exchange-traded funds=== [[Exchange-traded fund]]s (or ETFs) represent a quick and easy way for an investor to gain exposure to the silver price, without the inconvenience of storing physical bars. The silver ETFs are: * iShares Silver Trust ({{nyse2|SLV}}), launched in April 2006 by [[iShares]]. * Central Fund of Canada ({{tsx2|CEF.NV.A}}, {{nyse2|CEF}}), which has 45% of its reserves held in silver with the remainder invested in [[gold]]. * In September 2006 [[ETF Securities]] launched ETFS Silver ({{lse2|SLVR}}), which tracks the DJ-AIG Silver Sub-Index, and later in April 2007 ETFS Physical Silver ({{lse2|PHAG}}), which is backed by allocated silver bullion. ===Spread betting=== Firms such as [[Cantor Index]] and [[IG Index]], both from the UK, offer the ability to take a bet on the price of silver through what is known as a [[Spread betting|spread bet]]. ===Derivatives=== [[Derivative (finance)|Derivative]]s, such as silver [[Futures contract|futures]] and [[Option (finance)|options]], currently trade on various exchanges around the world. In the U.S., silver futures are primarily traded on [[COMEX]] (Commodity Exchange), which is a subsidiary of the [[New York Mercantile Exchange]]. In November 2006, the [[National Commodity and Derivatives Exchange]] (NCDEX) in [[India]] introduced 5 kg silver futures [http://www.ncdex.com/products/products_precious_silver5kg.aspx?Type=Gen]. ===Mining companies=== {{See also|Category:Silver mining companies}} These do not represent silver at all, but rather are [[stock|shares]] in companies that mine silver. Companies rarely mine silver alone, as normally silver is found within, or alongside, ore containing other metals, such as [[tin]], [[lead]], [[zinc]] or [[copper]]. Therefore shares are also a [[base metal]] investment, rather than solely a silver investment. As with all [[mining]] shares, there are many other factors to take into account when evaluating the share price, other than simply the [[commodity]] price. Instead of personally selecting individual companies, some investors prefer spreading their risk by investing in precious metal mining [[mutual fund]]s. ==Taxation== {{See also|Taxation of precious metals}} In many tax regimes, silver does not hold the special position that is often afforded to [[gold]]. For example, in the [[European Union]] the trading of recognised gold coins and bullion products is [[value added tax|VAT]] exempt, but no such allowance is given to silver. This makes investment in silver coins or bullion less attractive for the private investor, due to the extra premium on purchases represented by the irrecoverable VAT (charged at 17.5% in the United Kingdom and 19% in Germany, for example). Other taxes such as [[capital gains tax]] may apply for individuals depending on [[citizenship]] and whether the [[asset]] is sold at increased value. ==See also== * [[Diamonds as an investment]] * [[Gold as an investment]] * [[Palladium as an investment]] * [[Platinum as an investment]] * [[Full-reserve banking]] * [[Precious metal]] * [[Commodity Fetishism]] ==External links== * [http://www.lbma.org.uk/statistics_current.htm Current London Silver Fixing] by the [[London bullion market]] * [http://www.silverinstitute.org/ The Silver Institute] [[Category:Silver]] [[Category:Investment]] [[Category:Commodities used as an investment]] [[Category:Warrants issued in Hong Kong Stock Exchange]]