Larry D. Spears writes: For investors who want to capture the coming move in silver, buying silver bars or coins is still one of the best options.
Like gold, investing in silver is a great hedge against inflation and financial turmoil alike. It's why demand for silver is increasing at an astonishing rate.
In fact, says Money Morning Global Investing Strategist Martin Hutchinson, "If silver were to match its 1980 peak, adjusted for inflation, it could climb as high as $150 an ounce."
For savvy investors who hold physical silver in bars or coins, that move would deliver roughly a 328% gain from today's spot-prices.
Investing in Silver Coins
Of the two, buying silver coins is a bit more challenging because there are so many different ways to purchase them - including rare coins.
But while rare collectible silver coins are often attractive and sometimes bring in big prices when sold, their value is quite subjective, as they are tied to a number of largely intangible factors like scarcity, wear and quality of appearance.
Rather than becoming a rare coin collector, most investors would be better off purchasing bullion coins if their intent is to ride the silver bull market.
The United States Mint produces several bullion coins in silver. The most popular is the one-ounce American Eagle, which can be purchased direct from the Mint in uncirculated condition.
At a recent price of $45.95, these coins sell at stiff premium to spot silver prices. But there's also a large aftermarket, where the coins trade at smaller premiums.
The same is true for the Mint's commemorative issues, such as the one-ounce 2012 Infantry Soldier Silver Dollar, recently priced at $44.95.
The Royal Canadian Mint also produces several silver bullion coins such as the half-ounce Year of the Dragon $10 coin. However, these coins also carry a similar premium when purchased directly from the Mint.
Despite the premiums, the guaranteed purity, beauty and liquid market have made U.S. Mint offerings highly popular. In 2011 alone, 39,868,500 ounces of silver were sold by the Mint.
How to Buy Silver Coins from a Dealer
All of these government-produced bullion coins are also offered by the major precious metals dealers, often at prices well below the original issue price.
For example, the American Precious Metals Exchange (APMEX) sells the Canadian Year of the Dragon half-ounce coin at a premium of just $1.35 over the spot silver price, depending on the quantity purchased.
APMEX (apmex.com) also operates its own mint, producing silver (and gold) coins in a variety of sizes.
The most basic AMPEX bullion "silver rounds" sell for premiums as low as $1.00 over spot, with prices adjusted regularly to reflect changing conditions in the global metals markets.
Other private mints that produce similar silver coins with competitive prices include Sunshine Minting Inc. (SMI), Englehard and Johnson Matthey. Many of these mints also produce silver "blanks" - coins with no design or engraving - in various sizes, which offer investors perhaps the closest coin in value to silver itself.
How to Buy "Junk" Silver
Investors can also tap the silver market by purchasing "junk coins," as opposed to newly minted bullion issues.
Prior to 1965, U.S. dimes, quarters and half dollars were minted using 90% silver and 10% copper. These coins circulated as legal tender and suffered the normal wear and tear of daily use.
As such, they have no value to coin collectors and are commonly referred to as "junk coins."
However, because of their silver content, these "worthless" collector coins have great value to investors - especially given today's prices. For example, a "junk" Roosevelt dime minted between 1946 and 1964 contains 0.07234 ounces of silver, giving it a "melt" value of roughly $2.17.
That's not bad for a product you could have originally purchased for 10 cents.
Similarly, a Washington quarter minted between 1932 and 1964 has 0.18084 ounces of silver, making it worth $5.43 today, and a Ben Franklin half dollar, minted from 1948 to 1963, contains 0.36169 ounces of silver, giving it a current melt value of $10.85.
Even older silver dollars - such as the Morgan dollars minted from 1878 to 1921 - which generally carry a minimum collector value around $18 or $19 for even the most common dates, are now worth $24 to $25 when melted down for the 0.77343 ounces of silver they contain.
Typically, dealers sell junk coins in $1,000-face-value lots - referred to as "bags" because that's how the U.S. Mint originally shipped the coins to banks.
These "bags" contain a mix of dimes, quarters and half dollars. A bag averages about 54.5 pounds in weight and has a silver content of around 715 ounces (down from the original 723 ounces due to the wear from circulation).
Bags of junk coins are generally quoted in terms of the current price relative to the original $1,000 face value - e.g., "25.2 times face" - but most dealers will also give you a quote per ounce if you ask.
Either way, a bag of "junk" coins will run you around $25,000 at current prices.
How to Buy Silver Bars
On the flip side, buying silver bars is fairly straightforward.
Silver bars come in a variety of sizes, ranging from 5 grams, worth about $4 at recent prices, to 100 troy ounces, priced at around $3,550 for "un-minted" ingots.
Minted bars - the most popular of which are 1- and 10-ounce ingots - typically carry a 3% to 6% premium over spot bullion prices, which covers the cost of refining and minting, as well as providing a profit for the dealers.
Silver bars can be purchased directly from private refiners and mints, such as Johnson Matthey, local dealers in most large cities or through online metals dealers like Montana Rarities, all of which also handle gold and bullion coins.
The United States Mint currently does not offer silver bars or ingots, though a number in varying sizes are produced by the Royal Canadian Mint and are available through U.S. dealers.
The Advantages of Buying Silver From a Dealer
Be aware, however, that prices for silver bars and coins change almost as fast as the price for spot silver itself.
Nearly all the major U.S. and international coin and bullion dealers now have computerized quote systems that link their product prices to current market prices in the actual commodity markets.
Some adjust their prices for coins and bullion bars every few minutes, reflecting changing market quotes, unlike a few years ago when many dealers set coin prices just once a day, based on the previous day's close.
For example, a sales representative for the Kitco Inc. (Kitco.com) "Online Store" says his firm normally adjusts prices for silver coins and bars every few minutes (even more frequently for gold), and continues to do so after U.S. markets close, mirroring metals price action in the Far East and Europe.
Of course, as with any investment, trading with a reputable dealer is the key to getting the most up-to-date prices, paying the lowest premiums, and being assured of the quality of the coins you buy.
Preferably, you should deal with one that's been in business for a number of years, has a well-established reputation, and clearly details its business procedures, product lines, and sales guidelines.
The companies mentioned above qualify in this respect, as do a number of others, including Blanchard and Company Inc. (blanchardonline.com) and Monex Precious Metals (monex.com).
All have extensive websites with complete product descriptions and information on pricing, payment, delivery and security procedures, so you don't need to be wary of doing business online.
As a rule, all of the firms will "lock in" your price quote as soon as your purchase order is secured, usually with a valid credit card number or, if you have an existing account with the firm, with an appropriate-sized hold on your funds. Fees for shipping, handling and insurance are added on at the time of checkout.
Although sales may be secured via credit card, many dealers won't accept credit cards as payment for bullion bars or coins - and the ones that do will usually charge a fee, usually around 3.0%, to offset their costs.
Prices will also vary with the size of your order, as will shipping and handling fees.
For example, with silver trading at $34.80 an ounce last week, APMEX was pricing its one-ounce silver rounds at $38.08 for 1 to 19 coins, $37.58 for 20 to 99 coins and $37.08 for 100 to 499 coins.
So if you want the best prices, buying in volume pays.
The major dealers also offer a variety of added customer benefits that may appeal to you. For example, Blanchard and Company has a "guaranteed buyback" program in which they promise to repurchase any item they originally sold you.
The price will, of course, be different, reflecting current market conditions at the time you sell.
The dealers also operate on a bid-ask basis, buying your coins and bullion bars for 3% to 5% less than they would sell them to you at the same time. Some also provide storage options if you'd prefer not to take delivery of your coins.
Either way, thanks to the world's central bankers, investing in sliver promises to be rewarding in the years to come.
[Editor's Note: If you or anyone you know is thinking about silver, please read this. We've just released a report that exposes a massive scheme behind the price of silver.
What we found after six months of research will raise the hairs on the back of your neck.
It stems from a massive scheme that appears to involve traders... investment banks... and, as some suggest, even the federal government itself.
Right now, these factors are converging to push silver to a historic high. The last time something like this happened, silver shot up 195%.
Please go here to access our just-released report.
And, if you know of anyone who has a strong interest in silver, please forward this to them. They'll want to know the details.]
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