Silver, like any other precious metals, may be used as an investment. For more than 4,000 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 U.S. ( It continued to be used in coinage until 1964, when the intrinsic value of the silver had gone beyond the coins' face values.)
The price of silver has been disreputably volatile as it can vary between industrial and store of value demands. Sometimes this can cause wide ranging valuations in the market, creating volatility. Silver often tracks the gold price due to store of value demands, although the ratio can change. The gold/silver ratio is frequently analyzed by traders and investors and buyers. Over most of the 19th century, the gold/silver ratio was fixed by law in Europe and the US at 1:15.5, which meant that one troy ounce of gold, would buy 15.5 ounces of silver. The average gold or silver ratio during the 20th century, however, was 1:47.0.
Factors influencing the silver price
Methods of investing in silver
A conventional way of investing in silver is by buying actual bullion bars. In some nations, like Switzerland and Liechtenstein, bullion bars can be bought or sold over the counter at major banks. Physical silver, like 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:
American Silver Eagle bullion coin.
Buying silver coins is another well known method of physically holding silver. One example is the 99.99% pure Canadian Silver Maple Leaf. Coins may be minted as either pure silver or junk silver, the latter being older coins with a smaller percentage of silver. U.S. coins 1964 and older (half dollars, dimes, and 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 dollars 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 U.K. and Canada and 1945 in Australia. These coins are 92.5% silver and are in the form of (in decreasing weight) Crowns, Half-crowns, Florins, Shillings, Sixpences, and 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.
Some hard money fans 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 mints, usually 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/in assorted batches.
U.S. $5 Silver Certificate.
A certificate of ownership can be held by silver investors as an alternative of storing the actual silver bullion. Silver certificates allow investors to trade 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 1 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.
Most Swiss banks offer silver accounts where silver can be immediately bought or sold just like any foreign currency. Unlike physical silver, the customer does not own the real 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 related principle. Other electronic silver accounts include the eLibertyDollar and Phoenix Silver. Silver accounts are backed through unallocated or allocated silver storage.
Exchange-traded funds 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:
Firms such as Cantor Index, CMC Markets and IG Index, all from the UK, offer the ability to take a bet on the price of silver through what is called as a spread bet.
Derivatives, such as silver futures and options, currently trade on various exchanges around the globe. In the U.S., silver futures are mainly 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 launched 5 kg silver futures.
Silver Mining companies
These do not symbolize silver at all, but rather are shares in companies that mine silver. Companies hardly ever mine silver alone, as usually 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 exclusively a silver investment. As with all mining shares, there are many other factors to take into account when evaluating the share price, other than just the commodity price. Instead of personally selecting individual corporate, some investors prefer spreading their risk by investing in precious metal mining mutual funds.
Taxation/Taxation of precious metals
In many tax regimes, silver does not hold the special position that is frequently afforded to gold. For e.g., in the European Union the trading of recognized gold coins and bullion products is 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 stands for the irrecoverable VAT. Other taxes like capital gains tax may apply for individuals depending on country of residence (tax status) and whether the asset is sold at increased value.
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