Don't Understand Silver Bullion

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

Post Reply
coinstar
Associate Member
Associate Member
Posts: 36
Joined: Mon Jan 05, 2015 8:02 pm

Don't Understand Silver Bullion

Post by coinstar » Tue Jan 06, 2015 12:05 am

I realize HB didn't use Silver in the PP for a while, but the original PP did include silver, and there's people who argue for a little bit of silver in the VP for diversification purposes.

When I look at the spreads of silver, it looks like I'm paying $3 to $4 per silver coin above spot and selling it back to a dealer at around spot. That comes out to be 15% to 20% spread versus a 3% spread on gold coins.

Further, Silver oxidizes and tarnishes. And if you clean it off, that would reduce the value of the coin.

I'd really like to buy some silver as part of my VP because it's so low right now historically, but it seems like an awful deal. I could buy about $1050 worth of silver for $1250 (due to the mintage/dealer fees) or for the same $1250 I can buy $1200 worth of gold ($50 mintage/dealer fees).

Who's buying silver and how are you justifying it? How did HB suggest doing it before he changed to gold? What form of silver was he suggesting? How was he storing it? What did he recommend regarding oxidation?
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Don't Understand Silver Bullion

Post by MachineGhost » Tue Jan 06, 2015 2:38 am

coinstar wrote: Who's buying silver and how are you justifying it? How did HB suggest doing it before he changed to gold? What form of silver was he suggesting? How was he storing it? What did he recommend regarding oxidation?
The prequel PP is what PRPFX is.  The PP we all know and love has always been gold.  There's no justification for silver in the PP even though the PERM adds 5% to it.

Anyway all you need in the way of silver is one bag of pre-1965 junk silver for SHTF purposes.  Nothing more.  It is an industrial metal, not monetary.  Back in the modern days of yore, silver circulated as poor man's money (Spanish pieces o' eight) and gold was just bookeeping accounting title swaps by the rich banks who kept them in permanent storage (which is where Brilliant Uncirculated semi-numismatic gold coins came from).
Last edited by MachineGhost on Tue Jan 06, 2015 2:43 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
coinstar
Associate Member
Associate Member
Posts: 36
Joined: Mon Jan 05, 2015 8:02 pm

Re: Don't Understand Silver Bullion

Post by coinstar » Tue Jan 06, 2015 9:36 am

MachineGhost wrote:
Anyway all you need in the way of silver is one bag of pre-1965 junk silver for SHTF purposes.
When I look online recently, it appears that the spread of pre-1965 junk silver is still about $3 per ounce above spot. Perhaps historically, the spread has been lower but because silver has dropped so much, but is in "high demand", there's a shortage of even junk silver, thus the spread?
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Don't Understand Silver Bullion

Post by MachineGhost » Tue Jan 06, 2015 5:46 pm

coinstar wrote: When I look online recently, it appears that the spread of pre-1965 junk silver is still about $3 per ounce above spot. Perhaps historically, the spread has been lower but because silver has dropped so much, but is in "high demand", there's a shortage of even junk silver, thus the spread?
Spreads are always higher for lower denomination coins.  That's just another reason why gold is better.  The lowest spread would be for stamped bars, in fact.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

100 oz silver bars .999 at spot

Post by ochotona » Tue Jun 27, 2017 6:14 am

APMEX: "Silver at spot starts now! For a limited time, 100 oz Secondary Market Silver Bars are available at spot but only while supplies last."

Is this a good deal? Purity is 0.999, not 0.9999
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: Don't Understand Silver Bullion

Post by Cortopassi » Tue Jun 27, 2017 8:19 am

So you get 99.9 oz silver in a 100oz bar vs. 99.99? .09 oz difference = ~$1.49. I would say it is a good deal.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Don't Understand Silver Bullion

Post by ochotona » Tue Jun 27, 2017 9:33 am

Cortopassi wrote:So you get 99.9 oz silver in a 100oz bar vs. 99.99? .09 oz difference = ~$1.49. I would say it is a good deal.
I just hope I don't get bars which had been buried in a chicken coop by the previous owner
AnotherSwede
Senior Member
Senior Member
Posts: 117
Joined: Mon May 11, 2015 10:24 pm

Re: Don't Understand Silver Bullion

Post by AnotherSwede » Tue Jun 27, 2017 11:11 am

VAT?

I have thought about buying silver coins "for fun", old "Krona" had 40% silver and older 80%. But silver has VAT, "investment" gold not. "Investment" gold is not covered by insurance, but "collectibles" gold is.
User avatar
blue_ruin17
Executive Member
Executive Member
Posts: 153
Joined: Sat Aug 13, 2016 11:16 pm
Location: New Brunswick, Canada

Re: Don't Understand Silver Bullion

Post by blue_ruin17 » Wed Jun 28, 2017 6:52 am

The spread on silver is higher because it costs the same amount for a dealer to deal with gold and silver on an ounce for ounce basis. There is a high operating cost to run a bullion dealership...you have buy a vault, maintain security, pay for the company overhead, payroll, taxes, ect. It's a tough business with razor thin margins.

But with gold, a 3% spread equals maybe $45.00, where as a 30% spread on silver equals maybe $6.00. A dealer can't afford to collect only 3% on silver, because that would equate to a mere $0.60 an ounce. They just can't operate on that kind of rounding error amount of profit, let alone shave off a thin profit margin.

So, that is why the spread on silver is greater.

This leads a BUYER of silver to one of two natural conclusions:
  • You must buy and hold, at least until a considerable price appreciation, before you sell back to a dealer
  • You must sell privately, where there is no spread and you'll sell for a small fraction below what a dealership is selling the same bullion for
However, I would also add this: the higher the absolute price of silver, the lower the spread will be. Silver at $100 will not have the same spread as silver at $20 (though it will still be higher than gold's) for the reasons described above.

***************

I have been building a tidy little silver stack for a few years now. It is part of my Variable Portfolio, and is strictly segregated from my PP. My silver bullion portfolio is basically 1/3rd pre-1968 Canadian coinage, 1/3rd Canadian Maples, and 1/3rd American Eagles.

It is a pure speculative play: I'm in silver because its the horse I've bet on, and I think she has a lot of potential to break-away from the pack. Here are some brief points:
  • My silver speculative play is a bet on the future of hard assets in general: sovereign debt was the primary harbour of safety during the 2008 financial crisis when the banks were failing, but since then sovereign balance sheets have been infected by the same contagion that people fled from in the first place. I believe during the next major crisis, capital will flee to hard assets because government debt might actually be trigger of the crisis in the first place.

    I'm using silver as my vehicle for making this bet, because I believe that it has better upset potential than gold.
  • Silver-to Gold Ratio: I think that on a historical basis, the silver-to-gold ratio is totally out of wack. For most of history silver and gold were valued at a range of 1:10 to 1:20 ounce ratios. In recent history, that ratio has been 1:50 to 1:100. I'm betting on a massive reversion to the mean, which I predict especially during a crisis where hard assets are the destination of safety, as gold becomes out of reach for the average investor, driving them naturally to silver.
  • Silver's Industrial Use: Silver is often criticized as an 'investment' because it has become primarily an industrial metal, and has faded as a monetary metal. But this is exactly why I believe that there is a major opportunity in silver: it has been trashed for decades, massive quantities of it being lost irrecoverably to industrial use and consumer products. Now, here is the crux of my argument: I believe that the monetary use of silver has potential to return, and because so much of the world's supply of silver has been lost to industrial use, its value would have to rise significantly to reflect the increased rarity.
Silver has been used as money for as long as gold has. I own a Roman Denarius, for example. I can hold in the palm of my hand an actual coin that was used by people two thousand years ago as money, and which survives to this day. It has been a form of inter-civilizational money for longer than some civilizations have existed. I don't believe that humanity will just forget that silver is a trusted form of hard money in the event that there is a crisis of confidence in government paper. It is almost silly to just dismiss silver's monetary utility because of a few decades of humanity not valuing it as such, when there is a millennial, inter-civilizational, cross-cultural legacy of silver being valued and used as money.

Should there be a major crisis of confidence in government fiat and paper markets, it will be hard assets that win the day, and physical precious metals that serve as the harbour of safety that capital will flee to. Gold will be a winner, yes. But I believe that silver is a sleeper. It has been dormant for so long, trashed as an industrial metal for decades, and yet it remains the most accessible, practical form of precious metals that the average investor can get into, especially in the event of a crisis when gold may be accessible only to the rich.

It seems like everyone hates silver, even people who love precious metals. The contrarian in me delights.

***************

Now, full disclaimer: THAT IS ALL SPECULATION! Maybe silver really is dead, permanently, as a monetary metal. Maybe during the next crisis banana peels will be the asset class that everyone flees to. I don't know, and that's why the majority of my capital is held in the Permanent Portfolio matrix. But I also can afford to take on some risk, and with the money I can afford to speculate with, SILVER is the one asset class that I'm interested in making a bet on.
STAT PERPETUS PORTFOLIO DUM VOLVITUR ORBIS

Amazon: Investing Equanimity: The Logic & Wisdom of the Permanent Portfolio
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Don't Understand Silver Bullion

Post by dualstow » Wed Jun 28, 2017 12:26 pm

I'm still not a fan of silver because of the spread, but I loved your post!
RIP Marcello Gandini
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Don't Understand Silver Bullion

Post by ochotona » Wed Jun 28, 2017 6:28 pm

dualstow wrote:I'm still not a fan of silver because of the spread, but I loved your post!
Seconded!
User avatar
europeanwizard
Executive Member
Executive Member
Posts: 171
Joined: Sun Jun 04, 2017 4:06 am
Location: The Netherlands, Europe

Re: Don't Understand Silver Bullion

Post by europeanwizard » Thu Jun 29, 2017 5:46 am

dualstow wrote:I loved your post!
Amen.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Don't Understand Silver Bullion

Post by dualstow » Sun Jul 02, 2017 10:15 am

I don't understand why the mints are putting out such gaudy coins with stones and color illustrations. Obviously they're selling, but...disgusting.
RIP Marcello Gandini
Post Reply