Silver Investment

How to Invest in Silver

by

As I have said several times on this website- I think silver is a great investment, see Why Invest in Silver? There are many ways to invest in silver and I am going to list and provide some information on some of the ones that I am aware of. Please provide comments on silver investing with other investments or comments on the ones that I have listed.

  • Silver– Owning physical silver under your control is probably the safest way to invest in silver. One challenge with silver is that its bulky. You can physically keep several thousand ounces of silver in a home safe, but it is heavy and bulky. One thousand (troy) ounces of silver weighs about 83 pounds (31 Kg.) So, some people pay for silver storage. I haven’t ever had the need to do this and don’t know much about it, but obviously you would want to carefully investigate storage, know how and how quickly you can get your silver if needed and know the serial numbers of your silver bars.
    • Think about buying silver, storing silver and using silver. If you need to use your silver by cashing it in or bartering to purchase goods what will be a good form to have. You want something that will be widely recognized and accepted and you want forms that will be convenient. In other words you don’t want only have a 100 oz. bar if you are going out to buy a loaf of bread. What you don’t want for your “rainy day” silver is for it to have to be assayed before someone will accept it.
    • Silver coins- Silver Eagles, Maple Leafs, Pandas, etc. are coins minted by governments or possibly a private minter. Typically they are one troy ounce of .999 silver.
      • Advantages-
        • Typically readily available & very recognizable which is good when you sell.
        • The more “collectible” a coin is then usually the higher the premium (over spot) is.
      • Disadvantages-
        • Higher premium than some other forms of silver
      • “Junk silver”- these are 90% silver coins (US) from 1964 and before that don’t have numismatic value. Dimes, Quarters, Half Dollars and maybe some Silver Dollars.
        • Advantages-
          • Currently readily available at the local coin shop or online
          • Very recognizable
          • My local coin store charges about .75 X spot price per $1 face value. So, at $17/oz. spot, 4 silver quarters would cost about $12.75 and $1 of silver coins has .715 ounces of silver. So, the premium usually not as high with junk silver, but the buyers discount when they buy it back.
        • Disadvantages-
          • Not that I can think of except the bulk and extra weight given that they are only 90% silver.
        • Silver Rounds- these are “generic” (usually) one ounce coins or small bars.
          • Advantages-
            • Typically a lower premium than Silver Eagles.
            • Fairly recognizable
          • Disadvantages-
            • Many different coins and images on the coins, may not be as recognizable as Silver Eagles and junk silver.
        • Silver bars- 5, 10, 100, 1000 oz bars- typically .999 pure silver.
          • Advantages-
            • Typically will have a lower premium than coins and typically the larger the bar the lower the premium.
            • Should be fairly recognizable, I usually look for a recognizable refiner name and/or a serial number on the bar.
            • 1000 oz. bars are what fabricators and the big silver investors use. In a physical silver shortage I imagine these will be very desirable and may even command larger premium.
          • Disadvantages-
            • None that I can think of
        • SLV- a silver ETF & PSLV- Sprott silver ETF
          • Advantages-
            • Can be traded thru most any brokerage account including most retirement accounts (you may have to sign additional notifications)
            • Has physical silver backing most shares. There has been some shorting of the stock, but that has been fairly minimal and consistent for the last few years.
            • Currently (2/26/21), there are about 1254Moz. of silver in the silver ETFs according to Butler and other reporting. I think the spike in silver prices is going to come about due to demand for physical silver and the ETFs is where the silver is at. The question will be who is going to sell silver and at what price? You should do some research before investing in an ETF. Some say that PSLV is better than SLV because of a tighter correlation between the shares and physical silver.
          • Disadvantages-
            • You don’t have the silver under your direct control.
            • There is a maintenance fee which I think is .5% for SLV
            • BlackRock, Inc. is the SLV sponsor, JPM is the SLV custodian. I’ve seen many comments and questions about JPM being the custodian and the potential for them to somehow use that position to their trading advantage. I haven’t seen any reported abuses, but something to keep an eye on.
  • Silver futures– this is where there is a lot of action. I do not have any first hand knowledge about trading future contracts. So, if you do then please feel free to comment on the Pros & Cons of silver futures trading. The price of silver seems to be determined by the futures market and that is backwards to what it should be. Physical supply and demand should determine price and the futures market should be a place where legitimate producers and users can hedge price risks. Currently (2/23/21) the 8 top silver shorts are short almost 400Moz. I think there will be some traders who make a fortune in the coming silver market, but it is going to be volatile. If you KNOW silver and you KNOW the silver futures market and you think you can make some money there, then go for it. Because if you KNOW you know that it is going to be a wild ride.
  • Silver Options- Options are a contract to be to buy or sell a futures contract before a certain date. There are Call (long) and Put (short) contracts and a Strike price and an expiration date. I have had some experience with Options, but probably without the fundamental knowledge that I should have had to invest in them. All of the option contracts that I have bought have been Calls and most of them have expired as worthless- what Butler call “kamikaze” options.
    • Advantages-
      • You can “control” a lot of silver for a relatively small price. Each silver option contract controls 5000 oz. An example of an option contract would be- say today you predict that silver will be at $35/oz. by the end of the year. You could buy a January (expiration 12/28/20) Silver Call Option with a Strike price of $35 for about $125. So, if silver didn’t make it to $35/oz by 12/28/20 your contract would be worthless. If it got close to the strike price with some time before the expiration you might be able to sell the contract and even make some money. If silver was to go over $35/oz. then you would be “in the money” and so at $36/oz. you could sell the contract for close to $5000 (+$1/oz.). So, a defined risk with potential large returns.
    • Disadvantages-
      • The time element is the big factor. If the price doesn’t move as fast as you think then your option contract is probably going to expire as worthless. I think some very sophisticated traders trade options much closer to “in the money” and so also pay a higher price for those options.
  • Proshares Ultra Silver (AGQ) – is an ETF that shoots for 2X the return of the Blloomberg Silver Subindex which seems to closely follow (percentage wise) the price of silver. So, if silver goes up 5% AGQ will go up about 10% and vice versa when the price goes down. It makes a volatile commodity even more volatile. But, does give more exposure to silver per dollar which will can pay off in a bull market. I like this investment better than silver option contracts because I don’t have to worry about them expiring.
  • Silver Mining Stock- these can give you better returns (and more volatility) than silver. Just to give what isn’t necessarily an accurate example- say the average production cost for a miner is $17/oz. and silver is selling for $20/oz. Then the minor has a profit of $3/oz. Now the price of silver goes up to $23/oz. and the miner has increased profit to $6/oz. or by 100%. Obviously, these are theoretical numbers, but it shows how increases to the price should make big increases to the miners profits. The silver and gold miners stock have not lived up to that potential during the last few months and actually that might be an opportunity to get them before they start catching up. Ed Steer of https://edsteergoldsilver.com/ has a subscription based 5 days/week newsletter that provides much very good information about the Precious Metals market. He also seems to post publicly (free) most every Saturday to Silverseek.com The following is one of the many charts that he shows on a regular basis. This shows that for YTD the silver price has risen more than the Silver7 which I just realized that I don’t know exactly what that is. I assume that it is an index or ETF that tracks 7 Silver miners. More later.

Why not us?

by

(updated 3/1/21)

The mainly big banks have been playing a no lose (so far) game for years.  They have maintained a concentrated short position in gold and silver- selling more when the price is going up to cap the rally and then buying back as they manipulate the price lower. See my article on how they have done this.  As of 2/24/21 the top 8 silver shorts per the CFTC weekly COT report are almost 80000 contracts short silver.  That is the equivalent (at 5000 oz./contract) of almost 400 Moz. of silver.  They seem to be having trouble at this point trying to get out of that position as they have been short this much and more for the last 6 months at least. I have no doubt they will do everything they can to get out of this position without losing their shirts or maybe their companies.  See my Open Letter to the 8 Big Silver Shorts.

I know that Ted Butler has made an estimate on what the entry price of these silver short contracts was, but I can’t find that info right now. But, I am sure it was well under $20/oz. probably around $16 – 17/oz. and they seem very adverse to buying those back at a loss. The top 8 shorts may not be the same for both silver and gold, but they are currently (2/26/21) about $10 billion dollars in the hole- combining realized and unrealized losses.

Woes the big banks- right? I say this is the little guys chance to stick it to the “big boys” for once. We can keep their feet to the fire. The more silver we buy, the more people understand the situation, the higher the price goes, the more they lose, the more we gain. At some point (soon I think) one of them is going to flinch and buy back their short contracts, causing the price to jump up, causing the rest of the big silver shorts to fall like dominoes. How can they buy back a 4 month’s supply? Or the way I look at 350 moz. is over 15 month’s of Available Silver Production for Investment (ASPI) after average silver use, so ASPI is the amount available for investment.

For a long time now the futures market has dictated the price.  That is not the way future markets are supposed to work.  The supply and demand of the physical commodity is supposed determine the price and the futures market is supposed to give producers and users a chance to lay-off some of the risks.  It is upside down in the PM markets and is completely out of hand in the silver market.  For decades Butler has advocated for position limits in the futures market that would prevent these concentrated positions from controlling the price.

You may have heard the expression “silver is the poor man’s gold” and I think the current situation will prove that point. There are millions of people who could buy one ounce of silver per month, but not near that many that could afford an ounce of gold per month. I think gold will do fine in the coming market (see Gold), but I believe that silver will do much better.

Supply & Demand

by

The following table shows the average silver supply and demand (use) averaged for the last 9 years according to the Silver Institute 2020 Supply & Demand report.

Silver Institute 2020 Averages 2011 -2019 Moz.
Mine Production 845
Net Government Sales 2
Recycling 184
Total Supply 1030
Demand
Jewelry 188
Photovoltaics 74
Photography 43
Silverware 52
Other Industrial 410
Total Demand 767
Surplus 263

Why Invest in Silver?

by

I am a recreational poker player and in poker there is a term- “pot odds”. The term is somewhat intuitive and basically means that the amount you will win if you make your hand gives you odds to call (sometimes raise) the current bet. There is also the term “implied pot odds” which refers to the total amount that you assume the pot will be by the end of the hand. While I think silver presents great pot odds, I also think it has tremendous implied pot odds. In other words I think silver is currently a good investment, but if silver does what it could and should, it will be a tremendous investment. Is there a guarantee on either scenario? No, but I cannot think of another investment that has the pot odds of silver.

The big question is when? If it is going to be another 10 years before silver lives up to its potential then obviously nobody would get too excited. But I believe the key to silver taking off in price is simply awareness of the Silver Story. But, how people become aware of the silver’s status is much more complicated. I have frequently emailed most every politician and media outlet that I can think of stating the following: silver is being manipulated, it is a crime in progress, the government’s own COT report confirms the manipulation and recommend reading Ted Butler. An average investigative reporter (or ambitious intern) could glean enough information in a couple of hours to convince themselves that they could write a very interesting and important article about the silver market.

Currently the silver market setup is extremely bullish. I have explained this in the post Available Silver Production for Investment (ASPI) and other places on this site. The main point is that silver is a small market, both in supply and dollars. Any investment is a gamble and all we can do is our best to compare risk to reward. I believe that public awareness of this manipulation is growing and the silver manipulation (to the downside) must come to an end sooner rather than later. Even holding cash or putting money in a guaranteed account, has risk- mainly inflation. This makes silver a great investment. Given the current state of silver I feel there is nothing wrong with trying to logically speculate on the outcome. Following is what I think is most likely to occur with the silver market.

There are many triggers that could set silver off and up. Typically, precious metals prices go up with uncertainty as investors look to use gold and silver as a “store of wealth”. It seems to me that uncertainty is about as high as it has ever been in my lifetime- maybe with the exception of the Cuban missile crises. In my opinion is we might not even need a trigger with the big banks shorting silver by over 350 Mozs. There are plenty of other triggers that could start the silver price on an upward trajectory. I think any of the following events are more possible than “normal” and could be triggers.

  • Widespread public awareness of the silver market manipulation.
  • A major military conflict.
  • A major or series of natural disaster(s).
  • Inflation rates increase significantly
  • Gold to silver (investment) conversion
  • A physical silver shortage
  • A stock market crash
  • An investor or group of investors (the public) buying silver
  • And/or a major pandemic

I’m sure there are many other potential triggers. Let me know what you think might be coming that could be a trigger. Once the manipulation ends does that mean that the commercials (or others) won’t try to re-establish it? No, but I think once the dam is broken it is going to be very difficult to re-establish at least until the physical supply gets back in balance. So, once the price goes to $20 or more (now) there is going to be increasing public awareness of silver. Silver has been called the “poor man’s” gold because it is more accessible (pricewise) than gold. Many more people can go to their local coin shop and buy a Silver Eagle than can buy a Gold Eagle. Available physical silver is the key to ending the manipulation. There is only about 22 Mozs. of new silver available per month for investment demand compared to the annual supply, after taking out what is used for industry and fabrication. See the Silver Institute annual survey under the LINKS.

The next leg up will be to $30+ as the public gets more excited about silver and buys more physical and EFT silver. As the price goes up and potential supply bottlenecks, the industrial users will become concerned about making sure they have silver so they can make their products. Some of these users may start looking for alternatives to silver, but that won’t happen overnight. Silver producers (miners) will look to mine more silver, but that won’t happen overnight either. Recycling/Scrap will increase but that will also take some time to get into the “pipeline”. If industrial users try to increase their inventory this could cause a sudden demand of about 50 Mozs. See my post on Physical Supply for some more details on this scenario. The combination of investment demand and potential industrial demand will cause silver to go up to $50/oz. Silver between $30 – $50/oz. will be getting a lot of attention and the public awareness will snowball. Remember when the housing market was booming and you had everybody and their cousins flipping houses?

Once the price hits and goes over $50/oz. I think the silver market will get really hot By this time MSM will be reporting on silver (and gold) and increasing numbers of people will be trying to buy into an already very tight silver market. I think it could take a year or so from the time silver breeches $20/oz. until it gets to $50/oz. It could happen slower or faster, but I think a year is a good guess. The last time silver hit a high ($48.70/oz.) it took about 7.5 months (163 trading days) to go from $20.31/oz. to the high. Once it goes over $50/oz. I think it will go up to $100/oz. fairly fast- maybe just a few weeks or months. Over $50, we are in uncharted territory. There may be investors trying to short silver to cap the price, the USG could be looking at ways to stifle demand- including confiscation, the COMEX may stop trading and/or be in disarray. Any of those things could cause a lot of price volatility. I think anyone invested in silver will need to be on their toes. I am not forecasting what WILL happen, just what I think could happen and in some instances what is likely to happen. The main point is there could be several different routes on how we get there ($50+) and there will be many different things happening, so we will need to evaluate the situation at that time. I have seen predictions of silver at $100, $200 and even 1:1 to the price of gold. Obviously, I or no one else KNOWS what the price of silver will be and we will only know the high price once it backs off.

I do think that at some point after $50 and more likely after $100/oz. that silver will get into a “bubble” situation, so trying to hang in until the absolute top could get very tricky, but depending on how wild it gets could be very profitable. From now (9/27/20) at $24.00 to $100 is a 300%+ gain. To grab a number that sounds reasonable to me I would say that silver in an un-manipulated market should be around $50/oz. (based on 2020 dollars). I think things will “get bumpy” (be volatile) once silver goes over $50, up to the top and then back down to what will become a stable price range.

The other big plus for silver is the current silver to gold (Ag:Au) ratio compared to historical averages for this ratio. Currently, it is up around 80:1 (takes 80 ozs. of silver to buy 1 oz. of gold). Historically, that ratio has been more like an average of 55:1 and lower. Typically as silver prices rise the Ag:Au ratio goes down. At the two highs of silver on 1/18/1980 ($49.45) and 4/28/2011 ($48.70) the Ag:Au ratio was 17.2 (approx.) and 31.5 respectively. So, even though the gold price is likely to increase, the silver price is likely to increase by twice as much or more. The above ground gold market is estimated to be worth $11.4 trillion at current (10/2/20) price of about $1900/oz. So, what would happen if/when silver starts going up, 1% of gold were to convert to silver. That would be $110 billion dollars and at $24/oz. that would buy over 4.5 billion ounces of silver. The only trouble is there are only 2 -2.5 billion ounces of silver above ground, at least in 1000 oz. bars. The graphics at Markets gives a very good visualization of the size of different markets.

So, silver is the golden child, so to speak. What could go wrong? As I have said I think the run up of the silver price could be very volatile, but I also think the pot odds are very good. See the section of Risk & Disadvantages to get an idea of some of the risks as I see them. Please comment with ideas of either the advantages or risks of silver investing.

Physical Silver Supply

by

The key to price with any commodity is normally supply vs demand. The more supply compared to demand means the price goes down. If demand is stronger than supply then prices go up. Those rules break down in the manipulated silver market. But, basically by manipulating the price down the manipulators have kept investment demand down. The industrial demand for silver has remained fairly consistent for the last few years- about 750 million ounces. You can look at the last Silver Institute survey.

Silver Institute Survey

You’ll see that both the supply and demand have averaged pretty consistently (within 10%) between 2011 – 2019. Between the industrial usage and the silver used for jewelry and silverware there are only 263 million ounces (9 year average) left for investment demand. This is only 22Moz. ounces per month. Think about most manufactures these days. They typically operate on a “just in time” supply system. They want to have as little inventory as possible. Ted Butler wrote a good article on this years ago.

http://www.investmentrarities.com/ted_butler_comentary03-05-02.shtml

So for many if not most industrial silver users, silver is a small part of the total product. I have heard that there is about an ounce of silver in a car. The car manufacturer is much more concerned that the assembly line remains running than what the price of silver is. I don’t know what amount of silver manufacturers keep on hand, but to make it easy let’s say it is one month’s worth. Now say there is a physical silver shortages. Deliveries are delayed. The natural actions of the purchasing agents would be to build up silver inventories. The manufacturer would want to at least double their lead times and probably more. So, currently the manufacturers use over 60Mozs./per month. Then, due to a shortage they want another 60Moz. to build their silver inventory and they want it now. There is only an average “extra” 22Mozs. “new” silver available per month that is currently being bought with investment demand. So, just an extra 60M oz. demand would put a strain on the current supply and demand causing prices to jump, causing more investment demand, causing more strain on physical silver inventory. I think there are many “triggers” that could cause silver prices to start moving up, but at some point I think that price rise will go into high gear once silver supply is constrained given the way people will react to supply shortages and higher prices.

Butler has reported that since 2011 JPM has been building a physical silver inventory. He claims that currently they own about 1000 Moz. of silver. This silver hoard definitely is a wild card in trying to predict the when and how of ending the silver manipulation. JPM has accumulated this silver inventory over the last 9 years or about 100 Mozs. per year. So, if investment demand added 100 Moz. per year that would take up the slack if JPM backs off its accumulation. Butler has also said that he believes JPM was buying Silver Eagle and Maple Leaf 1 oz. coins and probably melting them into 1000 oz. bars. From 2011 – 2016 the average US Mint Silver Eagle sales were 41.2 Moz. per year. JPM apparently backed off in 2017 and the sales were only 23.1 Moz. last year.

I have seen estimates that there is an estimated 25 Boz. of above ground silver. That seems reasonable to me. But, 1000 oz. bars are what is used for most large silver users and for investment demand. There is only 2 – 2.5 Boz. of “viable” 1000 oz. bars. At the right price silver will get recycled and melted into bars. My local coin dealer told me after the 2011 price high that he was surprise how much scrap silver came in during that period. His point was he didn’t think near as much will come in on the next price rise. In other words if people didn’t want to bring their silver items in to be recycled in 2011, then at what price would they sell now?

Please post answers to these questions if you know the answers:

  1. How long does it take from the time that silver items are recycled to when they can be turned into 1000 oz. bars?
  2. Since Silver Eagles are already .999 silver, Is it quicker to turn 1000 silver eagles into a 1000 oz. bar than 90% silver?

Assumptions, Risks & Disadvantages

by

Assumptions:

  1. JP Morgan (JPM) and other large commercial banks have been manipulating the silver price to the downside for at least 10 years.
  2. JPM has acquired 650 – 700 Moz. of physical silver per Butler over the last 9 years.

Risks & Disadvantages:

  • I think the risks of investing in physical silver are minimal, but should be noted and watched for.
  • 30 years ago silver was under $5/oz for quite a while. It went up to just under $50/oz. in 1980 when the Hunt Brothers tried to corner the market, then crashed when they were stopped. It went up to almost $50/oz. again in the months before May 1st of 2011 due to physical tightness. Then manipulators took the price down . They have worked it down and it has been in the current trading range ($15 – $20/oz.) pretty much ever since, until in July 2020 when it spiked up over $28/oz.
  • There is a small chance of the government or governments declaring silver a “strategic metal” and trying to confiscate it. I don’t think that it is likely or would likely be successful and wouldn’t happen until there was an actual physical shortage. But it is something to watch out for.
    • Gold and silver are traded internationally and if USG tries to confiscate it will just make these commodities more valuable.
    • I think if there is confiscation it will be mainly to get silver. Silver could be declared a “strategic metal” which it is and is needed for electronics and military equipment.
    • I think physical metal under your control would still be relatively safe, but if the USG wants/needs it hopefully they will at least pay a fair price.
  • Having physical silver under your direct control is the safest, but other methods may produce better returns and probably more risks and volatility.
  • There is an Exchange Traded Fund (ETF) for silver with the symbol SLV. Basically, a share of this is an ounce of silver (less accumulated fees). Currently, there are 326M oz. in this ETF.
    • Advantages of SLV are:
      • Can be traded thru most any brokerage account including most retirement accounts (you may have to sign additional notifications)
      • Has physical silver backing most shares. There has been some shorting of the stock, but that has been fairly minimal and consistent for the last few years.
    • Potential Risks of SLV are:
      • You don’t have the silver under your direct control.
      • BlackRock, Inc. is the SLV sponsor, JPM is the SLV custodian. I’ve seen many comments and questions about JPM being the custodian and the potential for them to somehow use that position to their trading advantage. I haven’t seen any reported abuses, but something to keep an eye on.
  • Physical silver typically does have a fairly large premium. At your local coin shop you can pay $2 -$4 premium on a Silver Eagle. A 10 or 100 oz. bar may have a smaller premium. While this premium is definitely a deterrent to trading silver as a short term investment, I don’t think it is for long term investment.
  • At some point the price could get into a bubble situation, but I don’t think that will happen until $100/oz. or more.
  • If the COMEX trading got too wild, I could see COMEX halting trading on silver. Hopefully, we would get some prior indication that might happen, but if it does it should be bullish for physical silver and could be very negative for “paper” silver.