Since the beginning of time, man has sought out precious metals and stones. These items not only look good as accessories, they also do an outstanding job of storing wealth. Through silver, gold and other items, this wealth has the ability to grow with inflation and other market-sensitive occurrences.
What is a hedge?
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses or gains suffered by an individual or an organization (investopedia.com).
Hedges are used to ensure savings and other funds grow with inflation and the market. For instance, I always hear the phrase “grandma had five dollars back then. That’s like having 4,000 today!”. While the inflation rate of whatever currency might make that a true statement, Grandma requires more than a savings account to turn her five dollars into 4,000 in accordance with inflation; because five dollars in a savings account twenty years ago is still ten dollars in a savings account today. Thus, an individual identifies a whatever type of market account, physical asset, whatever they want and voila!
The case for silver.
Silver, like other precious metals, has intrinsic value. Humans, for most of our time on the planet, used monetary systems based exclusively on silver and gold. Today, silver has an outstanding industrial demand for use in electronics. With a growing electronics industry and a currency system based on absolutely nothing, silver is a pretty safe bet for investment.
In 1980, silver reached an all-time-high of around 50 dollars an ounce. This was due to the London Silver Fix, an extreme example of market-manipulation. In 2011, the price again spiked to nearly 50 dollars; which is an incredible number considering that, at the time of this writing, the spot price on silver is $17.35. It is impossible to note, however, that both of these extreme spikes in spot pricing for silver were due to instances within the market. The first one being London Silver Fix and the second incident being a “silver shortage” that didn’t actually happen. Again, this is market manipulation, and the price corrected very quickly. That said, the opportunity was still there for people with decent stacks of silver to make some money. Will it happen again? Probably, silver is subject to heavy manipulation. Will you make money off it? Probably not, because it will be difficult to predict when the next fallacious “silver shortage” will be.
Now, the good news. As you read above, spot price on Silver is currently $17.35/troy ounce. That means it is extremely easy to get ahold of large amounts of silver. Referring to silver as a hedge, it works great as a sort of savings/investment combo. It’s extremely safe, the price probably won’t go much lower than it currently is, and your currency inflates with time because you own a physical asset. That’s great news because most banks only offer at or below 1% on savings accounts. That’s a pretty poor number.
What silver is not.
The back-alleys of the internet are trying to turn silver into something it cannot be. A brief clicking around on YouTube will reveal all sorts of doomsday preppers spreading ridiculous information about the looming apocalypse. Their plan is that currency systems will fall apart, governments will fail, and the world as we know it will fall into a state of “without rule of law”. While I’m not betting on this becoming a reality, it is not impossible. However, all reason goes out the window when you invest emotionally. That’s what most of these people are doing. They’re getting emotionally invested. Their grandfather’s grandfather invested in silver, so they will invest in silver to because it’s the safest way to go! They have created their own situation for why silver will eventually increase 1000% in value, and that’s what they are going with.
The problem is…the world doesn’t work this way. You can’t just write your own financial narrative that goes against how everything already works. Sure, one day, silver might be worth a shipload of….whatever it is that preppers think they’re going to by with silver; but in the meantime, perfectly acceptable financial opportunities are slipping through their fingertips. Now, don’t get me wrong, there is an outstanding place in everyones’ portfolio for silver. It just shouldn’t be your entire portfolio.
The fact of the matter is this: silver does have demand in the industrial market. Silver is also in finite supply; meaning there is a limited amount. That being said, the finite supply of silver is extremely large and it is unlikely a “silver crisis” will occur during this century. It is, however, extremely hard to research this aspect because every outlet writing anything about silver just spreads fear and doomsday bull shit. I think the reality is we don’t even know how much silver there is….because there’s so much goddamn silver.
How Domestic Error looks at silver
I’ll be honest, I own a nice little stack of precious metals, and I’ll probably continue to buy more. It’s great because, no matter what happens to my bank or checking account, my silver is worth at least what I paid for it. With a little luck, maybe my silver will even be worth five or ten dollars more per ounce than I actually paid for it; likely, this will take a long time, though.
Every portfolio deserves some diversification. This is an outstanding way to stay safe and mitigate any potential losses in the future. Silver absolutely serves a purpose in my little get-up, and it probably could serve you well, too. Don’t get too carried away, though. If you’re really interested in investing, do a bunch of research and determine how much is right for you. As a heads up, Forbes suggests precious metals make up less than 10% of your portfolio. I don’t really care to get advice from people who are would sacrifice their children to make ten bucks, but take it for what it’s worth.
I’d like to buy some silver!
Alright, don’t get too carried away here. There’s some important stuff you need to know. 1: “futures” seems like complete bull shit. I’m not a financial specialist by any stretch, but silver and gold futures appears to be equal to playing poker. Silver/gold futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of silver at a predetermined price on a future delivery date. This is a little confusing, but my understanding is that people trade it like FOREX, buying and shorting based on market movement. Don’t buy futures unless you’re a pro.
2: Do not purchase any precious metal from a place that “stores” your assets for you. Yeah, that’s a real thing. Certain “dealers” don’t actually deal anything. They just sell a contract that says “hey, you bought ten 1-kilo bars a X dollars per kilo. We’ll keep them here and, when you’re ready to sell, we’ll sell them for you, skim an assload of fees off the top, and send you a check!”. Yeah, not cool. If you’re going to buy a physical asset, you better have it in your hand by the end of the week.
There are plenty of great places to do this online, the right way. The internet shops are great because they are constantly being updated with spot prices, meaning you’re probably going to get the best spot price available at that given time. Whereas, if you head down to Larry’s exotic coin shop, who the hell knows what he’s basing his prices off. He might be doing it the same way, the guess is yours. I have purchased bullion from two places, APMEX.com (American Precious Metals Exchange) and SDbullion.com. Both are great dealers and I have no complaints so far. APMEX has spot price charts all over the site, so you cant screw it up. Both sites will also purchase your silver back from you, although you’ll be out the shipping cost. To sell silver, I’d suggest heading to your local shop (Larry’s exotica, or whatever) to see what kind of deal you can strike with him.
Silver comes in so many forms, what should I get?!
This is something I can’t really answer, because it isn’t so cut and dry. You have to decide what you’re into and go with that. What I can tell you is: do not buy any of the ridiculous specialty stuff. A 10-ounce silver skull or 1/16 ounce Pirates of the Caribbean replica coin are not a good investments because of the high premium you pay over spot price. Similarly, a lot of guys are really into numismatics (coin collecting). I don’t have an interest in that, and it’s extremely complicated, but it is an option if that’s what you’re after. To keep it simple, I like to buy 1/5/10 troy-ounce generic bars and leave it at that.
So, to wrap it all up, I’m not really bullish or bearish about silver. I think it acts as a great hedge, and it’s going to hold it’s value no matter what. But that’s probably all it’s going to do. A stack of silver is pretty neat to look at, though, and it’s a little easier to explain to your spouse than stocks and crypto. Definitely worth looking into!
-Error