There are three fundamental reasons why investors are buying silver coins: for a future growth investment, for a hedge against inflation, and/or to survive an economic collapse of the current government. Currently, some investors are purchasing silver coins because they believe the price of silver is going to increase in the near future according to supply and demand principles. This article will cover these fundamentals, and give scenarios of past and present situations in which investments in silver coins was or can be an excellent investment strategy.
In past precious metal bull markets, silver has outperformed gold by tripling in price when gold only doubled, and in some instances silver quadrupled in price while gold only doubled. One of the biggest factors for these occurrences is silver's numerous industrial applications which far outnumber gold's industrial uses. Since 1990, silver production of up has fallen well short of industrial demand. In fact, in 2001 silver production fell 117.5 million ounces short of industrial demand, and the demand for silver needed to produce currency raise the shortage to 142.5 million ounces. It is believed that more gold is currently stored in vaults than the total amount of the world's above ground silver supply. This is most likely the reason why in 1998 Warren Buffett purchased 129.7 million ounces of silver.
Most Financial Investors will advise the purchase of junk silver coins over premium silver coins. Although premium silver coins may be more aesthetically pleasing, they will not hold up in value during an economic collapse of a current government. The amount of silver content the coin possesses will far outweigh the coin's rarity or beauty when trying to barter for goods or services. Take for example, the economic collapse of the banking system in Argentina and Paraguay in 2002. The citizens that converted their Pesos and Guarani for gold and silver coins protected themselves when the banks closed, and even after banks reopened clients were limited to the amount of money that could be withdrawn.
An investor buying silver coins will need to follow some basic guidelines. A safe investment would be purchasing Morgan Silver, Roosevelt dimes, or 1964 Kennedy half-dollars. Just as important as what you buy is who you buy from. Whether it be your local coin shop or over the Internet, the investor should research how trustworthy the business or dealer has been in the past. Ask other investors for recommendations and gather feedback from previous customers are both good ideas before doing business.
U.S. coins minted before 1964 contain 90% silver content, and because they were circulated as a legal tender they're no longer in mint condition and are referred to as junk coins. Although they may be worthless to collectors, investors see only profit. A Roosevelt dime that was originally worth 10¢ would today have a melt value of $2.20 because it contains approximately 0.07234 ounces of silver.
A collector will pay $18.00 or $19.00 for a Morgan silver dollar, but they contain 0.77343 ounces of silver. If melted down, they would be worth $24.00 to $25.00 to an investor at today's prices. Typical dealers sell $1000 bags face-value of junk silver coins which will cost the investor $12 to $13,000 at today's prices. But at online auction sites and investor can find dealers selling smaller quantities, and some dealers even offer free shipping. Putting in a bid just above spot value on several lots will often land an investor a few winning bids.
Some strategists predict that silver could climb as high as $150 an ounce, and for an investor buying silver coins at today's spot-prices this could mean as much as a 328% return on their investment.
By Nathan M Lee
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