Question for metals investors

#1
lawgator1

lawgator1

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#1
I've been thinking about buying some silver bars for long term investing. But I also see that trading in silver funds is available option.

Part of me wants to have the silver to trade. I think it adds to the interest level and will encourage me long term to keep it and collect as much as possible for something like a 15-20 year endeavor.

On the other hand, I can simply buy a share of silver ETF (symbol SLV) which tracks the actual cost of silver per ounce, or very close to it.

Thing is, when you buy physical silver there are all sorts of costs associated with that. For one thing, if you buy the bars directly from the mints, there's usually a premium associated with their striking something on it. For example even with silver down around $17.25 an ounce spot it sells from the mints at closer to $18.50-$19. Sometimes there's shipping, and of course storage and expenses when selling it, whereas the share of SLV is easily traded.

Why consider bullion for anything other than the attraction of physical possession?
 
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#4
#4
LG. I hold gold and silver physical in hand and I have some in a ira.. Im proud of ya LG.
 
#5
#5
myrobbins7 said:
LG. I hold gold and silver physical in hand and I have some in a ira.. Im proud of ya LG.
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Silver has substantial commercial use. Its been beaten down by slow down in Chinese economy, and that's now built in. The rally in the dollar has also driven it down. But when those two things go back in the other direction, as they inevitably will at some point in the next 10 year cycle, there should be a quite the rebound.

Why own physical, though? That's what I'm wondering.
 
#6
#6
lawgator1 said:
Silver has substantial commercial use. Its been beaten down by slow down in Chinese economy, and that's now built in. The rally in the dollar has also driven it down. But when those two things go back in the other direction, as they inevitably will at some point in the next 10 year cycle, there should be a quite the rebound.

Why own physical, though? That's what I'm wondering.
Click to expand...

Well, that's when the Glen Beck will come out of me and you don't want to hear that. :p Well for a few reasons really. I just love Morgan and silver dollars I collect them and plus I plan on handing them down to my son when he gets older.
 
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#8
#8
lawgator1 said:
Silver has substantial commercial use. Its been beaten down by slow down in Chinese economy, and that's now built in. The rally in the dollar has also driven it down. But when those two things go back in the other direction, as they inevitably will at some point in the next 10 year cycle, there should be a quite the rebound.

Why own physical, though? That's what I'm wondering.
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What about all white precious metals LG?

Overall, industrial uses account for roughly 45% of silver demand. It's used in automotive, electronic, solar and photographic applications. Both platinum and palladium are found in auto and truck catalytic converters to control emissions, as well as a variety of tech products, such as LCD monitors, hard disk drives, batteries and electrodes.
 
#9
#9
lawgator1 said:
I've been thinking about buying some silver bars for long term investing. But I also see that trading in silver funds is available option.

Part of me wants to have the silver to trade. I think it adds to the interest level and will encourage me long term to keep it and collect as much as possible for something like a 15-20 year endeavor.

On the other hand, I can simply buy a share of silver ETF (symbol SLV) which tracks the actual cost of silver per ounce, or very close to it.

Thing is, when you buy physical silver there are all sorts of costs associated with that. For one thing, if you buy the bars directly from the mints, there's usually a premium associated with their striking something on it. For example even with silver down around $17.25 an ounce spot it sells from the mints at closer to $18.50-$19. Sometimes there's shipping, and of course storage and expenses when selling it, whereas the share of SLV is easily traded.

Why consider bullion for anything other than the attraction of physical possession?
Click to expand...


Do some research, but the average annual production of silver is around 800-900 million troy ounces (https://www.silverinstitute.org/site/supply-demand/silver-production/). Lets round that number up to 1 billion troy ounces to make the math easier. Today, the price of silver is around $17/oz, but lets make the math easier and round that up to $20/oz. That means, that the total annual output of silver could technically be purchased at $20 billion. Yet, we see in this article, that the average annual market for silver trading is at $5 trillion (New Silver Benchmark Seen Heralding Gold Fix Revamp - Bloomberg).

About $5 trillion of silver and $18 trillion of gold circulated globally last year, according to CPM Group, a New York-based research company. Silver was fixed at $19.94 an ounce in London today, for a 2.3 percent gain this year. Gold climbed 7.3 percent this year to $1,293 an ounce by its afternoon fixing today. Gold for immediate delivery reached a record $1,921.17 in 2011, the year silver touched $49.8044, according to Bloomberg generic pricing.
Click to expand...

So ask yourself, how can the total annual production of silver be only valued at $20 billion, yet the globally traded value of the market is at $5 trillion per year? That is where SLV comes in. By buying SLV, you are essentially creating "paper silver". They know that most people will not settle their options in physical metal, but instead in cash equivalents, so they are able to engage in naked selling at around 250 paper ounces to 1 real ounce of silver in annual production. This puts the SLV at a position to easily default if even 1% of the SLV owners choose to settle in the physical metal.

Also, with all of this "paper silver" floating around, it is easy to manipulate the spot price of physical silver buy dumping a bunch of paper contracts/ounces on the the market, and thus drive down the price from $50/once in 2011 to just under $17 a few weeks ago.

Finally, name one commodity that is priced less today than it was in 1980. Outside of silver, there are few if any at all.
 
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#14
#14
lawgator1 said:
I've been thinking about buying some silver bars for long term investing. But I also see that trading in silver funds is available option.

Part of me wants to have the silver to trade. I think it adds to the interest level and will encourage me long term to keep it and collect as much as possible for something like a 15-20 year endeavor.

On the other hand, I can simply buy a share of silver ETF (symbol SLV) which tracks the actual cost of silver per ounce, or very close to it.

Thing is, when you buy physical silver there are all sorts of costs associated with that. For one thing, if you buy the bars directly from the mints, there's usually a premium associated with their striking something on it. For example even with silver down around $17.25 an ounce spot it sells from the mints at closer to $18.50-$19. Sometimes there's shipping, and of course storage and expenses when selling it, whereas the share of SLV is easily traded.

Why consider bullion for anything other than the attraction of physical possession?
Click to expand...

Here's my $.02 The precious metals market is one of the most rigged markets around, which is why I don't invest in them. I've read that the actual bars that back up each ETF have been rehypothecated so many times that there are 100 ETF claims per bar. If there is a massive demand for the physical, the belief is there will be a price point that will allow it to unwind. However, the paper price determines both the ETF and the physical price, so unless there is a major financial/currency crisis you should have no problem trading in the ETFs for dollars.

To me, the main reason to own precious metals is to protect against a crisis and in that case--if you don't physically have possession, you don't really own it IMO.
 
#15
#15
red butler said:
Here's my $.02 The precious metals market is one of the most rigged markets around, which is why I don't invest in them. I've read that the actual bars that back up each ETF have been rehypothecated so many times that there are 100 ETF claims per bar. If there is a massive demand for the physical, the belief is there will be a price point that will allow it to unwind. However, the paper price determines both the ETF and the physical price, so unless there is a major financial/currency crisis you should have no problem trading in the ETFs for dollars.

To me, the main reason to own precious metals is to protect against a crisis and in that case--if you don't physically have possession, you don't really own it IMO.
Click to expand...

With the market leveraged at anywhere from 100-250:1 paper vs physical, I don't even think you would need a huge groundswell. Just 2% or less wanting delivery would drive them to default.
 
#16
#16
Rasputin_Vol said:
With the market leveraged at anywhere from 100-250:1 paper vs physical, I don't even think you would need a huge groundswell. Just 2% or less wanting delivery would drive them to default.
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For 2% delivery wouldn't they just rehypothecate another round to leverage 500:1? It seems to me the central banks support the practice and have their backs.
 
#17
#17
red butler said:
For 2% delivery wouldn't they just rehypothecate another round to leverage 500:1? It seems to me the central banks support the practice and have their backs.
Click to expand...

The game will have to end either with a physical default or even in your case, at some point, SLV will run out of cash to settle because (you would think) at some point, investor confidence in SLV will be driven down and the number of new investors will dry up... or once news of a default hits the streets, you would see a virtual run on the bullion banks. Either way, I am surprised that the game has gone on as long as it has, but you would think that we are near the tipping point.
 
#18
#18
Rasputin_Vol said:
Do some research, but the average annual production of silver is around 800-900 million troy ounces (https://www.silverinstitute.org/site/supply-demand/silver-production/). Lets round that number up to 1 billion troy ounces to make the math easier. Today, the price of silver is around $17/oz, but lets make the math easier and round that up to $20/oz. That means, that the total annual output of silver could technically be purchased at $20 billion. Yet, we see in this article, that the average annual market for silver trading is at $5 trillion (New Silver Benchmark Seen Heralding Gold Fix Revamp - Bloomberg).



So ask yourself, how can the total annual production of silver be only valued at $20 billion, yet the globally traded value of the market is at $5 trillion per year? That is where SLV comes in. By buying SLV, you are essentially creating "paper silver". They know that most people will not settle their options in physical metal, but instead in cash equivalents, so they are able to engage in naked selling at around 250 paper ounces to 1 real ounce of silver in annual production. This puts the SLV at a position to easily default if even 1% of the SLV owners choose to settle in the physical metal.

Also, with all of this "paper silver" floating around, it is easy to manipulate the spot price of physical silver buy dumping a bunch of paper contracts/ounces on the the market, and thus drive down the price from $50/once in 2011 to just under $17 a few weeks ago.

Finally, name one commodity that is priced less today than it was in 1980. Outside of silver, there are few if any at all.
Click to expand...


Maybe I missed something but 1) isn't it correct that the "amount traded annually" is not just newly mined silver, but all silver that is traded? Presumably all new mined silver was traded at least once -- by the mining company. But silver held by a given commodities broker since 1990 could also be traded; and 2) can't a given ounce be traded more than once in a year? If each share of SLV is traded multiple times, that doesn't mean each person in the line of succession for that share has a claim on the same ounce. It just means that at any given point in the calendar, whoever holds the note that day does.

Seems to me the real questions is whether the total share of SLV outstanding is so high relative to the amount of physical silver either outright possessed, or easily procured, that it could cause a problem if people sought the physical silver in its stead (which highly unlikely, by the way).

Hey, I'd rather own the physical silver, too. But a ten ounce bar from APMEX or Scottsdale Silver, or any other mint is going to cost around $195 today (they are direct from the sellers on Ebay if you want to check) whereas as I write this 10 shares of SLV would cost $167.

The spot price right now is $17.40/troy oz
 
#20
#20
lawgator1 said:
Maybe I missed something but 1) isn't it correct that the "amount traded annually" is not just newly mined silver, but all silver that is traded? Presumably all new mined silver was traded at least once -- by the mining company. But silver held by a given commodities broker since 1990 could also be traded; and 2) can't a given ounce be traded more than once in a year? If each share of SLV is traded multiple times, that doesn't mean each person in the line of succession for that share has a claim on the same ounce. It just means that at any given point in the calendar, whoever holds the note that day does.
Click to expand...

Fair enough, then that means that you would have to have roughly a years worth of silver traded at least 250 times each year. In other words, there are roughly 250 trading days in a year (5 days/52 weeks). So each day, a years worth of annual silver output is flipped each day.

Wrap you mind around that for a moment and then ask yourself if that sounds reasonable... even if you included scrap silver. Is there really enough silver to back up all of these transactions?
 
#21
#21
Rasputin_Vol said:
Fair enough, then that means that you would have to have roughly a years worth of silver traded at least 250 times each year. In other words, there are roughly 250 trading days in a year (5 days/52 weeks). So each day, a years worth of annual silver output is flipped each day.

Wrap you mind around that for a moment and then ask yourself if that sounds reasonable... even if you included scrap silver. Is there really enough silver to back up all of these transactions?
Click to expand...

Do you have a similar analysis for gold? I would guess it is much worse.
 
#24
#24
red butler said:
Here's my $.02 The precious metals market is one of the most rigged markets around, which is why I don't invest in them. I've read that the actual bars that back up each ETF have been rehypothecated so many times that there are 100 ETF claims per bar. If there is a massive demand for the physical, the belief is there will be a price point that will allow it to unwind. However, the paper price determines both the ETF and the physical price, so unless there is a major financial/currency crisis you should have no problem trading in the ETFs for dollars.

To me, the main reason to own precious metals is to protect against a crisis and in that case--if you don't physically have possession, you don't really own it IMO.
Click to expand...

And if you have physical possession and there is a crisis, you can eat it! Oh wait......
 
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