September 17, 2010
September 14, 2010
When minting a coin, governments add numismatic value to a coin’s bullion value while also endorsing its purity. The purity of bullions vary from issue to issues, however 99.9% purity is customary. 100% bullion coins do not exist, as absolute purity of metals in this form is not possible.
While gold bullion and silver bullion are the most common metals, palladium and platinum bullion bars and coins are available for interested investors. The rarest of all precious metals is platinum, and of the four, gold ranks second highest in rarity, followed by palladium and finally silver.
Bullion is the basic commodity traded in the precious metals market. By adding precious metals in general, and silver in particular, to a portfolio of stocks, bonds and mutual funds, an investor is introducing a tangible or real asset to the asset mix. This increases the degree of diversification and protects the portfolio against fluctuations in value of any one asset type.
The economic forces that affect the price of precious metals are different from, and often are opposed to the forces which determine the price of most common financial assets. This independent movement of precious metals to other financial assets can reduce overall portfolio volatility and contributes balance.
The Declining Dollar
The purchasing power of the U.S. dollar has steadily declined over time and is expected to continue to do so. Precious metals can often provide a “hedge against inflation” capability. For example, between 1971 and 1981, the U.S. dollar lost more than half its value, while silver prices rose nearly five times. Economies fluctuate between inflation, recession and expansion, precious metals investment help diversify and lower overall risk.
Whether you are conservative or aggressive in your investment approach, precious metals can represent an important part of your asset allocation. Some experts suggest that 10-15% of portfolio assets be in precious metals. No matter what level of risk an investor wishes to take, every portfolio needs a secure foundation.
Ease of Ownership
For investors who wish to take possession or direct control of their assets, buying physical bullion has appeal. Owning bullion is easy and convenient, and commissions on buying and selling it are minimal.
Silver bullion bars are the least expensive way to own silver. They can be converted easily to cash, prices are widely quoted and they are internationally negotiable. Silver bullion coins are relatively inexpensive. Because of their smaller unit size they are affordable and easily converted into cash. As in silver bullion bars, prices are widely quoted and internationally negotiable.
Industrial Demand. Silver, more than other precious metals, has significant demand rooted in sectors as diverse as imaging, electronics, jewelry, coinage, superconductivity and water purification. For this reason, silver is no longer known as just a precious metal, a store of value, a work of art or an industrial metal. It is all of these. Today silver is indispensable, working all around us to improve the quality of our lives.
Demand and Supply in 2009
The bulk of the 11.9 percent decrease in 2009’s total fabrication demand was primarily driven by the global financial crises, reflected mostly in a sharp drop in industrial offtake, to its lowest level since 2003. Total fabrication demand totaled 729.8 Moz and industrial demand posted 352.2 Moz in consumption.
World Silver Demand
Significant inventory cuts in the industrial supply pipeline, combined with a protracted decline in end-user orders, for example from a far weaker automotive industry, were the primary reason for lower industrial demand last year. While demand was noticeably weaker in the first quarter of 2009, it gradually improved as the year progressed. Overall, the losses were concentrated in East Asia, North America and Europe.
Implied net silver investment increased by a staggering 184 percent to 136.9 Moz last year, recording its highest level in the past 20 years. While overall jewelry demand dipped slightly by only 1.1 percent in 2009 to 156.6 Moz, India and China posted increases in jewelry demand last year, offsetting losses in most other markets. Silverware demand reversed the trend of the last decade rising by a respectable 4.6 percent to 59.5 Moz, largely due to a surge in Indian fabrication.
Silver mine production rose by 4 percent to 709.6 Moz in 2009. Gains came both from primary silver mines and as a by-product of gold mining. Regionally, the strongest growth stemmed from Latin America, where silver output increased by 8 percent, with the most visible gains recorded in Argentina and Bolivia. Peru was the world’s largest silver producing country in 2009, followed by Mexico, China, Australia and Bolivia. All of these countries saw increases last year except for Australia, where output from the lead/zinc sector declined markedly. Global primary silver supply recorded a 7 percent increase to account for 30 percent of total mine production in 2009.
Primary silver mine cash costs remained relatively stable year-on-year, rising by less than 1 percent to $5.23/oz.
Net silver supply from above-ground stocks dropped by 86 percent to 20.2 Moz in 2009, driven mostly by the surge in net investment, higher de-hedging, lower government sales and a drop in scrap supply. With respect to scrap supply, 2009 saw a 6 percent decrease over 2008’s figure to a 13-year low of 165.7 Moz. This represented the third consecutive year of losses in the scrap category.
Government stocks of silver are estimated to have fallen by 13.7 Moz over the course of last year, to reach their lowest levels in more than a decade. Russia again accounted for the bulk of government sales, with China and India essentially absent from the market in 2009. Regarding China, GFMS states that after years of heavy sales, its silver stocks have been reduced significantly.
World Silver Supply and Demand
To document these and other market fundamentals, each year the Silver Institute works with GFMS Limited, of London, a leading research company, to prepare and publish an annual report of worldwide silver supply and demand trends, with special emphasis on key markets and regions. This annual survey also includes current information on prices and leasing rates, mine production, investment and fabrication.
World Silver Supply and Demand (in millions of ounces)
Net Government Sales
Old Silver Scrap
Implied Net Disinvestment
Coins & Medals
Implied Net Investment
SOURCE: World Silver Survey 2010
Investing in Silver: Which Investment Is For You?
Should you decide that silver will be part of your investment portfolio, the next step is to learn about silver investment vehicles.
To help you, here is a summary of silver investment choices:
Bullion: Silver in the form of bars that are at least 99.5 percent pure.
· Official Coins: Silver coins issued by a government mint.
· Medallions (Rounds): A round piece of silver resembling a coin but not considered legal tender. Medallions may be issued by governments or private mints.
· Certificates or Storage Accounts: Silver is kept in storage but the investor can take possession within a few days if desired.
· Accumulation Plans: This approach enables investors to accumulate silver on an average basis, similar to dollar cost averaging. The investor does not own the physical silver.
· Futures and/or or Forward Contracts: An agreement made on an exchange to take or make delivery of silver at a set date in the future.
· Options: The right, but not the obligation, to buy or sell a silver or a financial security linked to silver on a specified date in the future.
· Exchange Traded Fund: A basket of equities linked to silver, i.e. the physical metal, producers, refiners, etc. ETFs are traded on exchanges throughout the trading day.
· Mutual Funds: An open-ended fund that holds a basket of silver-related equities that are priced once daily.
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