Wednesday, March 21, 2012


How to Invest in Silver

When times are bad, people start looking to invest in precious metals like silver and gold. In this article, you will not only find out how to invest in silver, but also tips for investing in silver and why you might choose silver over gold.
Before we get started, know that silver is much different than investing in gold, in spite of them both being precious metals, so be sure you take the time to educate yourself about investing in silver before jumping right in. You can find out more about the difference between the two in our article, Silver vs Gold, which I would consider mandatory reading before diving in to the silver market.
How to Invest in Silver – Buying Silver
There are two mainstream methods for those looking to invest in silver: buying bullion or buying into an EFT. There are advantages to each approach, which will be listed below.
Silver bullion (physical silver held for investing purposes) is typically sold as bars and coins. Given that silver is much cheaper than gold, bars of silver are much more accessible for the average investor. As a result, investing in silver bars is more common than buying gold bars.
Coins are also an option for those looking to invest in silver bullion, with the most popular coin in the USA being the American Silver Eagle (which weighs 1 troy oz). It is important for those looking to get into silver as an investment that you do not buy uncirculated collector-grade coins. The reason for this is that collector’s coins are typically marked up over the spot (market) value of silver. These are not readily sold and you do not want to pay a marked up price for silver as then you will struggle to make any profit off of your investment. You can learn more about this investment option in our article on How to Buy Silver Coins.
The other option is to buy into a silver ETF, or exchange-traded fund. The most popular one of these on the NYSE is marked as SLV and owned by iShares. At the time of this writing they have over 300 million troy oz of silver that you can buy into. When you buy into a fund like this, you own the equivalent of 1 troy oz of silver (at the time of this writing – other ETFs only offer 1/10 an oz so do your research).
Personally, I think it is much easier for investors to opt for the ETF, but some people just like to own the physical silver. The downside to owning silver is its hard to buy and sell and you have to have somewhere to keep it. Getting an insurance policy for it also eats into your profit.
Find out more about investing in physical silver in our article, How to Buy Silver Online. However, you can also buy silver virtually (stored offsite, not at your house) for the lowest possible fees. We recommend this over owning your own silver. You can read about virtual silver in our article on the Best Way to Buy Silver. There are two ways you can use to in invest silver through your computer with minimal fees.
How to Invest in Silver – Why Silver
Investing in silver is a risky proposition. You should know three things about silver:
  • Compared to gold, there is actually not very much investment-grade silver on the market. The gold bullion market is many times larger than the silver market.
  • The price of silver is tied much higher to supply and demand than gold is; the demand of silver for use in industry can greatly affect its value
Other than that, silver is often tied to the state of the market and inflation. When inflation is high and the market is poor, silver prices tend to rise. However, gold is typically the investment of choice for protection against inflation. For more information on why people buy silver, see our article entitled, Why Buy Silver? There are a lot of reasons people invest in silver, but make sure your reasons are smart like the ones outlined in that article.
Instead, investors bullish on silver are betting on high inflation and a shortage of silver. After all, silver is a much smaller market for investing than gold, which makes its prices much more volatile. However, there is more to it than that. See our article, Is Silver a Good Investment? for more details on the intricacies of the silver market.
Investing in Silver – Tax Rates
In the USA, silver is considered a collectible if owned for over a year. As a result, capital gains (if you sell silver for more than you bought it) are taxed at a significantly higher rate. This is something to keep in mind when you are thinking about your long-term investing strategy and when analyzing the returns on investing in gold and silver.
How to Invest in Silver – Conclusion
You now know how to invest in silver; you can either buy bullion (in the form of bars or coins) or buy into an exchange-traded fund. Buying into an ETF is easy, though they may be a few percentage points off the market rate. Buying silver bullion can be done through a dealer and depending on your country and area, even at some banks.

Why Buy Silver? Why Invest in Silver?

If you were to ask 100 average investors why they buy silver, you would end up with 100 different answers. However, the same thing could be said about all sorts of investments. The average investor has no idea why they invest in anything, yet alone choosing to invest in silver instead of investing in gold.
There is hope – the average investor is average simply because he (or she) does not know why he invests in things. Below, you will find out why buying silver or why investing in silver might be a good (or bad) idea, depending on your take of the market.
Why Buy Silver – Inflation
One of the primary reasons people invest in silver (and all precious metals) is to protect against inflation. Since silver is fairly rare and highly valued for jewelry and industrial practices, it will always be valuable, regardless of the economic climate.
In particular, when your country’s market is doing poorly, your government’s currency tends to become less valuable compared to other governments, resulting in a devaluation of the currency you are holding. Alternatively, the government may issue more money. More money in the general population means the price of everything goes up, also resulting in inflation.
The idea is that silver is silver, and will always be silver. If your currency (cash) becomes less valuable to inflation, it just means that you can trade in your silver for more cash (the price of silver and other precious metals inflates just like the price of everything).
However, there is a little more than understanding inflation to learning why investing in silver is appealing for some investors.
Why Invest in Silver – Market Size
Gold is the “gold standard” for investing in precious metals (shocking, I know). That means that the average investor tends to want to use gold to protect against inflation rather than silver.
Investors only decide to buy silver if they suspect that the silver market in particular is going to move up in comparison to the gold market. Why might this happen?
The primary reason for this is the small size of the silver market. There is twice as much gold available to invest in as compared to silver, and over the last 20 years gold has been 20-100 times more expensive than silver. The end result is that the silver market is extremely small compared to the gold market.
This leads to volatility. You are much more likely to get a huge swing in the price of silver than you are in the price of gold. This could lead to amazing profits or terrible losses. There are a few primary things that drive the price of silver:
  • Supply and Demand. A lot of silver coming out of mines today is used for industrial purposes rather than being converted into bullion. If silver production drops off below industrial demand, this could help spike silver prices. You also have to consider investment demand. Since there is a relatively small supply of silvers, a few powerful investors can really drive the price up if they are bullish on this market.
  • Inflation. As mentioned, the higher the percentage of annual inflation, the higher the prices of silver tend to rise.
  • State of the Market – Due to the 2008 recession, markets were crashing and the interest rate paid out by bonds was very low. This makes silver a very appealing investment, which is why over the next few years the price exploded.
Why Buy Silver – Protection
Another reason people buy silver is to be diversified. A lot of people are heavily invested in precious metals and tend to invest in all types of metals. This is because the gold bubble may burst without a rapid drop in the price of silver. This is why buying silver might be a good idea if you are already invested in precious metals.
However, putting all of your money in silver is seen as an extremely risky move. Additionally, even dedicating the entire bullion portion of your portfolio to silver and silver alone is considered a moderate-high risk move, given the historical volatility of the price of silver.
Why Buy Silver – Investing The Safe Way
Now that you know why buying silver may be a good or a bad idea, there are typically two ways which tend to be considered the “safe” way to invest in silver:
If you think the stock market will do poorly over the next 5 years and inflation will continue to rise, you might invest 20% of your portfolio in precious metals. Out of that 20%, you might move more or less into silver depending on the research you’ve done on different precious metals (some in silver, some in gold, etc).
If you think the stock market will improve over the next 5 years, you might only put 10% of your portfolio in precious metals. This would be an “insurance policy” against a complete collapse in the market rather than an investment made for profit.
Some investors really made out big in the 2007-2011 time period by putting a lot of money into gold and silver when the price was low, predicting a collapse in the market. Putting 20% or more of your wealth into precious metals is seen as a large risk, though if the times warrant it, it could be a brilliant move. However, most investors stick between 10% and 20% of their worth into precious metals depending on how they feel about the market. If you are just now learning how to invest, you would be hard pressed to find an investing coach who would recommend going beyond a combined total of 20% of your wealth in precious metals.

History
Silver was discovered after gold and copper about 4000 BC, when it was used in jewelry and as a medium of exchange. The earliest known workings of significant size were those of the pre-Hittites of Cappadocia in eastern Anatolia. Silver is generally found in the combined state in nature, usually in copper or lead mineralization, and by 2000 BC mining and smelting of silver-bearing lead ores was under way. Lead ores were smelted to obtain an impure lead-silver alloy, which was then fire refined by cupellation. The best-known of the ancient mines were located at the Laurium silver-lead deposit in Greece; this was actively mined from 500 BC to AD 100. Spanish mines were also a major source.
By the 16th century, Spanish conquistadores had discovered and developed silver mines in Mexico, Bolivia, and Peru. These New World mines, much richer in silver, resulted in the rise of South and Central America as the largest silver-producing areas in the world. For the recovery of New World silver, the Patio process was employed. Silver-bearing ore was ground and then mixed with salt, roasted copper ore, and mercury. The mixing was accomplished by tethering mules to a central post on a paved patio (hence the name of the process) and compelling them to walk in a circle through the mixture. The silver was gradually converted to the elemental state in a very finely divided form, from which it was dissolved by the mercury. Periodically, the mercury was collected and distilled to recover the silver, and this was subsequently refined by cupellation. Cyanidation processes supplanted the Patio process in the late 19th century; by that time, the Moebius and Thum Balbach electrorefining processes had been introduced.
In the mid-19th century a large silver deposit was discovered in Nevada. This resulted in the United States becoming the world's largest silver producer until the 20th century, when it was surpassed by Mexico and South America (particularly Peru).
Ores
Although some silver-bearing ores contain silver as their largest metal value, virtually none has silver as its main constituent. A typical ore might contain 0.085 percent silver, 0.5 percent lead, 0.5 percent copper, and 0.3 percent antimony. After flotation separation, the concentrate would contain 1.7 percent silver, 10 to 15 percent lead, 10 to 15 percent copper, and 6 percent antimony. Approximately 25 percent of the silver produced comes from ores actually mined for their silver value; the other 75 percent comes from ores that have as their major metal value either lead, copper, or zinc. All these ore minerals are sulfides; typically, lead is present as galena (PbS), zinc as sphalerite (ZnS), and copper as chalcopyrite (CuFeS2). In addition, the mineralization usually includes large amounts of pyrite (FeS2) and arsenopyrite (FeAsS). The silver mineralization is usually argentite (Ag2S), proustite (Ag3AsS3), and polybasite [(Ag,Cu)16Sb2S11].
Mining and Concentrating
Silver-bearing ores are mined by open-pit or underground methods and then are crushed and ground. Since virtually all the ores are sulfides, they are amenable to flotation separation, by which a 30- to 40-fold concentration of mineral values is usually achieved. Of the three major types of mineralization, lead concentrates contain the most silver and zinc concentrates the least.
Extraction and Refining
The specific extractive metallurgy processes applied to a silver-bearing mineral concentrate depend on whether the major metal is copper, zinc, or lead.
From copper concentrates
The smelting and converting of copper sulfide concentrates result in a "blister" copper that contains 97 to 99 percent of the silver present in the original concentrate. Upon electrolytic refining of the copper, insoluble impurities, called slimes, gradually accumulate at the bottom of the refining tank. These contain the silver originally present in the concentrate but at a much higher concentration; for example, a silver content of 0.2 percent in the sulfide concentrate can result in a slime containing 20 percent silver. This is smelted in a small furnace to oxidize virtually all metals present except silver, gold, and platinum-group metals. The metal recovered, called dorŽ, generally contains 0.5 to 5 percent gold, 0.1 to 1 percent platinum metals, and the balance silver. This metal is cast to form anodes and electrolyzed in a solution of silver-copper nitrate. Two different electrorefining techniques are employed, the Moebius and Thum Balbach systems. The chief difference between them is that the electrodes are disposed vertically in the Moebius system and horizontally in the Thum Balbach system. The silver obtained by electrolysis usually has a purity of three-nines fine; on occasion it may be four-nines fine, or 99.99 percent silver.
From lead concentrates
Lead concentrates are first roasted and then smelted to produce a lead bullion from which impurities such as antimony, arsenic, tin, and silver must be removed. Silver is removed by the Parkes process, which consists of adding zinc to the molten lead bullion. Zinc reacts rapidly and completely with gold and silver, forming very insoluble compounds that float to the top of the bullion. These are skimmed off and their zinc content recovered by vacuum retorting. The remaining lead-gold-silver residue is treated by cupellation, a process in which the residue is heated to a high temperature (about 800¼ C, or 1,450¼ F) under strongly oxidizing conditions. The noble silver and gold remain in the elemental form, while the lead oxidizes and is removed. The gold and silver alloy thus produced is refined by the Moebius or Thum Balbach process. The residue from silver refining is treated by affination or parting to concentrate the gold content, which is refined by the Wohlwill process.
From zinc concentrates
Zinc concentrates are roasted and then leached with sulfuric acid to dissolve their zinc content, leaving a residue that contains lead, silver, and gold--along with 5 to 10 percent of the zinc content of the concentrates. This is processed by slag fuming, a process whereby the residue is melted to form a slag through which powdered coal or coke is blown along with air. The zinc is reduced to the metallic form and is vaporized from the slag, while the lead is converted to the metallic form and dissolves the silver and gold. This lead bullion is periodically collected and sent to lead refining, as described above.
From scrap
Approximately 60 percent of all silver produced is used in the photographic industry, and the metal can be recycled from spent photographic processing solutions and photographic film. The solutions are processed on-site electrolytically, while film is burned and the ashes leached to extract the silver content.
High-grade jewelry scrap is usually realloyed on-site rather than being refined. Jewelry sweeps, the fine dust generated in the polishing and grinding of precious metals, are usually smelted to form an impure silver, which is electrorefined. Because of the much lower value of silver scrap, recycling techniques applicable to gold (e.g., cyanidation of low-grade scrap) are uneconomic for silver. Low-grade silver scrap is instead returned to a smelter for processing.
Assaying
The fire assaying techniques described above for gold are equally applicable to silver. In order to determine the silver content of a fire assay bead, the bead is first weighed, then boiled with 35-percent-strength nitric acid to dissolve its silver content, and then weighed again. The weight loss defines the silver content, and the remaining residue contains the gold. In order to ensure complete dissolution of the silver, the silver content of the bead should be at least 60-70 percent. A process routinely employed in the fire assaying of gold ores is the addition of silver prior to fusion of the ore in order to ensure that the silver content of the final bead is high enough to dissolve. This is called inquartation, and the separating of silver and gold by leaching with nitric acid is referred to as parting.
The metal and its alloys
Even silver that has been fully work-hardened, either by rolling or forging, gradually recrystallizes, even at room temperature. This greatly softens the metal, making it susceptible to scratching and marring. To maintain hardness, therefore, other metals are added to form alloys that are harder, stronger, and less prone to fatigue.
The best-known copper-silver alloy is sterling, which is 92.5 percent silver and 7.5 percent copper. (In England sterling silver is traditionally identified by the hallmark of a lion passant.) Coin silver is an alloy of 90 percent silver and 10 percent copper. For jewelry and ornaments, 85-90 percent silver (and the balance copper) is frequently used. Dental alloys of 60-70 percent silver, 18-25 percent tin, 2-14 percent copper, and 0.5-2 percent zinc are amalgamated with varying quantities of mercury to form the filling materials for cavities in teeth.
Silver and alloys of silver and copper, although stable in air, tarnish in the presence of sulfur. In order to improve tarnish resistance, up to 40 percent palladium is added. In order to obtain the lustre and corrosion resistance of silver on other metals and alloys, silver electroplating is practiced. Cyanide-based baths are most commonly employed.
Because silver has the highest electrical conductivity of all metals, it is used in alloyed form for electrical contacts. Palladium and nickel improve the metal's chemical resistance to oxidation and sulfidation as well as its resistance to corrosion.
Silver brazing fillers are the most frequently used precious-metal fillers. They are suitable for brazing nearly all steels and nonferrous metals except aluminum, magnesium, and titanium. A typical brazing alloy composition is 50 percent silver, 34 percent copper, and 16 percent zinc.
Chemical compounds
Between 25 and 40 percent of industrial silver is consumed in the production of the photosensitive chemicals silver chloride and silver bromide. These silver salts are prepared by adding sodium chloride or sodium bromide to a very pure solution of silver nitrate. The highly insoluble silver chloride or silver bromide then precipitates from solution. All processing takes place in the absence of any light.
Silver oxides (both Ag2O and AgO) serve as the cathodic materials in silver-zinc primary and secondary (i.e., rechargeable) batteries. The high energy density of the primary batteries (as measured by available electrical energy per unit weight) is responsible for their employment as miniature power cells for cameras and timepieces.


The Top 10 Silver Producers in 2010 are
  1. Mexico 126.6 million ounces
  2. Peru 116.1 million ounces
  3. China 99.2 million ounces
  4. Australia 59.9 million ounces
  5. Chile 41 million ounces
  6. Bolivia 41 million ounces
  7. United States 38.6 million ounces
  8. Poland 37.7 million ounces
  9. Russia 36.8 million ounces
  10. Argentina 20.6 million ounces