Three Reasons to Consider Investing in Silver

investing in silverLately, in an effort to balance out my finances, I have been converting some of my savings into silver by investing in American Silver Eagle and other silver coins.

I did so for a number of reasons. One was because I had friends who had invested in either gold or silver who suggested I do so to as a simple way to invest. Another reason was because I got tired of getting 15 cents every month from my savings account, which was not exactly small. Lastly, as I read about economic crises throughout history such as wars, gold and silver coins managed to retain their value, while paper money did not.

Here are several reasons you might want to consider silver as well.

1. Its an ideal hedge against inflation

Inflation is the increase in money supply, which in turn causes the value per dollar to decrease. It is often referred to it as an invisible tax, as it robs people of their wealth via the value of their dollar. Meanwhile, those who receive the newly printed money benefit from the artificially high value before the market adjusts to the influx of money, and by the time the money supply reaches the rest of the public, the value has dropped in response.

A combination of a fiat currency (paper money) and quantitative easing by the Federal Reserve (which is a technical way to describe the printing of money) causes the dollar to lose value, which in turns robs people of their wealth they have in money.

Since the Federal Reserve was first established in 1931, the U.S. dollar’s value has fallen greatly (a $1 in 1913 had the buying power of $23.26 in 2013). At the same time, precious metals, such as silver, have not only retained their value, but have seen it increased in the same period of time.

For example, in 1960, silver was worth 91 cents an ounce. By 2012, it was worth $32.

Meanwhile, what the 91 cents could buy in 1960 cost $6.96 in 2012.

So, in other words, let’s say someone in 1960 had $1.82. They took one half of that, 91 cents, and bought an ounce of silver. They then took the other 91 cents and stuck it in a piggy bank.

In 2012, the ounce of silver, originally bought for 91 cents, would be worth $32 dollars, while the 91 cents would lose around 87 percent of its value.

Yes, it is possible that person might have put the 91 cents in the bank and seen a return over the years. Currently, however, with federal interest rates currently almost zero, one shouldn’t expect to get much of a return from their bank savings unless those rates go up.

Additionally, silver can also be used to fund an Individual Retirement Account (the silver must be at least 99.5 percent pure and serve as legal tender in order to qualify).

2. Silver will always remain a valuable and sought commodity

Silver, like gold, has been used by countries as part of their currencies since ancient times. Regardless of what happens to the currency, a coin’s value can be protected if it is made of a precious metal, such as silver.

A good example is the American Silver Eagle. Though it’s a dollar coin, its actual value is nearly $32 because it’s made of one troy ounce silver.

This distinguishes it from other U.S. dollar coins, such as the Sacajawea dollar, which is made of brass and therefore not worth anything beyond its currency value. The same goes for the earlier-minted Susan B. Anthony dollar, which was made of nickel.

3. Silver is undervalued compared to gold

Gold is the most obvious when people think of investing in precious metals, which could be why its price has skyrocketed in the last ten years. And while the price of silver per ounce is less (gold is around $1573 per ounce as of the first of March 2013), while gold has apparently reached its high price, the price of silver might rise significantly.

Historically, the average ratio between gold and silver has been 30, i.e. gold has been worth three times as much as silver. Right now, the ratio is around 50. If the prices were to return to the average ratio, silver would be worth around $524 per ounce. That is, of course, assuming the price of gold is stable and the price of silver rises to reach the ratio of 30.

Additionally, because silver is less expensive than gold, it’s easier for individuals to invest in who either don’t have a lot of money or want to make a smaller, more conservative investment at first.

In summary, there is no magic bullet when it comes to investing, nor should you put all your eggs in one basket, so to speak. But if you’re thinking of diversifying, silver is definitely one to look into.

photo by sirqitous

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TJ

TJ Martinell is a reporter from Bellevue, Washington. He graduated from Eastern Washington University with a B.A. in journalism, debt free. He also obtained a Certificate in Literary Fiction at the University of Washington. His fiction work and other columns can be read at timothyjamesmartinell.com.

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Comments

  1. Hey TJ, great post! I believe silver to be one of the best investments and saving strategies ever. When currency is struggling precious metals tend to pull through and hold their own.

  2. I have a fortune in silver although it is not coin. I really do not think of it as a hedge, but I like the idea of having additional assets to turn into cash and appreciate over time.

  3. TJ you gave reasons to those who wonder why to invest in silver and why not so i should appreciate your post. And I’m also of same viewpoint buying physical form of silver i.e silver bullion bars, coins and rounds is a smart idea as this white metal has a reverse effects in value to change in value of currency which makes it a versatile.

  4. I just read it from somewhere that the value of gold decreases. It was down to 20% since 2011. Not sure about silver though.

  5. TJ Martinell says:

    I have been looking at the price of gold lately, too. I just read an article recently that suggests a big drop in gold precedes financial collapses or a huge plunge in the stock market. I have the link below. I don’t have a solidified opinion on the matter yet, but it is interesting. Despite the drop, gold has still retained its value in the long run better than the dollar has.

    http://www.zerohedge.com/news/2013-04-15/what-happened-last-time-we-saw-gold-drop

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