There are a number of things an individual investor, unversed in bullion or commodities, needs to know before dropping a dime into physical bullion. The first major obstacle is the premium price charged to individuals for physical ownership. The second aspect is a general understanding of the silver market. Finally, an investor must have specific goals for investing in silver and other precious metals. It is not too late to buy silver, but you need to be armed with a little knowledge.
When an individual investor purchases a 1oz silver round or bar, the cost is far above spot metal price. Assume silver is at $17.50 per ounce. The cost to acquire one ounce, including premium and shipping or sales tax, may be as much as $23.00 per ounce. Small investments create huge spreads. Selling silver will net you slightly less than the spot metal price in most cases. Silver would need to rise considerably just to break even. A more sensible approach is to purchase 10oz or 100oz bars. A larger investment means a much lower price per ounce for the individual owner. Another cost to analyze is storage. Utilizing a bank safe deposit box eats at your investment via fees. Storing silver under the mattress is awfully uncomfortable. This leaves a safe as the best home storage option, and expensive investment. Know what you are really spending to acquire and store silver, then decide how to best approach meeting your goals.
The silver market has risen dramatically in the last year due to investment in silver based paper, and by direct physical bullion investments The silver market operates on a fractional system similar to banks. That means one ounce of vaulted silver might be covering many times that amount in paper investments. What is the eventual result of this system? Collapse will occur if silver consumption exceeds supply over the long term. This has already begun. Electronically traded silver is simply not matched by vault stores. The entire system is awash with price control attempts and manipulation, and possibly outright fraud. 2009 American Eagle silver rounds have been cancelled by the U.S. Mint. The main reason for this move is to limit silver prices. The U.S. Mint operates for-profit. Clearly, there is demand for U.S. Mint silver. The only reason for rationing and cancelling bullion issues is to avoid a run-up in price. There is no remaining cheap silver supply. The U.S. Government stores are effectively gone.
The goal in silver, as other precious metals, is as a hedge against inflation. An investment and physical delivery of silver is a bet against the U.S. dollar. Inflation caused by government spending will drive up prices over the long term. While the current jump in metal prices may ease considerably as the equities markets begin to recover, silver is an excellent investment for the long term. There is no longer a huge supply available to hold prices in check. Mining production is steady, but does not meet demand. Buy steady, take physical delivery, and hold on to your silver.