How to Determine if it’s the Best Time to Buy Silver Coins & Bullion
Over the years, we’ve received thousands of questions from first-time silver coin buyers, but without a doubt, one of the most common questions we receive is, “When is it a good time to buy silver coins and bullion?” This is a great question that certainly deserves further discussion and analysis.
It is simply human nature to want to invest in the right assets at the right time, but the reality is, it’s impossible to know when you’ve reached the bottom or top in any market. Anyone who claims they know exactly when we’ve reached either are typically seen as being overconfident or naïve. The best we can all hope for is to make a sound investment at a fair price in hopes that we’ll see a reasonable return in the years to come.
You can also look at it this way, investing in silver coins and bullion is similar to other investments in some respects and slightly different in others. While our goal isn’t to provide you with price targets with respect to your investing, we do want to provide you with some factors to consider so that you’ll feel confident that you’re making a wise decision at an appropriate time.
When You’re Ready to Diversify
They say the enemy of a good plan is perfection.
We all occasionally experience paralysis by analysis, and in many cases, so do many prospective investors. They tend to overthink every aspect when it comes to investing in silver coins and bullion. As an example, we began discussions with a prospective customer months ago.
Unfortunately, his failure to act at that time has resulted in a reduced number of options available and will end up costing him thousands of extra dollars as demand continues to increase along with the price of coins and bullion.
We believe one of the best times to invest in silver is when you’re ready to diversify your portfolio. If you’ve done any research on silver, then you know that it has a low correlation to most other major asset classes, such as stocks, bonds, real estate, and cash. At times, the correlation is negative, which means that as one of these asset classes goes down in price, silver tends to increase in price, and vice versa.
If you already have an inflation-hedged investment portfolio, way to go! You are ahead of the game which also means the timing of investing in silver may not be as important.
However, if you have a portfolio that is sensitive to movements in interest rates and tends to move in sync with the strength of the dollar (or lack thereof), then the timing is a bit more urgent.
After reading about silver and all the upside potential, you may be inclined to liquidate your entire portfolio and put all your investment proceeds into physical silver right now! While that may work out in your best interest in the long run, a more prudent approach may be to dip your toe in the water first to make sure that you’re comfortable with the volatility of the metal. Most investment advisors recommend a 5% – 20% allocation in precious metals, so this may be a good place to begin.
When Silver is “On Sale”
In fact, I derive more pleasure than I should from finding a good deal. I always enjoy our trips to Mexico and haggling over prices. In some cases, I question whether the effort was worth the price savings, but in many cases, the thrill of the hunt is the driving factor.
If you’re on the fence, we suggest you consider buying silver coins or bullion when it’s “on sale”. What do we mean by “on sale?” To put it simply, it means the spot price in the futures market per ounce is lower than it has been or is at a discount relative to its historical average.
How do you know when it’s on sale?
If we look at the history of silver, we know that the price peaked at $50 in 1980 and 2011. In 1980, the inflation rate was in the double digits (not too different from what it is at the time of this writing). In 2011, we saw a dramatic increase in the Federal Reserve’s balance sheet, which began at $800 billion and soared to $2.7 trillion when silver topped out in April of 2011, which is over a threefold increase!
At the time of this writing, we’re experiencing high inflation rates, a bloated central bank balance sheet, annual deficits of $1 trillion or more as far as the eye can see and a national debt approaching $32 trillion, which should all bode well for the future price of silver.
Another factor to consider is mining costs. At present, the all-in sustaining costs of silver miners is roughly $15 per ounce. This compares to a current spot price of roughly $20 an ounce, which means that the current spot is close to mining costs.
There are very few investments that exist that allow you to invest close to the producer’s cost. It’s also likely that mining costs will only increase from here with higher equipment, labor, and energy costs.
Considering that the average mining costs are close to the silver price and the prevailing silver price in the futures market is approximately 60% below its all-time high, it appears to be a reasonable time to consider physical silver as an investment.
However, one factor to take into consideration is that the spot price of silver decoupled from the physical price of silver at the start of Covid and has yet to correct. This means that premiums on physical silver are much higher than they’ve been in the past.
We’ll discuss the topic of premiums next.
When Silver Coin Premiums are Low
In an ideal world, the best time to purchase silver coins and bullion is when prices are low, supply is plentiful and premiums on physical silver are nominal. However, this rarely occurs due to supply and demand, which we’ll address in the next section.
However, before we get too far into the weeds, it’s important we define premiums and their association when purchasing silver. Premiums are typically the additional expense added to the spot price of silver to compensate the miners, producers, fabricators, and coin dealers for their time and overhead expense. Premiums are also known as commissions or brokerage fees.
To circle back to our original discussion, premiums tend to be at their highest when there is substantial demand for silver along with limited inventory available. This is in part driven by the price of silver, but other factors, such as the strength of the dollar, central bank policies, GDP, unemployment, and geopolitical issues all play a role as well.
Now the big question is, what will cause premiums to come down or at least moderate? As we mentioned above, premiums tend to move in lockstep with the availability of inventory. As silver prices increase, more supply will come to market. While silver has been in strong hands recently, very few individuals would pass up the opportunity to realize a nice profit on their investments.
Alternatively, few investors are willing or able to sell at a loss, which is why very little inventory comes to market following a drop in the price of silver. At the end of the day, it’s important to strike a balance between the price of physical silver and premiums.
If you’re waiting for premiums to plunge, the likelihood is that this won’t occur until or unless the spot price of silver substantially rises, which may take some time. That means if the price of silver rises but the premiums drop, do you really save any money? For example, if a 10 oz silver bar has a spot price of 20.64 per ounce with a standard $4.50 premium per ounce that means this bar would be $251.40.
Now, if the prices rise and premiums drop, this same scenario would be a theoretical spot price of $28.64 per ounce with a marginal $1.99 premium per ounce. Even with the drop in premiums, the 10 oz bar would still be $306.30! That’s a difference of $54.90. Don’t let the thought of premiums scare you away from purchasing while the price of silver is low.
Of course, that is assuming there is even inventory available when you do make the decision to invest.
When Supply is Available
One major factor currently affecting premiums is the inventory available in the marketplace, which at the time of this writing, is among the lowest that it’s been in years. In fact, COMEX just announced that 50% of silver eligible for delivery doesn’t exist. If you’ve read about the COMEX, you know COMEX is the primary futures and options market for trading metals such as gold or silver and is an abbreviation of the exchange’s full name: The Commodity Exchange Inc. We’ve mentioned in the past that we could barely give junk silver away. These days, if you can find it, you’ll pay among the highest premiums ever for these coins.
Due to current increased demand, very little silver coin and bullion is available in the marketplace. Most major online coin dealers are out of stock and are experiencing delays of up to two months. Others sporadically have silver coins and bullion in stock, but tend to sell out as soon as they announce new inventory is in stock.
As we mentioned earlier, the spot price of silver doesn’t reflect the current demand for physical silver. This has resulted in a big run as of late for physical silver. Another contributing factor is that the West Point Mint has ceased production of American silver eagles for the remainder of the year. This halt in production has clearly dried up the supply, which in turn has translated into higher premiums.
Considering the current economic environment, and the fact that little to no silver coin and bullion inventory exists, you may want to consider buying silver whenever you find supply available. Of course, if the dealer is charging ridiculous rates, you shouldn’t necessarily purchase it at just any price. However, if the price seems reasonable considering the current environment, it might be wise to pull the trigger.
Over the past thirteen years or so, we’ve experienced several occasions when no supply existed at any price. The entire market had literally run out of silver. You could possibly find a few obscure or lower-purity pieces, but other than that, coin dealers across the nation were completely out of stock.
Will this occur again? It’s quite possible.
Especially if you take into account the undisclosed investor who recently placed a $50 million order and follows through with her intention of making several more multi-million dollar purchases. You can almost guarantee the items she acquires will be permanently removed from the marketplace, or at the very least, won’t be seen again for decades. This also means the limited inventory available won’t be available for long.
Our discussion on supply isn’t meant to generate fear or cause you to immediately act. We’re merely relaying facts as to the current supply in the marketplace and the trends that we’ve seen during our years in the industry.
The original question that sparked this conversation was, “When is it a good time to buy silver coins and bullion.” We hope we’ve helped answer this by listing out factors to consider. We suggested that if you’re attempting to diversify your investment portfolio, especially if you don’t have any inflation-hedged investments, you might want to consider pulling the trigger sooner than later.
We also recommended that you buy silver when it’s “on sale.”
While not an exhaustive list, we suggested that you compare the current spot price of silver to mining costs and previous all-time highs, which should give you an idea if it appears to be fairly priced.
We then discussed premiums.
Ideally, the best time to buy is when premiums are low, however, premiums typically are at their lowest when the spot price of silver is high making it a moot point to wait for premiums to drop. If you can find physical silver coins and bullion at reasonable premiums while the spot price of silver is depressed, we recommend that you act sooner than later.
Lastly, consider the available inventory or supply when determining when to buy.
At current, supply is limited. At times, no silver exists at any price, so if you’re in the market to add silver to your portfolio and can do so at a reasonable cost, we suggest that you do so.
The silver coin experts at Atlanta Gold & Coin Buyers keep our fingers on the pulse of the market and are available to answer any questions that you might have with respect to buying silver coins and bullion.
Give us a call today at 678-515-5763 to receive expert advice and unparalleled customer service. We look forward to hearing from you and earning your business.
Happy Treasure Hunting!