Beware of Premiums on Silver

Silver is a good investment right now, but if you aren’t careful the premium you pay will significantly reduce the return you will see and in some cases the spot price of silver would have to double before you can even break even. The premium is the amount of money you pay that is over and above the spot value of the silver. If you pay $48.00 for a 1 ounce silver round and the spot price is $38.00 you have paid a premium of $10.00 on that ounce. Don’t make the mistake of paying too high a premium when you buy your silver.
Last year, when silver was around $18.00 per ounce, you could obtain a roll of average circulated “junk silver” 90% silver dimes ($5.00 face value) for about $70.00. At that price buyers were paying less than $1.75 premium per ounce! That was an exceptional opportunity for obtaining silver at an amazing price. If silver increased by $2.00 per ounce you would already be into the profit area!

90% Silver "Junk" Dimes
90% Silver "Junk" Dimes

These days its not so easy to find a good deal on silver coins. I researched prices on dime rolls today and found that for average circulated rolls of 90% silver dimes you will pay $200.00 or more! The lowest price I found anywhere was $195.00 That translates out to more than $18.00 premium on each ounce of silver.
The reason these junk silver coins are selling for such a high premium is because of the renewed interest in them due to raising silver prices. Collectors and dealers also have high confidence that their coins will grow in value so they don’t want to let them go too cheaply.
Last summer silver prices were more ‘stable’ and the interest in buying silver coins wasn’t as intense as it is now… the old ‘supply and demand’. The more actively the market is rising the higher the premiums on silver coins will be. When silver prices drop however, their is a lag time before circulated silver coins also drop in price.
It is common practice for dealers to base their buy and sell prices on the spot. One advantage in buying and selling on that basis is that you can know exactly what the ‘buy back’ price is at any time so you may decided whether to sell or to hold on to your coins, bars or bullion. For example a particular company may offer 1 ounce rounds for “spot + $6” while they buy them back for “spot – $6”. As you can see, in that example, silver would have to increase by $12.00 per ounce before you reached the ‘break even’ point.
American Silver Eagle
American Silver Eagle

The ‘buy and sell’ ranges can vary a great deal from one form of silver to another. Coins such as the American Silver Eagle usually carry a much higher premium than a Canadian Silver Maple or an Australian Koala. 100 ounce silver bars carry a much smaller premium that 1 or 10 ounce bars. If you were to purchase individual circulated “junk silver” dimes right now you may end up spending a premium of more than $65.00 per ounce! But if you buy a Canadian Silver Maple you would pay about $6.00 to $7.00 premium depending upon the quantity you purchase. 1,000 ounce silver bars can be obtained for around $38,500.00 which is less than a dollar premium per ounce!
When you are making the decision on where to purchase your silver (or gold) be sure to figure in the shipping and handling charges. These fees can sometimes be very significant and add to the premium you are paying, especially when buying smaller amounts. Read, research and learn about your options before making that silver (or any other precious metal or coins) purchase to get the best deal and make the best from your investment.
By D. Slone, Copyright 2011