Is it Worth Investing in Small Quantities of Silver?

Introducing silver into an investment portfolio can seem like a sensible move, especially given its historical role as a store of value and its use as a hedge against inflation. However, the nuances of investing in small quantities of silver can make it an underwhelming strategy, particularly when compared to other investment alternatives like silver ETFs.

Understanding the Spot Price and Premiums

The current spot price of silver at the time of writing is around $22 per ounce, with the cheapest premium you can find being around $2 per ounce. This means you’re essentially paying $24 per ounce, or about 9% over the spot price. When it comes time to sell and liquidate your investment into cash, you may only be offered around $21 per ounce, which is 1% under the spot price. For this reason, just to break even, you would need to see a significant 15% rise in the spot price of silver. Starting an investment at a 15% disadvantage is not a smart move.

Is Silver a Safe Haven in a Doomsday Scenario?

Some individuals believe in purchasing silver as a hedge against potential catastrophic events, such as a collapse of the U.S. dollar. However, it is important to note that during such scenarios, the only metal that would retain value would be lead, used in ammunition. Silver, while potentially valuable in certain situations, is not a reliable safe haven in the event of a dollar implosion.

ETFs as a Better Alternative

If your goal is to make an investment in silver without spending a substantial amount of money, consider buying a silver exchange-traded fund (ETF). Investing in physical silver in small quantities can often be problematic due to the buyer premium, which can eat up any potential profits over a period of several years.

Let's take a closer look at a hypothetical scenario. Currently, silver is around $18 per Troy ounce. A reputable buyer's premium can be as high as $1 per ounce, effectively making the purchase price $19 per Troy ounce. To make a profit, the price of silver would need to surpass $19 today in order for you to break even upon selling.

Even if you were to sell at $25 per ounce a decade from now, you would likely lose money after adjusting for inflation. This is especially true given that smaller quantities of precious metals are often sold at less than the spot price. When attempting to sell small amounts of precious metal, you may only receive 80% of the "spot" price.

Why Trust an Established Source?

Consider the perspective of a precious metals buyer. Would you be more likely to sell your silver to a random individual off the street or to a well-established and trusted source with whom you have a history of transactions? The answer is typically the latter. Therefore, you can expect to receive significantly less when selling your physical silver to a buyer who is not familiar with you.

Conclusion: Small Quantities of Silver as an Investment

In summary, investing in small quantities of silver as a physical precious metal is not the most strategic approach. To maximize your chances of profitability, it may be more advisable to invest in a proven and transparent silver ETF, which can provide a more stable and potentially profitable investment vehicle. This approach minimizes the risk associated with the buyer premiums and other challenges inherent in small-scale silver investments.