Understanding Precious Metals Pricing
Price is a determining factor in all things we buy, or consider buying whether it be a refrigerator, automobile or silver. It dictates our motives and our actions and is an important factor of where we determine the value of the purchase. For Precious Metals, the ‘price’ is the beginning, as breakeven adjusts and prices fluctuate it’s important to have a valued timeline for reasons doing so.
It is important to look at the price per ounce or as a whole, as well as to know how it got there and why that affects your decision to buy or sell. Simply put, the ‘price’ of Precious Metals is a little more involved and requires analysis and understanding.
Like the price on merchandise, price fluctuations are common. Following Precious Metals prices can help determine your purchasing ability. Whether investing for the short term or long-term value, knowing the current price will help you make a more educated decision. Precious Metal prices, including Platinum and Palladium, move a lot differently than for example, the stock market. Since it is difficult to determine how much the price of Precious Metals will fluctuate, here are some indications to watch for when making a decision:
- Supply and Demand – supply and demand plays a large role in determining the price for Precious Metals. As metal demand increases, the price increases. A rise in price could be temporary, but the value remains stable. For example, Silver is used in TV’s, computers, mirrors, and even medical equipment. As new technology is developed, these electronics and other materials are being discarded and the Silver used is not being recycled, thus the supply is becoming less and less as we are not mining to replenish the cycle.
- Government Reserves – The more Precious Metals are being sold by the reserves, the higher the price. When the reserves start buying Gold in larger quantities, Precious Metals prices begin to fluctuate because it causes a large demand for metals. Building up the Precious Metals reserves does not go unnoticed by the markets.
- Central Bank Stability/Instability – Many countries have a central bank. For example the United States has the Federal Reserve. Precious Metals prices are indirectly linked to economic policies and bank failure. Any instabilities occurring at central bank can cause a market irregularity that usually affects Precious Metals prices.
- Currency Devaluation – Devaluation, even globally, is another factor which can manipulate the value of Precious Metals. While prices change often, the metal holds its value far beyond the realm of economics and politics. This is a key reason why people buy Precious Metals.
Time and time again, the value of Precious Metals rises and falls during times of financial uncertainties. When observing Precious Metals, it’s important to compare changes in history to now and understand the parallels that affect current purchasing.
When talking about everyday merchandise such as household appliances, you will not hear the terms ‘spot price’ or ‘premium over spot’. Before investing in Precious Metals, it is crucial that there is a clear understanding of the two. ‘Spot price’ refers to the current futures market price of the metal, paper notes, which fluctuates minute to minute not the actual physical delivered.
Premium over Spot
A premium is the additional cost or percentage on top of the spot price. A premium is charged for finished products, meaning the metal has been refined and minted into either coin or bar form and is good for delivery. If you are buying metal at spot price, what you actually own is a certificate saying you own it, but it’s just a piece of paper, nothing is actually being stored in a vault or depository on your behalf.
If you are selling, bid price versus asking price is good to know. Bid price is the price at which the dealer is willing to buy your product. Asking price refers to the price the dealer offers to sell their product to you. These numbers are important because it adds a dimension for you to determine what value you have with your Precious Metals.
The price of Precious Metals is more than most perceive. Don’t be fooled by the fancy terminology or the confusing rhetoric involved with Precious Metal pricing. Buy prices will change, but whatever your motivations are, the metal price will dictate your moves. Get the necessary information you need for the best decision.
History of Silver as an Investment
The Second “Most Consumed” Commodity in the World
Quite simply, silver is in a bull market. The price has risen sharply over the past few years, from $5 in 2002 to almost $28 today while it soon will probably reach $100. The history of silver shows that, like gold, it is money. The big difference is that while silver is money, it is also an industrial metal. Did you know that in over 14 languages the word for ‘silver’ and ‘money’ are the same? You’ve heard of the gold standard, but it actually replaced the silver standard in the 1800’s. Unlike gold, whereas most of the mined stock is still in existence, most of the mined silver has been used up and is in relatively short supply!
However, new uses for silver are being invented and applied every day. The superior properties of silver have been apparent in many applications for many years while new technologies are discovering silver’s superior qualities.
The History of Silver Coins
In 2006 39.8 million ounces were produced as silver coins. Silver has been used as money as far back as 550 B.C. and continues to be used to this day in some countries including Mexico. Since Silver was more plentiful and of less value than Gold it served as a practical means of exchange. Today most of the silver produced is consumed in one form or another with only 64 million ounces per year set aside for investment purposes. With such a small amount of produced silver actually making it to market, the price of silver will see some spectacular gains when even a relatively small amount of silver is sought for investment.
Supply and Demand for Silver
The long bear market for gold and silver has led to a lack of investment in discovering new silver mines worldwide and now that investment and industrial uses for silver is skyrocketing the spot price has had no choice but to steadily rise.
In 2006 the supply and demand of silver matched at 911.8 million ounces. As demand increases for both investment and industrial application this figure will become skewed, needing more supply to meet the demand needs. The only remedy for this will be higher prices.
Exploration for silver is definitely picking up but it takes from seven to ten years to bring a mine on stream. Exploration was at just $2 billion worldwide in 2002 and picked up steadily to over $5 billion in 2005. These figures are just a small portion of the total worldwide exploration budget being spent this year. Many new companies are beginning to explore as they see this as a new frontier with a long and sustainable life.
Is Silver a Good Investment?
Recently the physical silver and paper (futures) prices have begun to diverge. While futures contracts can be manipulated without any actual silver changing hands, the physical market cannot. Demand for silver as an investment has recently picked up pace and there are stories of lack of physical silver from dealers throughout the world.
This divergence will continue and retail investment in silver will become increasingly difficult to obtain. In my and many experts’ opinions, silver will be well over $100 an ounce by the time this bull market nears its end.
There was a time where you would take this paper dollar to the bank and they would redeem the dollar to just shy of an ounce of silver. Well, back in the 1950’s you could buy 5 gallons of gas with that paper dollar bill. That means you could also buy five gallons of gas with the ounce of silver.
Well, let us fast forward to today and silver is no longer on the dollar or redeemable by dollars; the paper dollar is now an IOU from the Federal Reserve, (which remember the Federal Reserve is neither Federal nor does it have any “Reserves”).
Today you will trade in the same ounce of silver as in the 1950’s, you can roughly get $28.00 per ounce which would buy you not 5 gallons of gas as it did back then but almost 9.This is over 80% more than in the 1950’s.Now take that same dollar bill.. how many gallons can you buy?… Right, not even 1 gallon.
Have you been wondering, “Is silver a good investment?“
» Contact Cornerstone Asset Metals today to learn more about buying silver as an investment to hedge your portfolio against hyperinflation.
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Silver Price per troy ounce in US Dollars 1960-2010
For the first time in the history of the world; all the currencies are fiat!
There are two choices: Gold & Silver (Real Money) or Paper Currencies (IOU’s)
Every currency in the world is fiat or ‘faith based,’ meaning, it is worth only the value of the actual paper it is printed on. More people are learning this fact every day and confidence is eroding in the fiat currency system. History proves that for fiat currency, the final value of zero is inevitable!
“The credit boom is built on the sands of banknotes and deposits. It must collapse.” – Ludwig Von Mises
The solution to protecting yourself is simple. Secure a Gold and Silver foundation to your wealth. Owning physical gold and silver has been very lucrative over the past decade. But don’t take our word for it. The facts below prove that this is a Worldwide Event!
How did paper currencies perform versus Gold and Silver last decade?
January 1, 2000 – December 31, 2009
|Fiat Currency||vs.||Gold Decade Gain||Silver Decade Gain|
|US dollar||281 %||214 %|
|Argentine peso||1349 %||1093 %|
|Australian dollar||155 %||129 %|
|Brazilian real||257 %||194 %|
|British pound||280 %||213 %|
|Canadian dollar||176 %||127 %|
|Chinese yuan||214 %||159 %|
|Colombian peso||335 %||258 %|
|Costa Rica colon||616 %||490 %|
|Euro||167 %||120 %|
|Hong Kong dollar||273 %||213 %|
|Indian rupee||307 %||235 %|
|Israeli new shekel||248 %||186 %|
|Japanese yen||247 %||186 %|
|New Zealand dollar||174 %||126 %|
|Philippine peso||340 %||262 %|
|Russia ruble||320 %||246 %|
|South African rand||357 %||276 %|
|South Korean won||294 %||224 %|
|Swedish kronor||221 %||164 %|
|Swiss franc||147 %||104 %|
Is silver a good investment? Quite simple, the answer is yes!
“It’s important to note the ore grades being mined today are significantly down in ore grade and quality”.
Today’s mining operations target microscopic ore, more heavily refined to gain the same value; as the “visible gold” was mined back when it laid on our surfaces. Unfortunately, costly “open-pit” mining has become the norm for both gold and silver today; which is dramatically less efficient…
As below you see prices have soared from $4/oz to a peak of $48/oz. Unfortunately, global silver production grew at just a 2.4% annual rate from 2000 through 2011 (the last year data was made available).
You will see this reflected in the silver/gold ratio soon. Historically the ratio was 16:1, meaning it took 16 ounces of silver to equal 1 ounce of gold. Today that ratio is 50:1 because of a manipulation that will end and when it ends that ratio will be forced down to 16:1 or so making silver an explosive preservation opportunity for all portfolios. A big reason for this plunge is that roughly 70% of silver production is a by-product from base metal mines (principally lead/zinc); compared to gold, of which just 20% of production is by-product, there really are only a couple real and true silver mines in the entire world!
Below will show the perfect storm catalyst, silver is predominately used as an industrial metal, one that doesn’t get recycled and one that is rapidly increasing. The demand for silver in industry is on track to increase 40% in just the next five years!
Yet, that increase in demand is not in parity to the global supply that you can see is plummeting.
Most credible natural resource and silver analysts believe there is somewhere between 1.0 and 1.5 billion investable silver ounces above ground – in bar or coin form, Nearly all of that supply is sitting in private vaults – never to see the light of day. What are you waiting for?
» Contact Cornerstone Asset Metals today to learn more about buying silver to protect your hard-earned wealth.
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Request a FREE Silver Report on How to Protect my Assets