What Are the Dangers of Silver Investment?

Invest in bullion or bars rather than collectible coins to aviod excess numismatic value in your investment.

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Whether you purchase bullion or another form of physical silver, a silver certificate or place money in a silver savings account, you’re investing in the same commodity: silver. While many investors place funds in silver during times of economic instability as a cushion against declines in currency value or inflation, investing in silver is by no means a perfect investment. As with investing in other precious metals or any commodity, investors assume risk when they convert their cash to silver.

Speculative Risks

Investing in silver isn’t like putting your money in a company by purchasing stocks, where you receive ownership of company and your investment’s value is actively impacted by its earnings. The price of silver is driven solely by demand for it, so when you invest in silver, you’re essentially placing a bet that demand for the metal will increase, which, in turn will increase the value of your investment. While the factors that influence commodity prices are many, the price of silver may vary considerably by investors’ views of economic stability, and decrease as markets stabilize.

Volatility

When the value of a commodity such as silver sees a bullish increase in value, it often feeds on itself, prompting other investors to buy into the boom. While this helps push prices higher, it also increases market volume, which can make a commodity’s price more volatile, or subject to rapid spikes or declines. Problems with volatility caused market officials to decrease the amount of silver that could be purchased on margin in 2011 in order to protect long-term investors. Because of this adjustment, silver prices declined sharply.

Historic Risks

Although our concept of precious metals such as gold and silver is that of universally and eternally valuable material, that concept isn’t based on market values. While it’s unlikely that the metals valued by the Greeks and Pharaohs is going to become worthless any time in your lifetime, silver prices aren’t quite as fixed as popular mythology would indicate. Since 1990, silver has posted annual losses 43 percent of the time, according to USA Today. Historically speaking, your investment may only have slightly better than even odds that it will increase.

Storage Risks

Unless you purchase silver certificates or place cash in a silver bank account, your investment in the metal has a tangible aspect that most other, more abstract investments don’t have. Because of this, you’ll need to arrange for a secure location to house your investment. While you can purchase a safe deposit box at a bank, those costs can chip away at your investment’s value. If you store the bullion yourself, you’ll need a secure place such as a house safe to protect your investment from thieves and fire. The Federal Trade Commission warns against purchasing bullion or bars that won’t be delivered to you, because the silver may not be delivered or may not be of the quality or amount promised.

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