Purchasing a 100 Oz Silver Bullion
Gold and silver may not be good investments, but I consider them to be a form of currency because they store financial value that can be easily exchanged for goods, services, or other currencies relatively quickly. 🙂
The idea of sitting on cash to stay safe and secure sounds innocent enough. But that’s only if we isolate the discussion to one domestic country. Today the world economy is more connected than ever before. Due to low commodity prices Canada’s economy isn’t as productive as it once was. This drives down the price of our currency because global investors are less confident in our productivity. Over the last year the Loonie has lost 20% of its value relative to the $US.
This affects Canadian’s ability to trade with other countries because it makes importing goods like fruits and gasoline from the U.S. more expensive. 🙁 However, those who held some silver as a substitute for the Canadian currency during this time would have kept most of their purchasing power. That’s because the price of silver has increased 13% over the past 12 months when priced against the Canadian dollar. 😉
So earlier this week on Tuesday I went out to my local bullion dealer and bought a 100 ounce silver bar for $2,241 CAD. The shape reminds me of an iPhone 6 Plus, except the silver is almost 3 times thicker measuring 2 cm (3/4 inch) thick. And it weighs about 3.11 Kg (6.86 lb,) which is literally 18 times the weight of an iPhone 6 plus, lol. Who needs the gym when you can workout at home with silver? 😛
This highly purified block of silver was produced by the Royal Canadian Mint. The front of the silver bar shows the RCM signature stamp and the year it was produced (2011,) along with a serial number. The bar is also engraved with the weight of silver in it, and the purity of the metal. 🙂 RCM is known for its quality and its brand is recognized worldwide. There is some clear scratching and general wear on the bullion, but nothing too noticeable. Overall I give this purchase 8/10. 🙂 Great product. A+ experience. Would buy again! After taking some pictures I’ve stored the bullion in my safety deposit box at my bank. I don’t plan to sell it until I retire, or run into some kind of emergency.
Last year I blogged some step by step instructions on how to convert one’s wages into physical silver. This 100 oz bar I purchased represents about 4% of my income for this year. So instead of making 100% of my money in Canadian dollars I’ve essentially divested 4% of cash earnings into precious metals. I’ve also converted about 16% of my income this year into U.S. dollars and bought U.S. stocks. 😀 Diversification isn’t only about asset allocation. It’s about a holistic financial perspective, including currency considerations. 😉
Two Reasons Why Silver Might Be Undervalued
1.) Gold/silver price ratio appears to be peaking – Historically speaking the price ratio of gold to silver usually hovers between 50 to 75. Today an ounce of gold is worth about $1,167 USD, while an ounce of silver goes for $15.76 USD. This represents a 74:1 ratio. The ratio in Canadian dollars would, of course, be the same. As the graph below suggests, this level of extreme price divergence between silver and gold usually doesn’t last very long. 😐 Sooner or later the ratio should revert back down. 😀 If the price of gold remains the same then a 60:1 ratio would make silver 23% more valuable.
2.) It feels like there is a shortage of investment grade silver in the world. The VBCE and other dealers are charging large spreads on silver bullion. When I bought my silver bar at $2,241 the dealer was advertising to buy 100 oz silver bars for $2,031. That’s a 10% difference between the buy and sell prices. But for one ounce of gold, the buy/sell price difference was only 4%. This tells me that VBCE didn’t want to sell its physical silver unless someone was willing to pay a significant premium over the spot price, which was $20.51/oz at the time. But the spot price is somewhat irrelevant when physical silver becomes scarce and liquidity dries up. People are more likely to hold onto their bullion since supply is limited, which is what it feels like right now.
By the way, precious metals aren’t really special. Other metals such as copper or nickel can hold value as well, but silver and gold is just easier to store and both are very stable elements. As usual I try my best to use evidence and history to make the best decisions for myself so I can reach financial independence in my mid-30s. But readers shouldn’t assume I always know what I’m doing so everyone should do their own research before buying precious metals. 🙂
Random Useless Fact:
The average North American traditional funeral costs between $7,000 and $10,000 USD.