Oct 222015
 

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? 😛

15-10-100oz-royal-canadian-mint-silver-bullion

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.

15-10-silver-gold-ratio-chart-graph

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. 🙂

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Random Useless Fact:

The average North American traditional funeral costs between $7,000 and $10,000 USD.

15-10-turning-off-and-on-again-move-on-funeral

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Roadmap2Retire
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Roadmap2Retire

Nice. I like how you also share the fact that you are only storing 4% of your income for the year in silver. Its a good way to hedge and although illiquid, can be converted to liquid funds quickly. Interesting to see that the spread is higher on silver.

Thanks for sharing
R2R

Roadmap2Retire
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Roadmap2Retire

Btw, what are your thoughts on silver coins trading at face value? I have been looking at the Royal Canadian Mint website and they have $20, $50, $100 and $200 silver coins selling at face value – which I thought was a good find. Would love to hear your take on it

R2R

Tawcan
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Tawcan

How are you storing your silver/gold coins/bars? In a safety deposit somewhere?

Anonymous
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Anonymous

Hi,

I like the idea of storing value in silver bars. It’s an alternative of the electronic money, stocks and other digital stuff. However, here in Europe silver is under VAT treatment and the buy/sell spread is enormous. Thus, it makes it really inconvenient and expensive to invest in.

Anyway, I like that you share your real time experience on various topics. Keep up the good work.

Regards!

RichUncle EL
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Silver is the most widely used element. I cant see myself investing in metals right now, but I know some people prefer it over stocks. If the value is there, then go ahead and diversify into metals.

Financial Underdog
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Aren’t you afraid to lose it? I’d be tempted to stick it into a safe deposit box at a bank.

Olivia
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Olivia

Yay more precious metals! I’m a fan of gold and silver personally and have a little bit of my net worth in it currently. Not planning to hold it til retirement though, just til it hits a decent amount and then transfer that money to a split between my mortgage (so I can make passive income on the rental instead of not) and investing in something else undervalued at the time. Hopefully it goes up at some point!

Do you own any preferred shares?

DivHut
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While not popular among any of the DGI bloggers, I too hold gold and silver bars/coins in a safety deposit box. I own it for basically the same reasons as you. A little insurance, a little diversity, a little currency protection for when the dollar does eventually fall. All economic entities ebb and flow. Nice looking bar. There’s something special when you hold a piece of pure gold or silver. It’s something innate. Thanks for sharing.

Paul N
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I agree with you. Holding some makes good sense. but not to the point of being a”gold bug”. I prefer physical over any paper metals. (there has been a lot of talk about the ratio of traded paper being out of sync with physical product). A little bit of a sit down with your bank, if your decent customer will get you a safe deposit box for no charge (smallest size). So storage for a some of those bars could be at a very low cost. I always ask this question of skeptics… Do they at least feel that in the next 5-10 years that it has a good possibility of reaching even just US$30.00 / oz again? That statement is very probable considering its history and our economic climate. If you have a long timeline and other investments supporting you in combination with your metals, it’s highly likely you will do better then even that.

Al
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Al

I still have a couple hundred ounces of silver from buying it during dental school. I caution you to sell it during big swings cause it’s not a real “asset” in that it produces any income for you. I was buying at the $15-18/oz range and kept thinking it would get to $50-60/oz range, it never got there and I was too stupid to sell when it hit $48/oz.

Anon
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Anon

Much to say…. re: “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.” False. “Precious” metals are NOT currency, they are commodities, economic inputs. Bill Gates didn’t buy a silver mine because he thought it was a prudent diversification, he bought it because he knew that electronics (aka silver) usage will never stop expanding and by owning a silver mine, he owns the economic input and all the resultant profits and savings. Silver hasn’t been currency since the late 1960’s. And they CANNOT be “easily exchanged…relatively quickly”; no business (banks included) is bound by law to accept gold or silver as payment. Even the government does not accept its own government issued gold/silver “currency”. The key phrase is “I consider them to be…” The thing with previous fiat currency is that they were commodities based, e.g. the gold/silver standard, that’s why they collapsed. Modern fiat currencies are debt based, just like your investment portfolio. They may require a higher degree of trust and faith to keep them afloat, but they also may be… Read more »

PC
Guest

Hub’s mom has a couple bars.. We weren’t too sure what they were so we brought them to a bullion to confirm. The company marking on the bars are not in busniness anymore as we tried to search them online. But the bullion confirmed they were silver and was willing to buy them at the going spot rate. We didn’t sell for cash and decided to hold onto them as it wasn’t ours to sell.

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[…] from the Royal Canadian Mint and bullion exchanges. For example, about half a year ago I bought a 100 oz silver bar which has appreciated in value since then. 🙂 I also practice earning silver wages, which […]