Kapitola 10 Frequently asked questions
Question: Investment into silver seems uncertain to me. I’ve looked at stock market charts of silver and the price goes up and down like mad.
Answer: Yes, you are partially right – the price of silver on the markets is very volatile. The reason for the volatility of silver is that the market with silver is very small. Every large purchase moves the market price. But the major error spread among the general public, is mixing up the market for physical silver and the market for „paper silver“ – the contracts on the stock market. The price of physical investment silver has little to do with the „paper“ one. On COMEX (that is the US futures market where contracts of silver are traded) the price of silver is mostly manipulated and therefore does not reflect the real situation of supply and demand. This fact is known to the professional investors but unfortunately not to the general public.
Can you prove that?
Of course. It’s a matter mainly of a large amount of short positions, which are held by two big American banks. Another proof is for example the fact that in COMEX there exist contracts for much larger quantities of silver, than in reality exist in its depositories!
In order to understand this from a practical point of view, we will use an example from last year. In November 2008 the price of silver on COMEX pushed to below $9 per ounce. At the same time, physical silver - coins and ingots – were sold in the USA with a huge premium (surcharge against the spot price on the market). On one ounce coins, this premium was 100%! Investment silver was in short supply – as soon as something appeared from bulk carriers, it was immediately sold.
And what was the situation in Europe? Even more interesting. Investment one ounce coins were being sold for $25 or more. Well… actually they were not being sold. Why? In Europe in November 2008 there simply was no investment silver to be found! And all this was happening with the spot price of "paper silver" on the stock market of $9. Can there be a more persuasive proof of the manipulation of the price of silver?
One more thing came to light however: People who bought silver coins in 2008 or investment ingots for example for $16, in the autumn they could still sell them for $16, in the case of coins, even more. So investors who had physical silver, so to speak: „under their pillows“, made money. The opposite situation was the case with „paper“ silver. People who bought paper silver on the stock market (that is contracts on COMEX), or a different investment instrument (ETF, silver shares); in the autumn with a price $9 incurred a loss of 40%! They had not bought actual silver, but only a paper undertaking on shares, which in all probability did not have any physical silver.
Question: At this time it seems risky to invest in anything. I read the advice of a reputable investment analyst, in the newspaper, that today it is best to have the majority of your capital in cash.
Answer: We advise our clients not to be led too much by any annalist. We depend on our own judgement. All "reputable" analysts in the summer of 2007 after the first downfall of the stock markets vehemently advised: „Buy stocks from American investment banks! They will never be so cheap!“ In the autumn of the year 2008 these stocks reached a fraction of their original value. Some of the large investment banks went bankrupt, or they had to be taken over by another bank with state assistance. "Reputable" analysts held on to their advice to the end of 2007. Some of them then finished. Those who remained, refuse to discuss this any more.
Back to your question. Silver is a very safe investment, especially if you invest long-term. If we look at holding capital in cash, the future will not look so positive, as silver. Yes, holding capital in cash – money, is very risky. You need to realise that money, that is currency, is also an investment tool. The crown, Euro, Dollar – the value of this currency is also decided by the market, and their "value" also changes in time. The other problem of money is their lack f security. That’s how it really is – money is not secured by anything! So, today to have everything in unsecured money is very risky indeed. Countries all over the world, are building record debts, and some of them are also bankrupting themselves – remember Iceland, Hungary, the problems of Baltic States, etc. The printing of money, feverish issuing of bonds – all of that devalues savings. Money is susceptible to being devalued not only because of devaluation, but also the influence of ever present inflation. They keep loosing their value
As a conservative investor, you should have some of your finances in precious metals. Moreover, gold and especially silver have been used as money for 6000 years, today’s unsecured money, merely 40 years. What then is safer?
Question: I see that there is a difference between your sale and purchase price which is much higher than with gold. What is the cause?
Answer: First we must specify the difference between gold and silver. With silver there is a difference between the purchase and sale price (spread) which is generally much higher than with gold. That is due primarily to the high premium. The fact is that the price of silver against gold is considerably lower. If the engraving of one ounce coins costs for example one dollar, then the costs for silver of this engraving are a much higher percentage of the price than with gold.
The premium is present even in larger ingots or bullion – that is given by the fact that there is only little investment silver available and the supply cannot cover the demand. Another reason for greater spread against gold is the fact that the market with physical investment silver is considerably smaller and is not as widespread as the gold market. That does not include the USA, where many legal subjects exist, small or large, who deal in silver, make it more effective and exert pressure to narrow the spread between the sale and purchase price. In Europe the situation is different- the market with physical silver is organised by only a few legal subjects and there is very little investment silver here.
For these reasons, re-purchase itself is very complicated. SILVERUM offers its customers the possibility of re-purchasing their investment silver. A wise investor, will realise of course, that in time the market with physical silver will grow even in Europe and will become similar to the market of physical silver which exists in the USA and in Canada. The possibilities of purchase will increase and the price will improve.
Question: I am an economist. I read your article ´Why silver´ and how you equate silver with today’s modern financial system surprised me. It is generally stated that people will not pay with silver again, it is impractical. What is your opinion of that?
Answer: Unfortunately the future will prove us right. Since you are an economist you know the "Fractional reserve banking system" on which the present monetary system is built and which defines the function of central banks. This system is the backbone of today’s financial system, which we will no doubt agree on. Amongst other things, it enables banks to make money "from nothing" and it also changes the dependence of money on state bonds.
The Achilles’ heel of this system will be covered in the investor’s section of these web pages. The proof of the problem of this system has clearly been shown by the present economic crisis. Huge debt expansion (and the following bubble on the market with property) has been enabled by the fact that it is possible to emit huge sums of money "from nothing". Unfortunately, that is not the worst so far. The biggest problems are yet to come. When? It will happen when countries in debt with large budget deficiency (e.g. USA) will no longer be able to support their over-debted budgets and other countries (e.g. China) will refuse to buy their state bonds. That will be a big problem.
It is not possible to agree that precious metals will no longer be used for payment. The present monetary system is very frail. The value of money depends on the people’s belief in the purchase strength of money. This fact was proven in the yeas 1999 and 2001. Then, first with the phenomenon of Y2K and then with the terrorist attacks on the WTC, some small local shops and petrol stations, in the USA started to accept American silver coins which were used before the year 1965. These coins contain 90% silver. And this happened in today’s „modern age“ of credit cards an Internet banking. Those occurrences were not really a great problem – it was only panic. Many naďve, trusting people will be surprised what will happen when there is a real problem.
If we are talking about petrol stations lets look at another interesting situation. In 1960 in the USA a gallon of petrol cost 30 cents – so a gallon could be purchased with three silver ten cents. Today, the price of a gallon is ten times that, more than $3. But even today you could buy that gallon for the same three silver ten cents– because of the value of silver, from which they are made. That is the case even with today’s low manipulated prices of silver.
We will probably never pay with silver coins again. Not because it is not modern, but simply because silver is very valuable. There is too little of it for the minting of a large amount of coins. We are certain however, that precious metals do have a future in the financial systems. That is that money will be partly secured by gold and silver. And that is not the music of the future, or our own visions. The Arab states of the GCC (Gulf Cooperation Council) have agreed to form a joint currency (it will probably be called the Arab dinar), which could be partly secured by gold. Because one of the members of the GCC is also Saudi Arabia, then payment for oil would probably be demanded in this currency too. That would hit the dollar. The result would be a growth in precious metals. Another country which could use its large reserves of gold in the monetary system is Russia. Because Russia is also a great exporter of crude materials into Europe, this move would affect the Euro and the Czech crown.
Question: I have at my disposal large capital. I have read several articles on the Internet about diamonds. For larger investment, diamonds seem more favourable than silver, and that is mostly because of practical reasons. A diamond may have the value of a million crowns, but is very small and I can put it in my pocket. For the same price I would buy several tens of grams of silver, which is not so compact.
Answer: Yes a diamond is more compact. Silver is heavy, but due to a high density it does not take up much space. An investor can save several thousand ounces in a safe or a security box. But of course diamonds do hold an advantage in this area. A diamond cannot however be considered as a stable conservative investment tool. Investment into diamonds is not an investment into a real value but an aesthetic view. That can be most uncertain. The price of diamonds does not depend so much on the supply and demand, as on the valuation of an expert.
Let’s imagine that hypothetically in one moment, all the diamonds in the world would disappear. What would happen? Nothing. If on the other hand, all silver disappeared in the same way, we would not be able to watch television, use the computer, mobile, the fridge would stop working, and so on. Most production would stop. The world economies would be subject to a huge shake up.
The price of diamonds is more or less artificial – it depends mainly on whether a sufficiently rich and interested person can be found. If no such person can be found, then the demand disappears. Nobody needs diamonds for anything else.
The only place where diamonds are actually needed - abrasive and drilling tools, it is possible to use artificial diamonds at a fraction of the cost.
The price of diamonds is very high, often unacceptably high. What does a wise investor invest into? Into commodities, which are very underpriced and a possibility of potential growth exists, or something which is already overpriced?
If a man wants to buy his wife or girlfriend a present, he can do nothing more romantic than buy a diamond ring. Investment however has very little to do with romance. We invest into commodities which have an actual value. Into commodities without which the majority of people in this world cannot do without – and that is not diamonds.
Question: You offer silver in various forms (coins, ingots). Which is the best?
Answer: There is no definite answer to this question. The most popular silver is in small quantities, especially one ounce coins. They are the most in demand on the market, and they are the easiest to sell when cash is needed. If the price of silver goes down, it is with these coins where the premium grows quickly. So if the price of silver goes down a little, these coins can be sold for a higher price because of the premium. On the other hand the premium is the biggest disadvantage of coins. When purchasing coins each Troy ounce is more expensive than if you were purchasing ingots or bullion. For the same sum you will buy less silver in the form of coins than in the form of ingots or bullion. So the optimum investment is to diversify and buy both ingots and coins.
It is important however to buy those ingots and bullion, whose weight is in ounces. Precious metals have been purchase and sold in Troy ounces for years. There is less interest in Kilo and gram ingots and when you sell them you will receive less money for them. In the category of ingots, the most popular are ten ounce ingots. The reason is their practical size and at the same time their attractive price both in purchase and sale.
Question: What guarantee do I have that the coins, ingots and bullion which I buy from you is really pure silver and not a counterfeit (for example with added lead etc.).
Answer: On all our coins, ingots and bullion, you will find, from the refinery, the embossed mark .999 (or .999 pure silver), which guarantees the purity. Our company offers silver, only from reputable world refineries (including the most prestigious Johnson Matthey) and buys from the largest suppliers in the USA, who have been in this area for tens of years. Furthermore, as the first company in the Czech Republic, we offer the re-purchase of all our silver. In even this way we prove that we believe in the genuiness and weight of our silver.
Question: What does 1 oz, 10 oz etc. mean.?
Answer: The weight of silver has always been in Troy ounces – The most commonly used abbreviation is tr.oz or simply oz. One Troy ounce has an approximate weight of 31,1 grams.
So: 1 oz = 31,1 g, 10 oz = 311 g, 100 oz = 3,11 kg a 1000 oz = 31,1 kg.
There is also the fluid ounce (shortened fl.oz or simply oz). That is a measure of volume, not weight and equates approximately 29 ml. It is used in the USA; here you may find it on some shampoos or aftershaves.