Understanding Silver Bullion and Building Wealth
In the wake of the national news about #silversqueeze there is a lot of hype surrounding the precious metals market. This investment arena has always been volatile and unpredictable, but we believe in a sound strategy of accumulation will build wealth. We would never suggest an all eggs in one basket approach, but a well-rounded portfolio would be lacking if it wasn’t positioned in tangible assets. Regardless of your stance, we thought it prudent to take a moment to blog about the investment options for the popular investment vehicle and discuss the products and strategies as a primer for individuals interested in building a tangible position in the commodity.
First and foremost, buying bullion products is not a get rich quick investment. The idea is to build wealth over time with incremental purchases. The concept is wrapped around a preservation of value rather than quick gains. The price of silver fluctuates, but the current spot price is just shy of half of market highs. While we promote a slow and steady approach, historically the timing is ripe for a one time large purchase for diversification purposes.
There are a plethora of different forms that a silver investor can choose from. Each item trades at a premium to spot prices and sells at some factor related to these prices. We display the live spot pricing at the top of our web pages. Each product has varying premiums based on market demand and these factors will have some bearing on our buy prices when it comes time to liquidate your holdings. Following is a brief list of products offered, but is not a current inventory. To see products we have currently for sale please visit our store or for online purchases hit this link.
Silver bullion can be purchased in a few different forms – bars or ingots, silver rounds, novelty silver, monetized bullion. Each has pros and cons, and it’s up to the individual buyer to choose what best fits their needs and desires.
Bars and ingots are technically the same thing, with the term ingot usually reserved for smaller sizes. Regardless, bars come in a variety of shapes and sizes. These are the most popular way to purchase silver in bulk and have been the basic instrument of holding for literally centuries. Bars are made of pure silver, have an assay and weight stamped into the metal. Weight for precious metals is in troy ounces not avoirdupois weights. While industrial bars and some ship wreck items come in 1000 oz. sizes the most popular retail sizes are 100 oz., 10 oz., and 1 oz. Bars are generally the best way to purchase silver at the lowest premium. Demand especially for the smaller sizes can sometimes spike, but overall this is the “cheapest” silver purchase. There are a number of different smelters that produce these products, but the top two are Johnathon Massey and Engelhard. These two offer the buyer confidence in quality and liquidity and because of the name recognition these can trade at small premiums to the otherwise generic bars. One of the big setbacks to holding silver is the sheer volume of product. It is for this reason the 100 oz. bars remain popular. They simply are the easiest to store.
Silver rounds take their name from their shape. Struck in pure silver, they are coin like and are sold individually and by the roll. Like bars, these are struck by a wide range of smelters but also have a number of themes and motifs that can alter premiums. All products will be marked .999 pure and include the weight of 1 troy ounce. Rounds are popular for a couple of reasons. Small investors can purchase in increments that fit their budget building a position for as little as $30 per round. Timely designs and various motifs entice consumers to purchase these items as souvenirs, gifts or keepsakes. Rounds are generally about the same size, but come with a virtually unlimited array of motifs - holiday designs, birth announcements, graduation themes, humorous takes, political affiliation, and almost anything you can think of. As such, demand can play into pricing. For example, a dated Christmas round may have a larger premium in November of that year, than in March three years later. However, the price will always be based in the content.
Novelty silver is similar to the rounds and have varying motifs. But, they are often struck in sterling and come in odd sizes and weights. Buyers need to be aware of these differences and avoid the usually large premiums the items are initially sold at. Offerings in the back of magazines, through TV advertisements, or online links promote these products and often stress the silver content as a selling point. These rarely offer sound investment potential. If you’re an car enthusiast, a set of silver bars with collectible automobile images could be fun to own. But the fancy box, literature and pricey advertisement all come at a price. That price usually presents itself as a huge premium over the current price of silver. With novelty silver, you must read the fine print. All silver items will be stamped as to purity. Items produced in sterling are not pure but rather 92.5%. So one ounce sterling ingot is not one ounce of silver. Another ploy used by novelty sales is the “pound of silver” trick. A troy pound is 12 troy ounces not 16. If a novelty item is sold as a “pound of silver” uniformed buyer calculations can be off by four ounces making things appear to be great deal. Novelty silver can be fun and interesting and the silver is still valuable. If you want these types of products buy them on the secondary market when the premiums will be closer inline to the actual silver weight.
Many foreign Mints produce one ounce silver coinage. These trade at varying premiums over spot and are available in varying amounts. Some, like the Canadian Maple leaf, are very popular in the United States and thus carrying a moderate premium. But most basically trade as straight bullion or similar to the rounds mentioned above. These items include a wide range of types including but not limited to Pandas, Kookaburras, Krugerrands, Onzas, and others. Depending on availability these trade at prices similar to or just less than the American Silver eagle, the US version of these and a monetized bullion product.
Monetized bullion is a very popular way to buy silver as an investment in the United States. The term monetized refers to the fact that the bullion items have a denomination and are deemed legal tender by our Treasury Department. This changes U.S. reporting requirements for Federal tax purposes. Additionally different states look at monetized bullion in different ways, and buyers should consult their accountants or individual state sales and income tax codes to determine how this affects them.
The American Silver Eagle is the most popular monetized silver. The coin weighs one ounce but has a denomination of one U.S. dollar. This distinction carries a number of legal implications that protect buyers from unfair taxation and confiscation.
Another monetized bullion product is pre-1965 silver coinage. All silver coins produced by our mints prior to 1965 were struck in 90% silver. These coins remain legal tender, but are traded based on content and are sold in varying amounts in face value increments. In basic calculations one dollar of 90% dimes, quarters or halves is roughly 72% of an ounce. The Kennedy half dollars from 1965 to 1970 fall into this category, but contain less silver. These were struck in silver clad or 40% silver.
The Morgan and Peace dollars from the 19th and 20th century are popular investment vehicles and circulated they are technically monetized bullion but are by definition actually numismatic collectibles. While struck in 90% silver they are heavier than the smaller denominations and contain just over 77% of an ounce each. Their premiums are based on supply and demand, not related to their silver content. These are one of our favorite silver plays, but for the novice silver investor the higher numismatic premiums may not immediately make sense. But, in hot markets, these classic pieces offer high returns by expanding premiums from intense demand. Due to the high numismatic premiums these are not subject to some of the tax laws that govern bullion and monetized bullion.
The Tax Law
There are no laws requiring reporting of any purchases made of bullion regardless of the amounts. All bullion transactions are private and U.S. Coins and Jewelry keep them as such. We do not file copies of sales with any government agency. All sales made from our website or our storefront are strictly confidential transactions between our company and the client. They remain private. Purchases made in cash in the amount of or approaching $10,000.00 is reportable as ordered by the Federal government. This is not a report of the bullion transaction, but rather of the cash.
If you sell us silver in excess of 1000 troy ounces or $1000 face value of 90% silver, we are required to file a 1099B for the payment(s) made to you. Morgan and Peace dollars and the American Silver Eagle are exempt from these requirements. To view our white papers concerning this and other IRS guidelines pertaining to all bullion products click HERE. This information was provided to us by the Industry Council for Tangible Assets and is subject to change without notice. We are not offering legal advice only offering a synopsis of current law.
We do not write the laws, we just follow them. U.S. Coins and Jewelry and their employees strictly comply with all state and Federal tax reporting requirements. By law we maintain an AML plan (Anti Money Laundering) and comply with all statues surrounding these laws. Any efforts to work outside the legal parameters are not acceptable and our knowledge of such is a reportable offense. Asking us how to structure trades to avoid these laws is also a reportable offense. To avoid uncomfortable situations we encourage buyers and sellers to review current laws and be aware of the burdens surrounding these issues.
The #silversqueeze movement has made silver is a hot topic this week. But we’ve been at this for decades. We stand behind the concept of rounding out your portfolio with a percentage of tangible asset holdings. We’ve been working with collectors, stackers and tangible asset investors since 1985. So whether you chose the silver we discussed here today or look to gold, platinum, palladium or rhodium, we encourage you to speak with one of our trained professionals and learn how you can preserve wealth and diversify your current portfolio with precious metals. So if you’re looking at a slow and steady plan with incremental purchases or want to buy into the market with a one-time purchase, deal with confidence with Houston’s leading precious metals dealer – U.S. Coins and Jewelry. Call 832-402-1638 to set up an appointment or visit uscoinsandjewelry.com to learn more.