Price of Silver

[holland2111]

Hello,

I am new here and had an interesting question. I am currently researching silver as an investment opportunity and am having trouble on determining whether or not it is undervalued. I want to understand the process of valuing it. What would you all recommend when going about the process of evaluating this precious metal?

[ShropshireTom]

Well that’s an interesting question without a simple answer! At its most basic, silver - like all metals and most commodities - has a spot price. That’s the market valuation of a resource in a readily utilisable form - I’ve spent most of my career in metal (not PM’s though) and spot prices are very widely used as a staple price guide. From there, there is the spread - the % difference that dealers will buy and sell at and so make their profit. For PM’s this may be relatively small, up to 5% for gold but often a couple of percent. For copper and titanium, to use as random examples, this may be as high as 20% depending on several factors.

The spot price is not guided by simple supply and demand, though it does have an effect. It is rather more heavily impacted by market sentiment and outlook. For example, I traded several millions of pounds worth of copper when demand was relatively low but economic outlook for the Far East was very good and prices were correspondingly high. Careful timing led to a handsome profit for my employer.

With PM’s, there’s a lot of other factors. The form of the Silver plays a big part. Bars, coins and bulk ingots carry differing premiums. Proof silver of a rare coin such as a Libertad will carry a much heavier premium than a cast kilo bar. I won’t comment on the vagaries of PM markets as I would be commenting on a hobby that I find interesting rather than from a place of experience and knowledge. Maybe my knowledgable friend @Pete could offer some of his wealth of knowledge on this subject as his knowledge of the PM world is surpassed only by his generosity of time spent assisting those of us with less experience. @BackyardBullion and @ChrisSilver also offer very sage words indeed on the subject. I can whole heartedly recommend @BackyardBullion YouTube channel for a source of bullsh1t free refreshingly level headed information and opinion.

Finally, decide the reason for your foray into the PM market. A store of value is a very real and well guided reason for PM investment. Timing the market and trying to win big is not necessarily the best reason reason - though it has been done and undoubtedly can be done again with sufficient research and dedication. Hope that helps you out a bit.

Edited May 26, 2021 by ShropshireTom

[sixgun]

i was once asked to write a presentation on what the value of silver was. i spent quite a long time thinking about this and decided there was no clear answer. 
As a matter of fact the precious metal markets are heavily manipulated. Gold and silver are real money and so rivals to fiat. 
The trading houses are given a free rein to pursue many market antics, protected by the regulators and central banks. Some of the large banks like JP Morgan act for the Fed and so are acting for the Exchange Stabilisation Fund. 
In these circumstances we do not know what the fair price is of precious metals b/c true price discovery doesn't happen and people use the spot price as a guide when the spot price is in reality a paper price which is rigged.

There are many factors which lead some people to believe precious metals will appreciate due to inflation and in real terms. Andrew Maguire has for some time stated the changes flowing for Basel III will result in a revaluation of gold. Not many agreed in the beginning but more are agreeing now. Gold and silver are linked - they are both real money.
The Wall Street Silver movement is actually having an effect and is going from strength to strength. A lot of focus is given to Sprott PSLV - the PSLV is now taking 50% of the investment physical silver. It has more silver than the registered silver in the COMEX. 
There are many demands for silver for 'Green energy' and general electronics. This is not going to go away any time soon. 

The value of silver is whatever someone is willing to sell for and someone else is willing to pay them. 
Silver is a longer term investment - first know where you would sell the silver and what it would cost you to sell. You might ultimately feel it is most cost effective to buy PSLV (remember the P - this is not the scammy ETF called SLV). As i say silver is worth what someone will pay you. A dealer will pay bottom book price. So know a community you can sell easily and at a fair price. Then if you pay a fair price in the first place you will profit from price appreciation.

In the USA, the American Eagle is the most popular coin. With the high demand for physical, the ASE has gone up a lot. You can sell ASE's all day long in the States - they are expensive but they should be easy to sell. Like for example gold sovereigns are easy to sell on The Silver Forum with most of the members being in the UK. 
Best value generally comes for larger bars.
Having a mix of Constitutional silver, silver rounds, basic mint coins and bars is a good idea. Get involved in a community where silver is being traded and go for basic silver. Nothing fancy. You might get stuff that is fancy but only as you get more experienced. Some of the more expensive items i have bought in the past have doubled and more but you need to know what you are doing and until you do get basic silver. Remember it is a longer term investment - YEARS and you should find outlets where you can sell - which generally means not direct to dealers. Be careful of ebay.

Edited May 26, 2021 by sixgun

[GoldStandardPartyUK]

Some different approaches to making your own silver price target;

1. Take a look at the historic 100+ year gold to silver (GSR) price chart, decide for yourself what is a good ratio, then take price of gold and divide by the ratio. 

2. Take the gold price then divide by the ratio of the weight of all the investment gold which exists to the weight of all the investment silver. 

3. Take Gold price and divide by the ratio of gold being minded to silver being mined

4. Study monetary history to find a date when you think silver price was correct, then simply adjust this price accounting for inflation. e.g. dates I've seen from people who attempt this are 1913 as pre USA Federal Reserve (see USdebtclock.org), or 1944 Bretton Woods, or 1947 UK abandons the silver standard, or 1971 USA abandons bretton woods