Are silver coins a good investment?

When it comes to precious metals, silver has always been seen as something of a poor relation. An Olympic silver medal is a huge achievement, but every recipient knows that it is also a sign that they came second best. And while the “family silver” is something that many households might treasure, gold cutlery is the sort of thing reserved for royalty and the super-rich.

Perhaps it is due to these cultural connotations that silver is typically paid less attention in the investment world, too. However, that is clearly a case of flawed logic. When looking to make money from an investment, what matters is how its value changes over time. Comparing its absolute value with that of another commodity is as senseless as saying you shouldn’t invest in an apartment because it is worth less than a castle.

Why silver coins

Physical silver is typically traded in two forms, either as coins or bars. The form the silver takes does not make any difference to its inherent value, but there are some advantages to coins over bars. Many people choose to invest in American Silver Eagle coins as they offer greater flexibility than bullion.

The problem with silver bars is that they are far more complex to buy and sell – and obviously there is the “all or nothing” nature of them. While smaller bars are available, the traditionally traded 70lb bars change hands for around $17,000 each. Silver coins, on the other hand, can be purchased far more easily and for as little as $20 each.

All coins are not the same

Government minted coins are universally accepted, and can usually be traded without the need for assay testing. However, the fact that silver has been traded in the form of coins for so long, means there is a vast choice of coins out there.

Some old silver coins have scarcity value on top of the inherent value of the precious metal. So for these, their value is based on more than just the weight and purity. There are some, known as numismatics, who specialize in trading the most expensive coins in the world. However, unless you really know what you are doing, it is safer to stick with uncirculated recently minted coins, where the value is unambiguous.

But are they a good investment?

This brings us full circle to the first question, and now we understand a little more about silver coins in their own right, it is safer to do what we initially warned against, and that is to compare silver investment with gold investment. This is not by way of absolute values, but in terms of relative performance.

The gold/silver ratio is used to calculate absolute and relative prices of both gold and silver. To make sense of it, you need to understand that the ratio is set to a standard normalized value of 16:1. This is based on historical statistics.

The ratio currently stands around 50:1, but as mining stocks dwindle and the ratio starts to return towards its normal levels, silver will become one of the most prized commodities. If gold prices stay as they are now, then as the ratio normalizes, the price of silver will approximately double.

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