Ten Rules of Silver Investing

A long time ago, fellow silver enthusiast David Morgan for whom I have great respect, came up with his list of Ten Rules for investing in silver. I have used his excellent thoughts, added a few different ideas, a few of my own updates, and I’m sharing them here.  Don’t think of these as hard-set rules in stone that must never be broken, but more of a guideline to keep you pointed in the right direction in this volatile silver market.

Rule #1: Always take physical delivery

Paper ETF’s like the SLV silver fund are run by the very bank (JPMorgan) that is criminally manipulating the silver market. Holding paper silver will do you no good at all in a SHTF scenario. The people of Zimbabwe were forced to pan for gold in the rivers to obtain enough money each day to eat and survive. Their paper dollars had been inflated such that a 100 Trillion dollar note would not even buy you a loaf of bread. The market vendors would only accept gold and silver in exchange for goods. You must take physical delivery of your metals – to hold silver is to own it. To unlock their true potential of precious metals as a portable anonymous investment vehicle and store of wealth you need to buy the physical.

Rule #2: Don’t overpay for silver

Remember, silver and gold are fungible, and are traded based upon their weight of pure metal. A tarnished and scratched up old silver round is worth as much as one in brilliant uncirculated mint condition, once they hit the melting pot of a refiner. You should be looking to pay as close to spot price as possible. Collecting silver rarities is an art-but not really an investment. There are many costly mistakes to be made by beginners in rare coin collecting, so I suggest most people to stick to common government-minted 1 ounce coins like the Silver American Eagles and the Silver Maple Leafs, as well as clearly marked .999 fine Silver Bars from well-know refiners. Avoid commemorative coins, decorative items, and other collectibles, all of which carry large premiums and have limited resale markets.

Rule #3: Start small, keep it simple

Too many investors, upon deciding to beef up the metals portion of their portfolio, buy too much physical silver at once-and in the wrong forms. A good strategy for a beginner is to set aside an amount each month they can afford, and purchase at the same time every month; For example, buying 3 or 4 Silver American Eagles every payday. This allows you to dollar-cost average and not be stung by the day-to-day swings in the price of silver as you might have if you had “blown your whole load” on a monster box of 500 silver eagles on the day that happened to be the yearly high for silver. Which brings us to the next rule…

Rule #4: Be careful buying at all-time highs

New highs in the silver price bring new investors and market attention to the silver market, and paints the fiat currencies of the central banks in a negative light. They hate nothing worse than this, and always stand ready to flood the market with fresh naked shorts to drive the price back down after new highs. You might stand to benefit to wait for this correction before making a large bullion purchase on news of all-time or yearly highs in the silver price.

Rule #5: Learn how to avoid fake silver

Historically, silver has not been prone to a lot of counterfeiting as its low price compared to gold meant it wasn’t worth the time and effort. As the price of silver rises, we are seeing more and more counterfeit silver coins and bars on the market, and sellers of worthless silver-plated “100 mills” bars on eBay trying to dupe buyers into thinking they are getting a deal on a solid silver bar. Buyers should educate themselves before purchasing to make sure the seller is reputable and the product is as advertised. (more on spotting fake silver)

Rule #6: A little information can mean a lot more silver

You should always be educating yourself on important things like money, government, free markets, and how they all are entwined and affect our day to day lives. You should learn more so you are better able to position yourself for what could be coming. Using your time wisely will pay dividends later, and you can never know enough. Use internet resources like this website to find the best prices on your investments. Consider reading some books on the history of silver and the role it plays in society and politics. Study booms and busts and how silver fared in both scenarios. Learn how has it reacted in past times of currency failures, devaluations, and even currency stability. As a silver investor, you are a commodities investor. You should study how the commodity market works, and how it relates to currency fluctuations and general market conditions. Knowledge is golden, and the more you have, the less you will be blown around by the winds of ignorance.

Rule #7: What’s yours is yours – so keep it that way

While it is wise to keep some of your silver where you can get to it easily, it is also important to keep the bulk of your metal in a safe place- especially as you holdings increase. However, if you establish an account with a brokerage warehouse or other public storage facility, you should make sure your holdings are kept segregated and that you can inspect them when you wish. Safety deposit boxes are a good place to store physical metals. Secured storage of your metals is nice, but you must always be aware that any metals you keep in banks are subject to government confiscation, so plan accordingly.

Rule #8: Hedge your metal stack with mining stocks

Once you have built your “insurance” stack of silver, and have also secured your core metal position, then you are in stacking mode. You should be slowly buying silver to add to your core position, dollar-cost averaging over time and keeping some spare cash reserves for unexpected expenses or a sudden dip in silver price which will allow you to pick up ounces on the cheap. You should also be considering buying some mining stocks. This gives your metals portfolio some diversification, and potential for some explosive gains as many of these stocks are highly leveraged to the price of the metal, and a substantial increase in the price of silver could send some junior mining stocks to the moon. As always, you should never have all your “eggs in one basket”, and your due diligence should be extra-strict when investing in small mining companies.

Rule #9: Know when to sell your silver

Money flows in cycles. Assets go from overvalued, to undervalued, to overvalued again. These cycles occur over generations of people, most of whom are unaware to the history, and are “doomed to repeat it.” Those who are willing to learn and recognize the cycles can profit by buying undervalued assets and cashing them in once they become overvalued. Real estate and equities prices in the United States are only beginning to fall, in terms of their price in precious metals. Buy physical silver now while it is still undervalued so you can buy cash-flow real estate with your silver once the real estate values bottom out. (more on when to sell your silver)

Rule #10: When all else fails, there is silver.

No one likes to be a prophet of doom, but the simple truth is that silver is the world’s money of last resort. Should a severe economic collapse occur, leaving paper assets worthless, silver will be primary currency for purchase of goods and services. (Gold will be a store of major wealth, but will be priced too high for day-to-day use.) Thus, every investor should own some physical silver-and store a portion of it where it’s accessible in an emergency.

Of course, if all these rules seem too restrictive for you, then you could always follow the advice a strange but wise man told me. Wait a minute, why do you need 10 rules? I can reduce it down to 4 –

1. Buy low
2. ???
3. Sell high
4. Profit!!!