A Little on Silver

I feel that I neglected silver somewhat in my previous post and failed to give it the fair hearing it deserves.  The trend of silver over the past year has increased 95%, compared to golds 19.5%, a spectacular investment if you brought last year.

Some suggest that silver may be a bubble, but if we look at the yearly chart silver had a slight correcting in price at the end of January and is now back on the increase.  This combined with the fact that gold is set to rise further suggest that silver is still an OK long term investment.

I believe the consensus to be that precious metals have been rather undervalued in the previous years as a result of the "booming" economy, with more faith place in shares and credit; hence the huge increases we have seen in prices since 2007/2008.  Gold had a bit of a head start when the credit crisis hit and now silver is playing catchup.

The problem I have with silver is that it is currently subject to 20% VAT, which combined with mark-ups over the spot price means you can easily pay 50% over the spot price for small purchases.  When you start spending hundreds or thousands of pounds you may as well invest in gold as you avoid the VAT and get more metal for your pound.  1oz silver is currently valued at £20.09, yet a coin can easily set you back upwards of £33 if you buy them individually.

So here are a couple of solutions I have found, firstly check eBay.  I found a selection of 1oz silver bars on sale, although many of them sold for around £30 I picked one up for £25 (+£2 p&p).  This is still quite a hefty markup, as should be expected for small value purchases, but much cheaper than the shop price and I just about beat the VAT (£5 on a £20 ounce).

Secondly I would consider bulk purchases which can yield a better mark-up.  10 x 1oz coins can cost you £276 inc VAT, which is a 38% markup on the current price (£20.60), substantially better than £33 for a single 1oz coin.  You could sell these back at a small profit on eBay today, which is quite promising for the long term.

Finally I would consider looking at slightly higher value bars, 100g is approximately 3.5oz and can currently be brought for £88.50 inc VAT (36% markup), where as three single ounce coins could cost closer to £100.  Bigger values will obviously yield a smaller mark-up cost.

However comparing these prices to small amounts of gold you still pay a significant markup, 2g of gold can currently be brought for £89.50, which is a 30% markup over spot price.  So even for smaller values of gold you still receive a better weight per pound.  Overall it's a tossup between whether you think silver prices will increase more than gold in order to recoup that extra markup, personally I think there is a good chance that silver will outperform gold over the next couple of years but there really not much in it.