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How Can I Buy Silver For Spot Price?

April 9, 2015 2 Comments

Silver Ore

This is a common question for new investors when it comes to buying silver or gold online. In order to fully understand the answer to this question, you need to know what exactly the “spot price” of silver is.

Silver Spot Price

Spot silver is the “spot price” for which the commodity could be transacted and delivered on RIGHT NOW. This is in contrast to silver futures contracts or forward contracts. The spot price of silver and gold refers to one ounce of the respective commodity. For an ounce of gold and silver to meet the spot price they must also meet specific fineness requirements.

What Are Futures Prices?

Typically, when speaking of futures prices of a commodity, they are referring to a contract for the price of a commodity for FUTURE DELIVERY. Commodities such as silver, gold, corn, crude oil, coffee, wheat, etc. all have futures contracts available through various exchanges. These contracts make it possible for producers and purchasers of commodities to mitigate risk by having the ability to lock in prices far out into the future. Gold and silver futures contracts represent the futures price of one ounce of silver or gold.

comex-floor

We’ll discuss how the spot price is determined in another article.

Why Can’t I Find Silver For Spot Price?

The short answer is that you can. You can purchase silver contracts for the spot price of silver. The problem most people have with this is that you are buying “paper silver” not physical. While you can technically take delivery of physical silver when purchasing a silver contract, almost all futures are never delivered upon – the process is long and arduous. Not only that, but silver contracts are sold in 5,000 ounce increments. So that prices out the majority of silver buyers.

Another way to purchase silver for spot price is also by buying paper silver. This would be in the format of an ETF such as SLV – The iShares Silver Trust. This “stock” (really an Exchange Traded Fund) closely mimics the spot price of silver but most people would still have to pay broker’s fees per trade. But buyer beware, there has been a lot of controversy with the SLV in the bullion world, so be sure to do your research.

Buying Silver Coins For Spot Price

When people ask about buying silver coins for spot price our answer is almost always the same – “It costs money to produce the coins, so that’s why there is a small premium.”

People have a hard time understanding the immense amount of work that went into producing their single silver coin.

  • Millions of tons of earth are moved to extract silver ore from the ground. This is done with huge machines that run on gasoline.
  • From there that silver ore needs to be crushed and the different minerals separated. This is also done with large machines that run on fuel.
  • At that point, the smaller bits of silver are separated and driven in large, heavy-duty trucks to the refinery because the silver does not come out of the ground .999 fine.
  • The refinery then melts the silver and removes all of the impurities. To melt silver it must reach 1,700 degrees Fahrenheit (again, large machines in a factory-like atmosphere).
  • The refined silver is then cooled into billets and then put through an extruder machine to make flat strips (again, a large machine).
  • The extruded silver strips are then cut/punched into silver blanks (again, a large machine exerting tons of pressure).
  • Then, the silver blanks are driven in heavy, armored trucks (that use gasoline) across the country to where the mint is located.
  • The Mint then takes those blanks and puts them through a die stamper to stamp the blanks into coins.

 


If you can imagine all of the man hours, machine purchases, machine maintenance, gasoline and fuel prices, and the cost to run all of those heavy-duty machines, you can begin to realize that there is a cost associated in taking a raw piece of rock out of the ground and turning it into a silver bullion coin.

All of the labor required to make these coins and bars is why the price of a Silver Eagle is a few dollars higher than the spot price of silver. This is the case with all physical silver bullion.

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Comments (2)

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  1. Vincent Truong says:

    A very helpful learning for Silver investors.

  2. nice article on how to buy silver spot . thanks

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