How to Buy Silver and avoid Scams

Don't get scammed when investing in silver.
Don't get scammed when investing in silver. (Image: Thinkstock/Comstock/Getty Images)

Silver coins and silver bullion in the forms of bars and rounds are a great investment. Silver, along with gold and other commodities,can be a safe-haven investment when the U.S. dollar falls and global markets are uncertain. However, scammers sometimes use these conditions to prey on people's fears and sell them on bad investments. Educate yourself to know how to spot a scam.

Never buy exchange-traded silver funds, commonly called ETFs. They are regulated very little and most likely don't own silver they are selling. They make money on fees and storage. They charge storage fees for silver and gold even when they do not physically have or store metal. They count on purchases, like bank deposits, being long term so they can make money borrowing against your account or backing what they are doing. They are not audited for deposits of silver or possession of silver and like other businesses they can go bankrupt, taking your investment in silver with them. Take possession of what silver you buy.

Don't buy silver futures. Commodities futures are always risky. With physical silver you don't risk complete loss of value like stock and futures, especially leveraged futures, can bring. Many scams are played with brokers or brokerages not actually making a leveraged silver trade. If the price rises, you are told the silver trade couldn't be placed or was placed late at the higher price. If the price falls and you bet on silver rising the trader can call it due and keep your money. Take physical possession of silver bullion instead.

Avoid coins, often called numismatic investments. Silver bullion rounds and bars are fine. The spot price plus a small premium is what you pay for bullion. Rare coin value is always subjective to the coins being graded and is inflated for the value over the silver content that the rarity brings. Silver bullion is sold for about 5 to 9 percent over spot. Coin dealers can double or triple the cost of rare coins. That means if you buy and sell the same day you lose about 7 percent on silver bullion bars and rounds. You may lose 30 percent to 70 percent on a coin with the same dealer doing the common markup. Buy for silver content, not rarity or collector's value.

Never buy from television or magazine adverting. Silver bullion sold as a collectible or commemorative coin is marked up often five to 10 times or even more over the cost of the silver. As with rare coins, if you try to sell the same day you lose lots of money. In a few years' time, the mass-produced collectors' editions are sold by any coin dealer at the cost of other silver bullion. The sellers of commemorative coins have a huge markup to pay for expensive ad campaigns, and they sell silver for many times the actual metal value.

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