Understanding Silver Bullion

With difficult economic times and fears over the governments handling of the money supply people once again turn to the traditional stores of wealth – Gold and Silver.

Buying Gold Bullion is out of the reach of most average investors due to its much higher price than Silver. The current ratio at the time of this article is 1/70. Many feel this ratio is way out of balance given the ratio of naturally occurring is about 1/17.5. Should Silver return to this natural ratio anyone holding physical silver is likely to have a very good return on investment should they buy at today’s price for silver.

The value of silver is mainly control by the world spot price for silver. What one needs to understand however is that the average person can buy silver at the spot price. The spot silver represents large contracts for quantities that the average punter couldn’t afford to pay. Thus when people buy silver bullion they tend to buy it is smaller more easily transportable weights, normally 10oz bars, 20oz bars and 1/2 kilo and kilo bars. There are a variety of other weights available but the later tend to be the most popular. As the size of the bar increase the price per ounce of silver decreases. There are a number factors for this. One is that smelting a bullion bar requires the same amount of labour despite the size of the bar, in fact its probably more time consuming to create the smaller silver bars. Why then do people not buy the bigger bars and get more silver for their buck? The two main reasons are transportability and liquidity.

Transportability refers to the ease with which the silver bar can be move. A small 10 oz bar can be easily posted, carried in ones pocket and even used as a paper weight whereas a 1000 oz bar, whilst much cheaper per ounce of silver weighs 31.1 kilograms! Try carrying that around with you all day.

Liquidity refers to the ease of which you can sell the item. Because the smaller bars cost less in total cost they are easy to sell as the buyer does not have to come up with such a large sum to purchase the item.

Buyers recognise these factors and are willing to pay the premium.

Source by Alastair Harris

Understanding Silver Bullion