what is the difference between buying silver bars vs silver ETF?

Discussion in 'Trading' started by IronFist, Jun 5, 2012.

  1. Sorry if this is the wrong forum.

    Is there a difference between them other than actually having silver bars?
  2. Not really unless the world comes to an end. You have an economic interest in some silver bars minus fees when you invest in the ETF. You have the same economic interest when you hold the silver bars yourself, except you have to transport and store them yourself.
  3. So it's probably cheaper to buy ETF's right? Are commissions probably cheaper than whatever the bar dealers charge as a premium over spot? Plus you don't have to buy a safe or rent a safety deposit box.

    ETFs are certainly more convenient.
  4. ETF has advantage of convenience and a low buy/sell spread.

    Physical silver (bars) have advantage of: no annual fee (around 1% I believe for ETF); no annual 28% cap gains tax (you pay only when you sell the physical silver so it can be scheduled better or likely avoided all together).

    Lastly and perhaps most importantly there are significant safety differences: physical silver can be stolen, while the ETF has an unknown counterparty risk and is also a traceable asset which can be taken anytime you generate liability from divorce, frivolous lawsuit, or any of 1000 other ways.

    Bottom line in my book - if you are holding for many years you'll likely come out ahead with physical silver, if holding a shorter period, the ETF may be better.
  5. Some of the markups for buying phsyical gold and silver, at least online, are attrocious. Especially for the smaller amounts.

    I was on apmex.com. You can buy a 1g gold bar for $77.25. It is worth $53.19. That means gold has to go up over 40% just for you to break even.

    Obviously it gets a little better as you go up in size.

    A 1oz gold bar, worth around $1,628 according to their site, sells for $1,675.39 (and about $50 more if you pay via credit card).

    That means gold has to go up over 2% just for you to break even. That's a bit better.

    Now look at GLD, currently trading at $157.14. If you had that same $1,675 to invest you could buy 9 shares which would be $1,414.26, add in Scottrade's $7 commission and you're at $1,421.26. Add in another $7 for when you want to sell it and you're at $1,428.26. Divide that by your 9 shares and you paid $158.69 including both commissions.

    This means price only has to increase by 0.9% in order for you to break even.

    ETFs are a better deal.

    Let's look at bigger amounts.

    Apmex (again, a dealer I just randomly picked from Google) wants $16,952.90 (check or wire) or $17,461.49 (credit card) for a 10oz Engelhard bar. Now depending on what quote you use, and I will use Apmex's ask, 10oz is worth $16,253.00. What this means is even in this larger quantity, the price of gold still has to go up by 4.3% just for you to break even.

    If you have $16,000 to invest in gold and you buy GLD you would get 101 shares. Adding in both $7 comissions you would have a breakeven cost of $157.28 per share, which means GLD only has to increase by 0.08% (0.008) in order for you to break even.

    CONCLUSION: GLD is a better deal for all investment sizes than physical gold.

    OTHER FACTORS: Apmex may be a rip off. I haven't checked with other places. It seems awfully expensive compared to buying GLD, however. I'd hate to see people buy their $75 bars thinking they are investing in their future only to not make any money because gold doesn't go up 43% by the time they have to sell.
  6. Let's look at Silver. I'm looking at jmbullion.com (randomly picked) this time instead of apmex because Apmex is clearly a ripoff as mentioned in the previous post.

    A 1oz silver bar is $30.28. Their site lists spot price as currently $28.88. Price has to go up over 4% before you break even.

    Let's say you have a few thousand to invest. You can buy a new 100oz silver bar from them for $3,016.29 (bank wire). Their current spot quote is $28.86 per ounce (it changed in the time between that last paragraph and this paragraph) which means your 100oz is worth $2,886. Price needs to go up by more than 4.5% just to break even.

    Let's look at SLV instead. SLV closed at $27.72. Your $3,000 would get you 108 shares, + 2 $7 commissions at Scottrade puts your total investment at a net cost of $27.85 per share.

    This means with SLV your investment only has to go up by 0.47% for you to break even.

    I will admit that an advantage of the physical metal would be if the money system absolutely collapsed, you probably wouldn't be able to cash out your ETFs, and if you did the cash you get for them wouldn't be worth anything, anyway, and in this situation the physical metal might actually still have a value.

    If you don't think that is going to happen, however, buy the ETFs.
  7. Question:

    Why is there a difference in price between SLV/GLD and the metal futures, and the spot prices? Do they not track the same?
  8. AK100


    Always remember when you're buying an ETF for investment you're entering into a contract with an investment bank, and they cannot be trusted to always look after your best interests. Some precious metal ETFs are a scandal waiting to happen.

    Silver bars (or bags of coin) are the best, store them yourself and always think about having 2 safes. One has lots of documents, a touch of cash and some crappy jewelry. The other safe has the real value.

    Then, if/when some punks try to stick you up on a home invasion you lead them to the fake safe.
  9. I'm referring only to GLD and SLV. Can they be trusted?

    Good idea about the fake safe.
  10. ETF's have the possibility of default (see prospectus). Physical bullion has no counter party risk.

    Think MF Global for starters.
    #10     Jun 6, 2012