First Person: Tricks and Traps of Buying Silver

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Even with silver being a volatile metal at times, I'm still a fan. I'll admit however, there are certainly some potential pitfalls to buying the shiny stuff. In fact, if you're not careful, you can take quite a hit on investing in silver due to simple ignorance regarding its purchase. This is why I make sure that when I'm on the lookout for good (physical) silver buys, I watch out for the following tricks, traps, and seller "techniques".

One "Ounce" Game

The difference between a standard ounce and a "troy" ounce is about 3 grams. This doesn't sound like much, but when you consider a troy ounce is just over 31 grams, it's a difference of about 10 percent Now consider that you're buying 100 ounces of silver. Well, at $30 an ounce, getting shorted on 10 percent -- or 10 ounces -- would equate to an upfront loss of $300 plus any premium that's being paid on the purchase online or at a coin or pawn shop.

I initially didn't know the difference between an ounce and a troy ounce when I started getting my first silver ounce coins as a kid, but I figured there must be a reason the distinction was made and took it upon myself to find out why. I'm sure glad I did, because as I view many of the coin auctions online, this is one area where sellers often think they can pull the wool over an uneducated buyer's eyes, often promoting "10 ounces" rather than "10 troy ounces".

"One Pound of Pre-1965 Coins"

Finding a great price on "one pound of pre-1965 coins" sounds great, right? One pound…16 ounces, at spot price sounds too good to be true. Well, maybe it is.

Seeing something like this advertised is when I start to look at the breakdown of what coins comprise this "pound". This is often when I find that there are a large number of "war nickels" -- nickels produced from 1942 to 1945 and comprised of just 35 percent silver. This can add plenty of weight to the "pound" but not as much of it in silver weight, thereby driving down the actual silver value. This is why it's important to check the breakdown of coins comprising the sale of a collection of "silver" coins. There might be Kennedy half dollars, which prior to 1965 were 90 percent silver, but from 1965 to 1970 were only 40 percent silver.

I typically go to coinflation.com to find the current price for and silver content of various silver coins.

Purity

Not all products containing silver are pure silver. Understanding that .999 silver has a fineness greater than sterling silver (92.5 percent silver), which in turn has a greater fineness than silver plate (often containing very little actual silver) can make a huge difference when contemplating a good buy. When I'm out at garage sales or resale shops and pick up that "silver" tea set with a $15 sale price on it, only to realize it's just silver plate and not sterling silver, it can keep me from making a bad buy.

Shipping and Premiums

Sometimes I can find a small amount of silver coins -- just two or three maybe -- for a pretty good deal online. The price these coins are selling for might be very close to their metal content value; however, shipping and handling can add $3 or $4 or more to the price of buying these coins, increasing the purchase premium substantially.

And while watching the price of silver can provide me with an idea of how much coins or bars might be selling for, the two don't always correlate due to seller premiums. Remember, people tend to sell silver and gold when prices are higher, meaning coin or pawn shop owners tend to pay a higher price as well. So when the price of silver drops, the price to sell doesn't always correlate. Seeing the spot price for silver drop to $27 an ounce doesn't mean this is what I'll be able to buy it at. I might still have to pay $30 or $31 an ounce due to the seller having to make a profit.

These are all important considerations I bear in mind when looking for deals on physical silver.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Calculations have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.

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