Whenever there is international turmoil, new opportunities arise for losing lots of money by investing in precious metals.
These opportunities always exist, but it is during international crises that otherwise sensible people embrace them.
One of the latest is an offering made on television. This allows you to buy "uncirculated" one-ounce silver coins for $25 each. These coins are produced by the United States Mint and bear the one dollar denomination, though their silver content renders them clearly to be worth more than a dollar.
But they are worth much less than $25.
The television advertisement states that because of fluctuations in the price of silver, the offer is good for 10 days only.
Hogwash! Silver is trading at around $5 per ounce and has been for months. It is unlikely that it will rise by $20 soon.
The Treasury Department says it sells these coins for the spot price of silver plus a $1 service charge, which is discounted if you buy in bulk. The Treasury Department does not, however, sell silver bullion to individuals. It is sold to dealers instead, who mark up and resell it. In this case, the markup is $19 per ounce or more.
The ad goes on to say that purchasers are limited to 100 coins. This is a nice touch. In one minute of commercial time, the company has instilled an air of urgency -- the price of silver may go up -- and a sense that you're getting away with something. This offer is so good that we have to limit you to 100 coins.
What is masked is that you're buying something on the order of $500 worth of silver for the low price of $2,500!
(The U.S. Mint does sell specially produced "proof" versions of the coin. They are direct to the public and can be purchased for $23, shipping included. Whether they are any good as collectible investments remains to be seen; they certainly are not good as silver investments.)
Fast-talking marketers aside, there then arises the question of silver as an investment at all. A look at its recent history suggests that it is a terrible place to put your money.
A decade ago, the Hunt brothers thought they could get rich by buying all the silver in the world. For a time, prices went through the roof. The Hunt brothers failed in their effort. They lost almost everything. Those who decided to invest in silver at that time also lost nearly everything.
Silver then began a steady decline. In fact, the effect of the Hunts' attempt to corner the market was that silver became less valuable than before.
Why? Because companies that use silver looked for substitutes. The biggest consumer of silver was photography. Both film and photographic paper require a silver-based emulsion.
But when silver prices went through the roof, the film companies -- most notably Eastman Kodak -- put their research divisions to work developing ways around silver. The result was higher quality film that requires less silver.
This, in turn, reduced the demand for silver.
When the demand decreases, so does the price.
There is another argument against investing in silver. It is a philosophical one as much as anything: when you invest in a company, or a mutual fund, or put money in the bank, or buy Treasury securities, your money does something. It doesn't just sit there. It pays for a growing economy. The velocity of money -- how quickly it changes hands -- can be as important as how much of it there is. No matter how much money there is, if it is not moving around, the economy dies.
Investing in silver is like investing in any other commodity. It is risky and speculative.
But if you must invest in silver, don't buy it at five times its market value in hope that its price will soar!