Physical Silver vs. Paper Silver

Should You Buy Physical Silver Only?

Okay.  Last time we met we were wondering if there were any viable alternatives to having to deal with all that heavy, bulky, beautiful, hard to conceal goodness when you buy physical silver.  We were introduced to a few of them:  Silver ETFs, stock in silver mining companies, and Comex silver futures.  [Click here if you missed that last article on Silver ETFs.]

Right off the bat, I’m going to say that anytime you’re dealing with paper silver, there’s going to be some sort of monkey business involved.  In fact, anytime you’re dealing with paper anything, there’s going to be shenanigans and controversy.  That’s just a reflection of our times and one of the reasons that the current system is on its way out.  I’ve played these games and usually ended up paying a fairly high tuition to the University of Investors in the end.  I’m not going to blame the markets for that, though, I was just a lousy investor.  Let’s look more closely at some of these paper games.

The Comex

The Comex is the House; and the House always wins.  The rules are in their favor and when they’re not, then they change them.  Allegations of impropriety and illegality are omnipresent.  I mentioned last time that buyers on the Comex make their purchases on margin.  How many times during silver’s bull market has the Comex suddenly raised margin rates, thereby requiring “investors” to come up with immediate cash or have their buy physical silveraccounts closed.  I can’t tell you how often… In fact, you can tell me.  Look at a long-term silver chart, and those long red “fishing lines” are exactly when that happened.  Rallies were stopped cold by violent drops in the paper price.  Who decides when to raise margin rates?  Well, you won’t hear it admitted, but it’s probably the large banks who own the enormous short positions in silver.  Price drops, they cover some shorts and make landfills of money.  Investors who own silver contracts have an option to “take delivery” of their silver at the end of their contract, and there is plenty of talk that there is not enough silver in the Comex to cover that eventuality.  We discuss this a bit in the Silver Shortage article.


The SLV, otherwise known as the iShares Silver Trust, has its own issues.  There, too, are rumors that there is not enough silver in the fund.  (That was the original attractiveness of this fund:  That there would be actual physical silver upon which to base the stock.)  Rumors abound here about the actual amount of silver held or if there is physical silver shortage there.


We mentioned previously that the silver miners have been hit hard.  The stock prices of many of these mining companies haven’t been this low since the beginning of the bull market.  For this reason, looking at it from a contrarian perspective, the stock of the stronger companies a probably offering incredible value right now.  Check out some of the charts of these miners and see how they performed over the last ten years or so.  Incredible gains are possible here, but timing and research is everything.  Also, Jim Sinclair strongly recommends that you get your stock certificates in paper form from your broker.  Just to be extra safe.  Let me close this paragraph about the miners with this from Mark Twain:

A gold mine is a hole in the ground with a liar standing next to it.

Do your research if you want to invest in the miners.


There’s a new kid on the block as far as paper silver is concerned.  It’s the Sprott Physical Silver Trust.  Don Sprott’s been around the block more than a few times and is a pretty sharp and trustworthy fellow.  This physical silver ETF claims that the Trust holds only allocated physical silver.  That’s a pretty strong reason for investing in it.  There are other favorable reasons such as location of storage in Canada and tax advantages for US investors.  You can continue your research at the given link.

Before we go, I want to discuss a little bit about some called the 2X and 3X ETFs.  These are funds that track a particular entity like a regular ETF, but they magnify the moves (up and down) two or three times a typical ETF.  AGQ is one of these 3X ETFs that track the moves of physical silver.  NUGT is a 3X’er that tracks the miners.  They might sound tasty on the surfacing, particularly of you’re convinced that silver or the miners will be heading strongly in a certain direction, but I think these are suckers games.  They might be okay for hedging short-term moves in these markets, but longer term – forget about it.  There’s to much depreciation to these and losses are too common.  If you’re tempted, do your due diligence.

So, that’s paper silver for you.  After all of that, I still encourage you to buy physical silver.  If you want to diversify, then you can maybe look at some miners or get some PSLV.  I read an article once who’s author stated “There will come a time when all paper will burn.”  My gut is speaking again, and it’s telling me to buy more physical silver.

Thanks for reading.  If you liked this article, don’t be shy!  Share your comments and questions, and share the article on your favorite forums.  Sign up for email updates as well!  You can be strange, but don’t be a stranger.  J.

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  1. […] our purposes, we’re going to deal with solid, shiny, heavy, physical silver.  It will come in bars of varying sizes – from 1 oz. silver bars all the way up to 1000 oz. […]