How To Manage Silver Price Volatility

Price to get in and price to get out are the most important factors in silver investment. Price is the most important factor in almost all investment you put your money in. Your profit in silver investment is solely depend on the difference of price when you buy and the price when you sell. It is a typical application reaping profit by buying low and selling high. A simple concept but NOT many investors can fully utilize, for one reason :-

Silver price volatility is relatively high. If you have been following silver price since 2011, you will agree that silver price fluctuation could be as high as 30% in few days (within a week). Price fluctuate for 3% to 5% a day is no surprise to any investor who has been monitoring silver price.

I will show you a real life example happened last week. On Wednesday (28/11/2012) night around 10 PM, silver price dropped from $33.80 to $32.90. If you have bought a any amount of silver before the drop, that is equivalent to seeing your RM100 become RM97 in just 2 hours. I’m sure that is not a very pleasant experience.

Within the next 24 hours, silver price has climbed back up, traded within $33 – $34 range and then shoot up vertically to $34.30 on Thursday (29/11/2012) night:

If you have bought some silver when price dropped to $32.90 and sold your silver at $34.30, that’s pretty good profit for 24 hours ya? Unfortunately, in reality things is not as simple as that. No one can predict silver price movement and no one can buy and sell physical silver instantly.

It is not recommend for average silver investor to bet on short term fluctuation of silver price. That is the guarantee recipe to get sleepless nights!

In order for you to avoid your capital in silver investment get affected severely, you can consider adding silver coins that has numismatic value into your silver portfolio because many coins that have numismatic value have their own market price. They do not get affected by spot price severely. Here is an example for 1 oz Panda silver coin:

Year       Issued Price (including 15% tax) Current Price (including 15% tax)
2010 RM 92.00 RM 224.60
2011 RM 163.20
RM 172.80
2012 RM 165.00 RM 168.20

* Due to the numismatic nature of Panda coin, price might slightly varied due to different geographical demand and currency conversion rate.

From the above chart, the value for panda coins have their own market price. The fluctuation in silver spot price has little effect on Panda coins price. Earlier this year (2012), when spot price dropped to $26 – $27, Panda coins price did not drop. It remained at RM168. However, when silver spot price increased in 2010 – 2011, the Panda coins prices have significantly increased due to both increased of spot price and the appreciation of Panda coin numismatic value.

The same did not apply to other bullion coins such as American Silver Eagle or Canadian Maple Leaf. These bullion coins prices are directly affected by the changes in silver spot price. When spot price dropped, these coins price dropped and vice versa.

Back to Panda coins, apart from price factor Panda has limited and small amount of mintage compared to other legal tender coins such as American Silver Eagle coins. China population is 4.3 times more than United State population and China government is encouraging the citizens to buy the Panda coins themselves. Right now, many Panda coins remains in China (owned by Chinese collectors and investors).

The potential in Panda coins is something you should not overlook.

Hence, if you are looking for an alternative to manage silver price volatility, coins that carry numismatic value are something you should pay attention to. Panda coins are good examples. However note that not all numismatic coins are equivalently suitable for investment. A novice silver investor should stay away from high premium numismatic coins – unless he has acquired the necessary knowledge knowing what numismatic value is worth paying for.

I have written the eBook Practical Guide For Investing Silver In Malaysia to show how Malaysians can make the most return out of silver investment. If you are serious about silver investment, click here to find out more.