Silver as an Investments

Silver is a lustrous, white, corrosion-resistant metallic element. Outstanding properties of silver include its great electrical and thermal conductivity. Its symbol, Ag, is an abbreviation of the Latin name for the element, argentum, while the common name is derived from the Anglo-Saxon seolfor.

Silver was one of the metals known to ancient civilizations, along with gold, copper, iron, tin, lead, and mercury. Because pure silver is sometimes found in large masses, the metal could be used without complex separation and refinement processes, and it was in use in Egypt before 3500 b.c. The leading silver-producing countries are the United States, Mexico, Canada, Peru, Russia, and Australia. The combined output of North and South America accounts for about half the world's silver production.

The most important use of silver is as a monetary metal, both in the form of bullion and in coins. Sterling and plated silver are widely used in tableware and in jewelry. About one third of the silver consumed is in the form of photosensitive silver halides, which are used in photography. There are also many industrial applications of silver alloys. Corrosion-resistant alloys are used as lining materials in vessels and pipes. Other alloys are used in brazing because of their low melting points and good workability. Alloys with high electrical conductivity are used in electrical contacts. Silver alloys are important in dentistry for bridgework, pins, and fillings. The bactericidal properties of colloidal silver make it useful in medicine, and silver preparations are used as caustics, astringents, and antiseptics. Silver is also used as a catalyst in chemical reactions to promote the oxidation of organic compounds in the vapor state, such as the oxidation of ethyl alcohol to acetaldehyde.

Silver as a monetary metal

Silver has been used as money since the time of ancient Babylonia. For centuries it was the primary form of money. In the United States bimetallism was officially adopted in 1792, when the mint was authorized to coin as much gold and silver as were offered. The silver dollar contained 371,25 grains and the gold dollar 24,75 grains, a ratio of 15 to 1.

The 19th Century. The bimetallic standard depended on a ratio of market prices of the two metals equal to their official mint ratio. In fact, however, the market price ratio was near 15.5:1 by 1803, when France adopted a 15.5:1 dual metal standard. The market ratio continued to creep up toward 16:1 by 1816, when England adopted this ratio for coinage. In 1834, after an extensive flow of gold to England, the U.S. Congress lowered the gold content of the dollar to 23,2 grains. Thus the mint ratio was increased to 16:1.

Rich gold discoveries in the mid-1800s led, however, to lowered gold prices and higher silver prices. As the discrepancy widened between official mint prices and market prices, bimetallism ceased to work. Silver was sold in the market for a higher price than it commanded at the mint. Silver coin was driven from circulation during the Civil War, and further coinage of silver dollars was prohibited by the Coinage Act of 1873.

Europe and Latin America also abandoned the free coinage of silver in the 1870s. Silver circulated as money only in the form of subsidiary coinage, in which silver's value was considerably debased. The American half-dollar, for example, contained 172,8 grains of silver instead of 185,625.

In the United States, silver shortly became involved in a contest between easy-money and tight-money adherents. In 1873 the relative prices of silver and gold shifted again. Discoveries of silver in Nevada lowered its price to below the old mint price of $1,293 an ounce. Silver-mine owners, farmers, and debtors, who wanted to increase the supply of money in circulation and thus bring about higher prices, began a campaign to restore bimetallism.

In 1878 and again in 1890, Congress voted to require substantial open-market silver purchases and to authorize treasury notes backed by silver. In 1896 however, sound-money forces won a decisive political victory over the advocates of "free silver". In 1900, Congress officially adopted a gold-coin monetary standard, eliminating silver from the definition.

The 20th Century. The silver-mine owners and their representatives continued to carry on the fight for silver in the early years of the 20th century, and during World War I, when the price of silver again began to soar, they brought back silver dollars. The Great Depression of the 1930s reawakened interest in silver. As a result of the London Monetary Conference of 1933, the United States agreed to buy 24 million ounces at 64,64 cents an ounce, half the traditional price but 50% more than the prevailing market price. Throughout the 1930s senators favoring silver and congressional proponents of cheap money succeeded in having the government artificially maintain the price of silver by buying quantities of it, ostensibly for coinage but mostly for burial in the vaults of West Point.

During World War II the rationale for silver as a monetary metal again disappeared. As silver-using industries operated at full capacity, the price of silver rose rapidly. The public began to hoard silver coins in anticipation of the day when the market price of the silver content would exceed their face value. When this finally occurred in the early 1960s, the U.S. government took steps to eliminate silver from the money system.

The Treasury ceased to issue silver certificates-the paper money secured by silver. However, the reduced supply of $1 and $2 bills was filled by Federal Reserve notes. In 1965 the silver content of newly minted quarters and dimes was eliminated, and quarters and dimes thereafter consisted of a layer of copper between two layers of cupronickel. The silver content of the half-dollar was reduced to 40%, and by 1970 it was eliminated entirely.

As stated above, historically, precious metals were important as currency, but are now regarded mainly as investment and industrial commodities. Gold, silver, platinum and palladium each have an ISO 4217 currency code.

Methods of investing in silver: