Silver is a commodity that has seen massive growth over the years. Combining this growth with the stability and safety the commodity offers investors, you see why there is a huge amount of interest and attention given to it.
This interest comes with curiosity, curiosity is followed by research, and misinformation awaits anyone that engages in this research. What are the misinformed myths about silver that you are sure to meet along the lines of research?
This article exposes the popular myths, as we provide truthful information around the following aspects-
- The relation between interest rates and silver prices
- The better long-term option between silver bullion and silver stocks, and
- Silver market manipulation and depletion, among others.
Let’s get right in!
Rising Interest Rates Have Negative Effects On The Price Of Silver
To set it straight, rising interest rates don’t have an inevitable negative effect on the price of silver. The price of silver could increase alongside rising interest rates, and this played out in the late 1970s. However, there is a catch to debunking this myth.
When talking about interest rates and silver prices, we take inflation into account. The relationship between interest rates and inflation determines whether silver prices increase or decrease. This relationship is split into two; positive real interest and negative real interest.
Negative real interest is when interest rates stay below inflation rates. Even when interest rates increase, as long as they stay below inflation rates, the price of silver is not affected. If inflation rates increase while interest rates also increase, then the price of silver is also expected to increase.
The price of silver is only negatively affected when there is positive real interest. This means that the price of silver only falls when interest rates are above inflation rates.
Silver Stocks Give You Three Times More Than Silver Bullion
This myth is either true or false, depending on the type of trader or investor you are. Generally, for long-term investors looking to deal in silver through ETFs or CFD trading, you get a lower ROI than holding silver bullion. Why is this?
The value of silver ETFs depends on the demand for silver bullion as it relates to the company you invest in. CFD trading comes with certain fees and, over the long term (even in a favorable market), the value of the company you invest in could even deplete due to its poor performance.
Silver bullion then becomes the better option for long-term investors that assures you of the full value of silver. Even when there is a depletion in the value of silver, the negatives of silver stocks are more visible than the depleting value of silver bullion.
For short-term investors that implement the best CFD trading strategies, silver stocks hold a lot of profit. For day traders, they possibly hold substantially exponential profit than silver bullion. This is where the truth in the myth lies.
Silver Bullion Holders May Have Their Assets Seized By The Government
This myth dates back to the 1930s when the US government, under Franklin Roosevelt and through executive order 6514, prohibited the hoarding of silver. It ordered all silver assets to be submitted to the government for coinage by individuals who held them.
Well, in pursuance of this order and in a very small scale, the government confiscated some silver assets from certain bank treasuries. Private individuals were, however, left to voluntarily submit the silver bullion with them and there was no force used.
The government definitely didn’t have a register of everyone that held silver, and individuals continued to hold the commodity in their safes. What’s more about this is that there is a high unlikelihood that the government would exercise such powers over privately-held commodities.
This is due to both the independence of the US Dollar from the gold standard and, as you would guess, increased recognition of human rights. In conclusion, your silver bullion is always safe with you.
Numismatics Are Free From Confiscation
At the other extreme end of the previously debunked myth are the claims that the government cannot confiscate numismatic coins. Numismatic coins are detailed coins made from precious metals that are given some sort of value.
This value could equate them to legal tender, meaning that they could replace the official silver coinage of the US for the exchange of other commodities. The government definitely frowns against this.
What this means is that numismatic coins could be subject to confiscation any time the government decides on a crackdown. The American Silver Eagle is the only coinage that is “confiscation-proof” in this regard.
Manipulation In The Market Makes It Unfavorable For Small Investors
We won’t doubt that there is manipulation in the silver market. Manipulation is a very common concept in asset markets, and there are sure to be individuals with massive funds that wish to benefit from price changes, whether it be an increase or decrease.
Alongside this general conception of manipulation is a claim that the US Treasury Department and Federal Reserve wishes to push the prices of both silver and gold down. If anything, this type of manipulation is good news for small investors. They have the chance to buy and trade the commodity at lower prices.
However, the price of physical commodities like silver is majorly determined by their physical demand and supply, and there is only an extent to which manipulation can go. With this, it’s either manipulation is a myth or the extent to which it affects the price of silver has been exaggerated.
Silver Can Be Put In An IRA
An individual retirement account (IRA) is a pension fund for individuals saving for retirement. Of course, these savings go on for a long period and, to avoid the effects of financial crises, advisors tell you to save in silver.
However, the misconception a lot of people have is that you can put any form of silver into an IRA. The IRS frowns against this and only allows you to save in the American Silver Eagle, which is the official silver coinage of the US.
Do You Still Believe In These Myths?
Throughout the article, we have presented you with myths, as well as the extent to which they are truthful and false. Silver can hold its value with rising interest rates, silver bullion is a safe investment, and you need the official coinage in your country of residence to enjoy full physical use of the commodity as legal tender.
