According to William Shakespeare, “All that glisters is not gold” (The Merchant of Venice) – generally taken to mean it’s wise to look beyond first impressions. But could it be that investors of all kinds often do tend to overlook silver’s potential? Are many so dazzled by the yellow precious metal’s status that gold invariably seems to be the first cab off the rank, or perhaps the only cab available?
Down the ages, countless financiers have regarded silver as precious. Indeed, it has been used as a store of value for at least 4,000 years. And it would seem many of today’s finance experts likewise believe silver has a role to play in storing asset wealth and developing a diverse investment portfolio. So, in order to understand more about silver, let’s take a closer look at some of the perceived attributes of this sleek, grey metal.
Some plus points for investment silver
Firstly, at today’s market prices, physical silver is much less expensive to acquire than gold. This naturally tends to increase its appeal for smaller investors, making silver far more accessible than gold when looking to build up a precious metal holding. Silver is also more abundant than both gold and platinum, its two closest precious-metal rivals. Gold, for instance, is reckoned to be around eight times rarer than silver.
Just like gold, most silver is obtained via mining operations. However, while gold is generally the focus of specific mining projects, much silver is gained as a by-product of mining for copper and zinc. This has positive implications because the extraction costs are generally lower. Furthermore, silver has a much broader range of industrial uses than gold. So, while gold is often in particularly high demand as a safe haven in times of crisis, the demand for silver is generally a little more even and sustained overall.
Silver’s value as an industrial commodity also means that, unlike investment gold, silver purchases are subject to a VAT levy. While this tax can appear as a significant disincentive from an investor’s perspective, there is still a perfectly legal way to buy and store investment silver ex-VAT (see below).
Silver storage
Before embarking on any silver acquisition strategy, investors should also arrange secure storage. While doubtless ultra-convenient, the kind of secure home safe required is generally too costly to make home storage a viable proposition. Safe deposit boxes, always available from specialist precious-metal storage providers and sometimes available at your bank, are always a more secure option. However, investors should remember that silver does not offer the same high value density as gold. Effectively, that means, for holdings of exactly the same monetary value, physical silver will always require far more storage space. So silver purchases will soon fill up your available storage space – far quicker than gold.
Perhaps a more practical approach would be to store your silver in a bonded warehouse. Here, an allocated & segregated storage arrangement with a specialist provider will ensure your silver is safely stored in a dedicated individual space and kept separate from any other precious metal holdings. Your goods will be carefully catalogued and labelled to ensure your claim to full ownership can be quickly and easily verified.
Investors who opt for the cheaper ‘collective custody’ storage instead must realise their deposited silver will be held in a communal pool where it will inevitably be mingled with other goods. The essential difference is that the collective storage provider will only commit to releasing silver of comparable quality and quantity when the storage contract finishes. So, once the silver enters the warehouse, collective custody will not track and identify the original holding.
VAT on silver purchases
Silver is treated as an industrial commodity and not considered a pure precious-metal investment. So a silver purchase is liable for VAT. Silver is taxed in EU countries, with the VAT rate in Germany currently standing at a typical 19% – so a silver holding must appreciate in value by that amount just for a would-be investor to break even.
However, in Switzerland (beyond EU jurisdiction) the VAT rate charged on silver is now just 8.1%. While storing silver securely in Switzerland thus represents a considerable tax saving in its own right, investors can still take advantage of an even better option:
Any silver stored in a Swiss bonded warehouse (ZFL) is automatically deemed to be ‘in transit’, and thus not held on Swiss territory. For the investor, this means a silver holding can be purchased and delivered to a high-security Swiss bonded warehouse, and that transaction will remain legally ex-VAT the whole time the silver remains there. Furthermore, the same silver can even be bought and sold over and over again, yet still remain free of VAT and customs duties. Tax and customs duty only become payable if that silver holding should ever leave the bonded warehouse.
Armed with this helpful knowledge, a savvy investor can buy and sell silver ex-VAT while storing it in a secure Swiss bonded warehouse, thus enjoying the benefits this precious metal still offers without paying a VAT penalty for that privilege.
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