Lear Capital: Hedging Physical Silver with Physical Silver

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Hedging Physical Silver with Physical Silver

Investors who truly believe in the protective qualities of physical precious metals in a portfolio can own a variety of both bullion and investment collectible coins. Aside from the collectible coins' one-time exemption from confiscation and the belief they would again be exempt if such event recurred, other attributes of collectible coins are strong attractants to those who wish to hedge the metals market with a collectible coin in the same metal. A keen eye for changing trends in the values at which collectible coins trade, can bring to light some very appealing strategies.

An example may be where a particular grade of coin is trading nearer the melt metal value than would be considered normal. This may trigger a buy signal. Other times, a trend may appear where coins are trading at values that haven’t moved up with the metal market itself.

A specific example of exactly that, today, may be the Peace Dollar grade MS66. At its height, this coin traded at a wholesale price of $3500. At its low it traded at $575 and today it trades at a suppressed $650, a mere fraction of its historical potential and barely above its historical low. Prices of lower grades behind it have already moved dramatically higher. Now, the trend indicates it's just a matter of time before the MS66 follows suit and moves back to a trading price of $975 - 69% higher than where it sits today. However, from an historical standpoint, this coin's price would have to rise over 400% just to approach it previous high.

Here lies one big reason the percentage of those buying collectible coins as investment now exceeds the percentage who buy for the sake of collecting. Savvy investors are learning that the market for collectible coins can hedge the purchase of the same metal of the coin.

So, for the investor that believes in precious metals as a store of wealth, and would also like to explore the potential for greater gains using both bullion and collectibles, consider this strategy. A $10,000 investment into silver may include $5000 in MS66 Peace Dollars and $5000 in silver bullion.

Trends suggest both are headed higher. However , if silver returns to its prior trading range, around $20 an ounce, you lose 40% on the metals trade. If, the Peace Dollar, even in a down metals market, returns to its normal trading range of $975, that's a 69% increase. Therein lies a hedge against loss in the Silver market itself, using the same physical metal. How? Because demand for the Peace Dollar is based less on spot prices than its own supply/demand fundamentals. The bonus is that over the long-term, the numismatic coins have out-performed the metals market for years now. These types of strategies can help lower risk and increase profits both on a short and long-term basis.

In our hedging scenario if silver bullion moves down, it may be because stocks, real estate and the economy are in full recovery. Then, who cares what bullion did if you bought it for its purpose of hedging against economic uncertainty. But after all that, why not leave yourself the potential for profit that’s on the table now.

It isn’t a sophisticated options strategy that would impress the best of traders, but it makes a heck of a lot of sense when you like to be able to perform a profitable trade without years of experience.

If you want to learn more about collectible coins and some strategies that can make sense in a world of hedging, call Lear Capital at 1-888-284-9350 for your FREE Gold Investor Guide and a collection of FREE Special Reports. Or, click here to visit our Commodity Center for 24 hour real-time metals prices and an opportunity to request our FREE Investor Guide and Special Reports.


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