My favourite way to buy silver

Like gold, silver can be a great store of value during tempestuous times and I know a lot of readers like the investment. The problem is, silver can be incredibly volatile. That's why I generally advise investors to avoid leveraged positions such as spread-bets for silver. It's just way too dangerous.

I'd much prefer to hold physical silver, buying it and tucking it away. The problem is that, unlike gold, you'll have to pay VAT if you want to buy physical silver. But if you know where to look, you can still get a great deal. Today I want to show you how you can buy physical silver at a discount including VAT!

Join the dealers for the best rates

It's worth trying to pick up cheap silver from dealers in places such as London's Hatton Garden. There you can buy beautiful solid silver antiques at around the spot price of silver (that is the price silver trades at in the financial markets). But you'll have to pay the VAT on top.

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But there's an even smarter way to do it. Instead of buying from a dealer, you join the dealers. That way you'll be able to buy at less than spot. Now that's compelling.

It's all about minimising the market spread (the difference between the buy and sell price). If you can buy below the price quoted in the market, then you're already on to a winner. That's exactly what I've been doing. I've been stockpiling silver from online auctions and I've been regularly buying silver at a discount of up to 10% from the spot price. And the price I pay either includes VAT, or there's none chargeable.

Why is silver going for less than its true worth?

Of course, whenever you see something that seems too good to be true, you always need to question it. Are you being sold a pup? Today I want to run through four reasons why this anomaly in silver exists and why you can get a bargain.

First, if you want to sell unwanted silver for scrap, then you won't get the spot price. Though we may call items solid silver, they rarely are. Even silver coins are mostly alloyed. Silver is brittle on its own and it's not easy for silversmiths to work; so it's usually blended with other metals. Only a refined silver ingot or minted coin is worth spot, and there's a bit of work involved in getting unwanted silver to this state. Of course, the dealer is going to want his margin on top of that price too. He's not going to do all this for nothing! In general you'll get around 15% less than spot for unwanted silver. So if you buy your silver from guys that want to sell scrap, then you can buy at a discount. But this doesn't mean that you're confined to ugly scrap pieces nobody else wants – 90% of what I buy are usable and nice pieces, yet they're still below the value of silver content.

The second reason you can often get a bargain is because online auction sellers usually don't put in a reserve. I recently bought a silver platter. In terms of silver (at spot price), it was worth £520. It's a 19th century French platter made from very fine silver (Britannia). You'd have thought the seller would have put a reserve in at the value of the silver content, wouldn't you? But they didn't and I picked it up for just over £460. Not only is that around 10% less than the silver value; it's also the final price including VAT (if the seller is VAT registered, it's up to him to pay). Most sellers don't enter a reserve price and that means there are bargains to be had.

The third reason why there are bargains out there is because buyers have been taken by surprise. Collectors are finding it increasingly difficult to compete with the scrap merchants. A spoon that used to be worth a tenner might now go for £30. Many collectors are shell-shocked and have gone to ground! But I suspect a new army of collectors will be on their way.

And that brings me on to the fourth and final reason why I think now is a good time to get a bargain. Most financial investors don't tend to mix business with pleasure. In fact most investors hand over investment responsibilities to someone else and pay them for their services. But that's not the way I like to do things. I like to take control of my financial destiny. This approach means I can mix business with pleasure. Instead of buying a faceless financial investment, I can buy something that can be both useful and treasured in its own right. There's no need for me to bid up the price on investment grade silver (refined ingots) when I can find plenty of interesting items with just a little bit of work.