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When I last revised this page, silver was trading around $12-$13 per troy ounce. As of March, 2008 silver prices are in the $20+ range with many expecting further gains. A good portion of this increase has occured just in the last 3-4 months.
Reason? In my opinion this has largely been caused by the free fall of the US dollar in world markets. Speculators are driving up the price of silver, gold and other commodities in an attempt to hedge against future dollar devaluations. Expect silver prices to trend higher in the short term as the Federal Reserve continues its misguided policy of lowering interest rates to inflate the economy and bail out large banks and Wall Street firms stuck with billions of dollars in worthless subprime loans and mortgage-backed securities.
Will this last? I honestly don't think so. Once the Fed wakes up to the fact that their current actions have the real possibility of permanently undermining the US dollar as the world's reserve currency, they will RAISE interest rates to bolster the dollar's value. When that happens, look for a sharp decline in the price of silver and other commodities.
Any of you remember 1979-1980? During that period I worked part time for a large coin dealer in Houston and saw thousands of nice Morgan dollars and better world silver coins go straight into buckets for shipment to the refinery!
Where do we go from here? I still like modern silver proof coins of Central and South America even at these levels. This does NOT include silver proofs of Panama and the British Caribbean! These are strictly "melters" at today's prices and shouldn't be bought except at a considerable discount from silver value. The other issues (Argentina, Chile, Costa Rica, El Salvador and Nicaragua, for example) have mintages of about 20,000 with some less than 2,000 and will only get scarcer in the future regardless of what silver does.
If you own any common world or US silver coins as an investment (especially lower grade ones), I would be a seller at today's levels-take your profit and reinvest it in better high grade coins with numismatic value.
UPDATE, AUGUST 2008. Silver had backed off considerably from its high point and is now trading at around $14 per oz . If you still like it as an investment, buy in but only on the dips and in small amounts!
Although fairly specific qualifying standards exist for grading all US coins, it is the INTERPRETATION of these standards by the grading services in a rising market that has led to "gradeflation". The major companies all use "market grading" which is a combination of both technical criteria for a given grade and what the numismatic market considers acceptable for that grade at a certain point in time. The market factor usually decides if a coin receives a higher or lower grade when submitted. If any service grades too conservatively, dealers and collectors won't submit their coins-too loosely and graded coins from that service will trade at discounted prices.
What does this all mean to you? Most high end MS64 US coins graded years ago have been cracked out of their slabs, resubmitted, and are now residing in MS66 holders. Many coins recently graded MS65 would have only rated a 63 designation in the past. Of course, all of this reshuffling has led to higher collector prices for basically the same coins!
Gradeflation is most present in commoner date slabbed coins retailing for less than $500 within the most popular US series (Morgan dollars and Walking Liberty halves, for example). A huge number of these exist and when the market for them turns downward you will be exposed to grade "deflation". In other words, the holder may STATE that the coin is MS65 but you will be very lucky in a weak market to be offered an MS63 bid for it if you are forced to sell.
How can you protect yourself? First, NEVER buy slabbed US coins sight unseen! Dealers don't-why should you? Many pieces offered in print ads and on the Internet are lower end "barely made it" coins. When looking at certified US coins in person, only select coins for your collection that are VERY high end for the stated grade and pass on the rest. Secondly, sharpen your grading skills to the point where you can comfortably buy MS63, MS64 and MS65 coins in their raw state (leave the MS66 and higher "super grades" to the experts). Once you start looking you will find that a number of old time dealers out there grade their material more conservatively than the services (especially in today's market). As an additional bonus, the possibility exists that you can "cherry-pick" undergraded coins. Believe me, even with all horror stories about grossly overgraded US coins, I know from personal experience that there is still undergraded US material out there waiting to be discovered!