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8/1/17

This article will take a look at how to lower your average cost. Specifically, it will look at using the two strategies of buying more and receiving gifts. Buying or receiving gifts of what you ask? This information is very generalized, but I will specifically look at buying silver coins, rounds, or bars.

Let's assume you have purchased n ounces of silver over time at different prices and that your average cost now is say \$25 per troy oz. As of writing this article, the spot price of silver is \$16.81/troy oz. The questions are

• How many oz do I need to buy to lower my cost to, say, \$20? (or some other number between \$16.81 plus a premium and \$25).
• How many oz do I need to have gifted to me to lower my cost to \$20?

Note that avg cost = total cost / number of oz. If you buy n more ounces, you've added to the total cost as well as the total oz. Replacing the \$20 with just X, therefore, you want to solve

avg cost = (total costs+n*(spot + premium))/(total oz + n) = X

for n.

I added the premium term in there to specifically see how the premium of silver comes into play, since it can vary a bit. That is, it can act differently than the spot price itself, so I didn't want to lump the premium in with the spot price term.

Solving for n, we get n = (total costs-X*total oz)/(X-premium-spot).

The situation with receiving gifts is different and easier. We solve

avg cost = total cost / (total oz + n) = X

for n, to get n = (total cost/X) - total oz.