In the late ‘70s, I spent several years working in the grocery business in Alaska. In 1977, silver was getting ready to make its big move from the low single digits up to a bull market blow-off price of around $50. Having read Harry Browne’s book titled “How You Can Profit from the Coming Devaluation,” as well as the writings of his former boss, the late Jerome Smith, I was fully “on board” with these developing facts and story.
At the check stand, I watched carefully for any silver coins a customer might use to pay their grocery bill and quickly “exchanged” them for an equal face value amount of non-silver-bearing coin from my pocket. The supply of silver coins was still plentiful back then, and the demand was only just beginning to grow.
In one instance, a lady came in with a small stack of silver half dollars in poor condition she had been using as shims to level a large aquarium. They were coated with rust from the fish tank’s frame, as well as the normal tarnishing (oxidation) that silver undergoes, and looked pretty gritty. She asked apologetically if it would be possible to exchange them for some better-looking pocket change, and I was only too happy to oblige!
Silver Proves Gresham’s Law -- Here’s How...
Way back in 1588, Sir Thomas Gresham, the financial agent of Queen Elizabeth I, observed that if two coins have the same value as legal tender, but different silver coin values regarding the metal they contain, the cheaper metal coin will be used to pay for things, but the coin containing more expensive metal will disappear from circulation and be hoarded. In effect, “bad money drives out good money.”
His observation was not codified until the Nineteenth Century when an economist applied the term “ Gresham’s Law” to the concept.
If ever there was an example of this inflation “law” in action, replacing commodities backed semi-precious metals in the place of precious metals, what happened to U.S. pre-1965 minted silver coinage has to be it!
Are we going to have another Gresham's Law scare in the near future?
What is Junk Silver?
When precious metals prices were getting stronger in the late ‘70s, I would buy orders of several hundred dollars worth of rolled coins from the local bank for the purpose of searching for potential precious metal silver coins. Important information - precious metals include silver, gold, platinum, palladium, and rhodium. Precious metals act as a hedge against inflation, being a solid store of value.
In the '70s, I would remove the silver coins (and sometimes, clean them), refill the rolls with the correct face amount coinage, and return the non-silver coins, collecting quite a bit of silver in the process. After a few years of doing this from time to time, the 90% silver coins became less and less common. It is more and more rare for people or prospects to even check their coins' dates post-Y2K.
Pre-1969 silver coins contained some silver, but before long these disappeared from circulation too. The last holdouts were Kennedy Half Dollar “clads” containing 40% silver (minted until 1970), which fewer people knew about.
My final effort at sorting rolls of coins from the bank was 2 years ago and it produced meager results. I spent $2,000 for the rolls, and found only two U.S. dimes, a George Washington silver quarter, and – a real keeper – a worn Ben Franklin 90% silver half dollar! Gresham’s Law drove circulating silver coins from “endangered species” to virtual extinction.
The last time I actually got a silver coin amongst my change for a purchase was at Costco over a decade ago! It is taped to my computer screen.
Nowadays, in the United States, Canada, and the United Kingdom, coins containing silver, but having no collectible value are known as “junk silver.” Of course, the word junk is misleading. Rare coin dealers, banks, and collectors started using that label back in the 1970s because the coins do not carry the hefty premiums of numismatic coins. But their silver content makes them anything but junk.
Precious metals are measured in troy ounces (oz). One troy ounce equals slightly more than 31 grams, while a standard ounce (from the Avoirdupois system based upon pounds) equals a bit more than 28 grams.
Pre-1965 silver coins' value depends upon how many troy ounces the coins contain, i.e. the bulk junk coin collection's weight in silver. Most U.S. silver coins from 1964 and prior were made of an alloy containing 90 percent silver and for every dollar of face value, there is .715 ounces of pure silver – a number which includes a small allowance for wear. So a bag of antique junk silver with $1,000 in face value contains 715 ounces equalling over $17,800 today.
Junk silver coins in Canada refer to Canadian silver junk coins that were minted by the Royal Canadian Mint pre-1968. Some other countries and places around the world have their own versions of junk silver as well.
Today, silver investors eagerly buy so-called old “junk” coins because they appreciate the small denominations and the trust and recognizability that comes with official U.S. government issue coinage. These traits make it particularly popular with any buyer who fears or collector that the U.S. dollar might collapse entirely and questions if they will need something to barter with.
There's More Than One Way to "Stack Silver"
Acquiring junk silver in “odd lots” offers several advantages over a larger purchase. It requires a relatively smaller up-front investment, enabling the investor to buy a little bit of metal at a time. Setting up and following through with a regular purchase schedule can, over time, create a substantial nest egg as the “silver stacker” continues to build his or her precious metal estate hoard.
A stacker wanting to know a given coin’s silver value can use an online source like this one. Just plug in the coin denomination, and its melt value based on the day’s trading spot price is calculated. You can also enter various spot price assumptions, to get an idea of what might happen to your “test coin” under a rising silver price scenario. At a spot price of $17, the retail silver value (including premium) of a quarter is a bit over $3. At $30 an ounce, its value would be nearly $6. At $50, the quarter would be worth about $9.
You can buy a handful or roll of junk silver at a coin dealer shop and increments as small as $10 face value from national dealers. It’s most commonly sold in heavy canvas bags holding face amounts of $250 - $500 each. And a full $1,000 face amount bag weighs around 54 pounds, including the copper. The dates are variable, but generally speaking, dimes, quarters, or half-dollars are packed in separate denominations. Also, consider Walking Liberty half dollars as an investment. Sometimes the silver dollar is included in "junk silver," but it has more silver than the other coins and does not enjoy the same premium discounts as standard junk silver coins.
At the moment, lower silver prices have caused premiums on this no-longer-minted form of silver to rise as a percentage. Owners of junk silver just aren’t selling right now! This time to be silver buyers is now while preparing to become sellers later. For this reason, expect to pay 13% to 18% over spot for your order in the time being, although premiums should fall when silver stock prices resume their climb.
Don’t let the fact that you can’t initially afford to buy a full bag of “junk silver” dissuade you from getting your personal acquisition program underway. Start from whatever level you can afford and keep adding regularly.
As a mega-basketball star and business personality, Michael Jordon likes to say a lot:
"Step by step. I can't think of any other way of accomplishing anything.”
There’s Never Been a Better Time to Buy “Junk Silver”
Pre-1965 90% U.S. silver coinage, aka “junk silver,” is one of the most interesting retail bullion products to follow in our industry.
The premium (the amount above or below the spot price one pays when buying or receives when selling) fluctuates more with this product than virtually any other in the physical silver market. Since these coins are no longer minted, 100% of dealers’ inventory comes from existing stockpiles being resold by those who own them. This dynamic is unique to 90% silver and has resulted in some wild swings in premiums over the past few years. And today we are seeing an extreme low in premiums for junk silver coins, making this silver vintage scrap coinage a fantastic buy. Less than three years ago, the situation was completely different.
Before silver bottomed in price at the end of 2015, inventories of 90% silver bags all but dried up completely, and we saw buy-and-sell premiums skyrocket. When silver dipped into the $14 range around that time, premiums at Money Metals (and other national dealers) were in the $5 to $6/oz range over spot… meaning those who wished to purchase those coins were paying nearly $20/oz to do so!
However, wise investors who recognized an opportunity for an arbitrage were selling their 90% silver at that time and using the funds to purchase items available for a fraction of the premium (such as 1-oz silver rounds or 100-oz bars). This little maneuver increased the total silver ounces they owned, dramatically at times.
But for others who like to stick to .999 silver, most will start with one-ounce silver bars (aka ingots, aka bullion bars) or bullion coins, since bullion items are priced for those still trying to spend less on their precious metals investment. Other types of silver include .9999 and sterling silver. While sterling silver as used in jewelry is valuable, keep in mind it is not as valuable as the .999 or .9999 silver variety.
Today, we are experiencing the exact opposite situation in regard to buying and selling silver or junk silver assets. Because of a glut of inventory being sold back onto a soft U.S. retail market, it is a great time to be buying junk silver in bulk – large quantities can be purchased for only pennies above spot per ounce at present.
Not only will you be buying silver at close to or below mine production costs, but in addition, you will also get your metal at a price as close to spot cost as possible.
Additionally, we are near the absolute floor – a further drop in premiums will make it more economical to melt and refine junk silver rather than sell it at such a substantial discount.
There is also a fantastic opportunity to insulate yourself from a downside move in silver prices. If that happens, junk silver premiums will likely rise sharply, partially or even completely offsetting a drop in spot prices.
So, it’s really a win-win situation in “junk silver” right now!
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About the Author:
David H. Smith is the Senior Analyst for TheMorganReport.com, a regular contributor to MoneyMetals.com as well as the LODE digital Gold and Silver Project. He has investigated precious metals mines and exploration sites in Argentina, Chile, Peru, Mexico, Bolivia, China, Canada, and the U.S. He shares resource sector observations with readers, the media, and North American investment conference attendees.