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Saturday, January 2, 2010

Buying 90 Percent Silver Coins

Financial preparedness can be as important as food, water and housing preparedness.  Many people have started investing in precious metals as a hedge against future inflation.  They believe that with our Federal government's current and future spending plans, the US dollar is going to get eaten alive, and they see precious metals as a hedge against those government policies.

Personally, I share those beliefs.

Proviso:  Any investment or hedge involves risk.  Do your research and investigate the positives and negatives of any investment or hedge before spending your hard-earned money.

There are many ways to invest in precious metals.  One way is to buy coins.  There are two broad categories of coins - numismatic and bullion.  Numismatic coins are valued primarily for their rarity and condition.  Bullion is based upon its precious metal content.

This tutorial will focus on bullion coins.  My personal belief is that you add an (unacceptable to me) element of risk when buying numismatic coins:  Some entity makes an opinion as to the value of the coin.

Bullion coin values are based upon spot metal prices.  Spot prices can and do fluctuate wildly.  But, in my opinion, you have more ability to anticipate the direction of spot metal prices than you do in evaluating the rarity and condition of a coin.

Pure Silver Coins

These are generally found in one ounce denominations.  You can find them minted by various world governments, and by private mints.  While both types of coins contain the same amount of silver, those minted by governments - especially the US government - carry a premium over spot metal prices.

Why?  You know for sure that the coin contains 99.9% silver.  A coin produced by a private mine most likely contains 99.9% pure silver.

Personally, I purchase both types of bullion coins, but I verify the weight of the non-US coins.  Every single one of them.

If you are dealing with a coin shop, expect to be able to sell your bullion coins for slightly less than spot prices, and expect to pay slightly more that spot when buying them.  The dealer is in business to make money, after all!

You can easily get spot prices by going here:

http://www.kitco.com/charts/livesilver.html

They also have spot prices for gold, platinum and other precious metals.

90% Silver Coins

90% silver coins are bought and sold in a slightly different manner, but the basis is still the same - spot prices.

When you buy these coins - US dimes, quarters and half dollars minted in 1964 and earlier - you base your buy and sell prices on Face Value.  This is a fairly straightforward calculation (albeit a little complicated) based upon the amount of silver contained in $1 Face Value of these coins.

Some important information:  One (troy) ounce of precious metal weighs (roughly) 31 grams.  One (avoirdupois) ounce of, say, bread (if you bought it by the ounce) weighs (roughly) 28 grams.  So, for our calculations, we're using troy ounces.  Oh, and a gram is a gram is a gram - no precious metal designation is used.

One dollar face value of 1964 and older US coins weighs 25 grams.  A dime weighs 2.5 grams, a quarter weighs 6.25 grams and a half-dollar weighs 12.5 grams.  It is 90% silver and 10% copper.  You determine value on the silver alone - nothing on the copper.

Remember 0.715  - That is the conversion factor you need to use to determine the spot price of silver in a 90% silver coin.  (Note:  When the coins were originally minted, each dollar face contained 0.723 of an ounce.  The industry has agreed upon the 0.715 factor to account for average loss due to wear from circulation.).

If the spot price of silver is $17, you multiply that by the 0.715 to get a value of $12.16 (rounded) per $1 of Face Value.  In general, you can expect to pay a bit more than the spot price when buying, and receive a bit less than spot when selling.  The merchant needs a profit margin to stay in business!

Count Your Pennies

As I write at this very moment, the spot price of silver is $16.85 per ounce.  When I run it through the formula, that comes out to $12.05 Face.

I've checked a website that sells 90% silver online (http://www.scpm.com/goldsilverbullion.php).  They are selling for $12.68 per $1 face and will buy from you for $11.41 per $1 face.  You'll generally get a better deal if you buy in blocks of $100 Face or more.  Still, that's a pretty steep premium (or discount if you're selling).

If you buy and sell with private parties, you can generally come out closer to spot.

Accept The Challenge

Buying precious metals can be a very good way to hedge against inflation.  Generally speaking, as the dollar weakens, precious metals get stronger (YMMV!).

If you do decide to "take the plunge", be sure you fully understand the dynamics that are at play.  You should check the spot price immediately before you make your purchase so you know precicely what kind of premium or discount is involved.

If you're buying online - at either a coin shop or via ebay, be sure you calculate the cost of shipping into your figures.  Also, when buying on ebay (which I personally have done for years), be sure to only use sellers with high ratings (nothing less than 95% positive, IMO) and who accept PayPal.  By using PayPal, if the transaction does go sour, you have a buyer's protection included (most of the time - check with each and every posting).

DON'T get into bidding wars.  Find some coins you want, do your math, and make your maximum bid.  If you get out-bid, let it go, and find another auction.

Start small so you can get a feel for what is involved.  Keep good records of your purchases and sales so that you are able to see their current value as spot prices move about.

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Copyright 2009 Bison Risk Management Associates. All rights reserved. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates. www.BisonRMA.com

6 comments:

Harry said...

As far as getting some good deals and ebay goes,

1. It may be a long shot, but you could try a site like ebuyersedge.com (typojoe.com, etc) to search ebay for listings that have misspelled keywords in the title. These items won't be seen by most people searching so it should be easier to find a good deal.

Ebuyersedge also gives you the option of saving your favorite searches so you get an e-mail when there's a new match. This works best for "Buy It Now"s but is good for auctions too.

Some people even claim to make money by buying these items and then relisting them on ebay for a profit. I'm not sure about that, but it's at least worth a try to see if you can get yourself a deal.


2. Whenever you send a question to a seller, use the "Ask a question" link that is on a page of another item they're selling that you're not interested in.

Maybe send the seller an offer to end the auction early. All they can do is say no.


3. Snipe any auction that you bid on- either do it yourself or use a sniping service (hidbid.com, bidball.com, etc.)

This works best with 'Buy It Now's, but is also effective with auctions.

The Hermit said...

My Uncle bought big cloth pouches of old silver coins before Y2K. He let me go through them and pick out some old coins just to keep when he sold them back afterwards. Makes sense to me, he's a really shrewd individual and he did his homework at the time. He felt like silver coins were the way to go rather than gold, although it's possible, knowing him, that he actually bought gold as well and didn't bandy the fact around.

Chief Instructor said...

Harry, for precious metals, I like your suggestions, except for the 'sniping' suggestion. It can get you into the mindset of, "I've just gotta win this auction" and you may over pay. I like to just bid the maximum I will spend. If no one else bids, you will win it at a lower price.

Hermit, I too, like silver much more than gold. If TSHTF, gold will be much more difficult to spend because of the higher value per ounce. Try buying a tank of gas or loaf of bread with gold!

The drawback of silver is it takes up MUCH more space to store. But I like that it is much easier to spend if you need cash or goods.

GunRights4US said...

Silver is certainly appropriate for smaller transactions. No doubt about it. But when it comes to storing larger amounts of assets in something other than worthless paper, gold can hardly be beat.

If you have a good basis of preps in place, and you have ...say $10,000... in silver put back, then it seems prudent to me to go ahead and store amounts over and above that in gold.

theotherryan said...

When local shops do not have PM's at good prices I buy online. This is the situation more often than not as I have moved around. Shipping is the reason that I buy every 3-4 months instead of monthly. $15 on a bigger purchase less often hurts less than monthly.

In addition to being bulky silver is HEAVY. I could walk around with 3 months worth of income in gold on me and without a strip search nobody would notice. Try carrying that much in silver discretely. Of course you do need some silver. How much could and has been be debated. I think at least a couple hundred ounces would be a reasonable way to go. For a smaller budget maybe 100 ounces.

ryan said...

Precious metals are going to get more and more expensive