Saturday, January 2, 2010
Buying 90 Percent Silver Coins
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:
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.
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