The Basics of Silver Coins & Bullion For New Investors

Bullion Basics

It can be difficult to get started investing in physical silver. Visit any coin shop, bullion dealer website, or search on e-bay for silver and you’ll find that there is an overwhelming variety of products. Choosing the right bullion can be a tough decision. This post will provide an overview of the most popular silver bullion products, as well as pros and cons for each option.

Watch Out For Numismatics

Before we get started, here is a quick warning. While shopping for bullion you will come across graded numismatic coins, valued by collectors for their rarity and condition. Numismatic coins are sold for a much greater price than the value of the precious metals they contain, and as such they do not make a suitable bullion investment. Collecting numismatic coins is fine, but understand that you are investing in their collectible value, rather than the intrinsic value of any precious metals they contain.

That being said, lets talk stacking physical silver bullion.

Constitutional or “Junk” Silver

The first category of silver we will take a look at is United States 90% silver coins minted in 1964 and earlier. These coins go by many names, including: “junk silver”, “constitutional silver”, and “U.S. 90% silver”. They are simply circulated dimes, quarters, half dollars, and silver dollar coins minted in the U.S. prior to 1965. These coins contain 90% silver and 10% copper. Copper was added to increase the coins durability, allowing them to survive in circulation longer.

Junk Silver is widely available from coin dealers and it is easily recognizable, so if you ever want to sell, finding a buyer should be relatively straightforward. The premium for these coins is typically low, although it has crept up in recent years. For the preppers out there, these 90% silver coins are the perfect choice for a unit of exchange in an SHTF scenario. Silver dimes are small enough to be used for day to day transactions. Their ubiquitious nature also makes them ideal for this role, as trading partners will be familiar with these coins and readily accept them as payment.

Constitutional silver may also hold an appeal for the speculative investor, one that I don’t hear mentioned a lot. Although millions of these coins were produced over the years, they haven’t been minted in over half a century. Many of them have been melted down and scrapped over the years. No one knows how much constitutional silver is still out there. The supply can only shrink over time as coins are lost, melted, or horded by investors. With a fixed supply, any increase in demand could cause the traditionally low premium for these coins to spike. This potential scarcity could create significant upside for the smart stacker who takes advantage of today’s low prices.

One final note about US junk silver is that it is uncommon to encounter counterfeit coins of this type. Although some knockoffs have been imported from china, the majority of these are copies of rare date coins that are sold for prices far above the value of their silver content. Common date 90% silver coins are just too small and too difficult to produce compelling counterfeits of that you can feel quite safe buying coins of this type.

Government Coins

The next category we’ll take a look at is silver bullion products which are currently produced by government mints such as the American Silver Eagle, the Canadian maple leaf, and the Austrian philharmonic. The majority of these are 1 ounce coins of .999 fineness or higher, meaning they are pure silver. Large numbers of these bullion grade coins are produced each year by government mints and made available to the public. It’s normal to see a markup of $2-$4 over spot for coins of this type, but the premium comes with some benefits.

The first, and perhaps most notable benefit, is how recognizable these coins are. Many of these coins have been produced for decades by their respective government mints, and there are millions of them out there. There will always be a ready buyer for these coins, making them an extremely liquid investment. In addition, you may be able to get back some if not all of the premium when you sell. There are also some tax reporting benefits if you sell these coins to a dealer, I won’t get into the specifics of this but JM Bullion has an excellent infographic explaining tax reporting laws and the sale of bullion. If you’re buying this year’s coins these from a big dealer, it’s likely that they received the coins directly from the mint. This eliminates the possibility of receiving counterfeit coins, although if you purchase these on the secondary market you should keep a sharp lookout as counterfeits are out there.

Low Premium Generic Bullion

For stackers who simply want to get the most silver for their money, generic rounds and bars are a great way to get your hands on some bullion with a very low premium. You may be wondering what the difference between a “round” and a “coin” is. The difference is simply who mints the bullion. Coins are only produced by the mints of national governments, any bullion minted in the shape of a coin by a private mint is referred to as a round.

Today, silver rounds and bars are available in a huge variety of shapes and sizes. From beautiful art rounds, commemorative products with special signifigance, to large stackable 100 ounce bars there is something for every stacker out there. As a general rule, the larger the bar or round, the lower the premium over spot. It is less costly for a mint to produce a big 100 ounce bar than to make 1000 1/10th ounce rounds, the markup they charge reflects this.

One potential downfall of generic bullion is that it may not be as recognizable as coins from government mints. When you go to sell your silver, the buyer may be skeptical of generic products they haven’t seen before. To offset this concern many mints offer products with security features such as serial numbers and markings that are only visible through a special lens.

That covers the broad categories of silver bullion a new stacker will encounter. If I’ve left anything out, or you have anything to add let me know in the comments!  If you're looking to buy some physical metal, follow me on twitter @stacksmarter or search for hashtag #stackeralert for any sales or specials I've found and shared for you

(This is an updated version of a post originally published on a previous version of this blog on 09/30/2017.)

Gold vs Silver: Which Is The Better Investment?

I know a lot of silver stackers are also fond of other precious metals, particularly gold.  You may be wondering "Which metal should I add to my stack next?".  Of course, as is often the case, the answer is “it depends”.

It’s important to understand the differences that separate gold and silver, and also what they have in common. Both are elements, fundamental forms of matter that cannot be chemically broken down any further. Both metals have unique chemical and physical attributes that make them useful and desirable. Gold and silver are rare and have served successfully as both money and a store of value throughout human history.

How are gold and silver unique from one another?

In terms of useful materials, silver is second only to petroleum.  Silver is extremely malleable and ductile, it can be beaten into thin sheets and drawn into wires.  Of all the metals, silver is the best conductor of both heat and electricity. Silver is both non-toxic and anti-microbial, making it quite useful for a variety of medical and consumer applications. The constant consumption of silver by industry creates a significant demand for the metal.

Although gold does have useful physical properties such as excellent electrical conductivity and corrosion resistance, far less of it is consumed by industry than silver. The primary uses of gold are investment and jewelry. Central banks and nations hold gold as a key reserve. Institutions and individual investors invest in gold to insulate themselves from economic shocks and crashes. Gold jewelry serves as both adornment and a store of generational wealth passed down within families.

The gold market is huge, with a market cap over $7 trillion. For comparison, the market cap of Apple is about $890 billion. The gold market has a depth and liquidity rivaled only by the largest sovereign debt markets. Large amounts of gold trade hands each day, and it takes quite a bit to make the market move a substantial amount.
The silver market is much smaller than gold. Annual physical demand for silver is valued at $15.2 billion dollars. The relatively small size of the silver market, along with lower liquidity than gold, means the price of silver is more volatile than that of gold. While the two metals do tend to move up and down with one another, silver usually moves up a great deal more than gold in a  bull market, and silver also drops faster during a bear market.

An important gauge of value to consider is the silver to gold ratio. This is simply the number you get when you divide the price of gold by the price of silver. In other words, the ratio expresses how many ounces of silver it takes to buy 1 oz of gold. Since the year 1687, this ratio has ranged from 14:1 to 99:1. Before the year 1900, the average ratio was 16:1. During the 20th century, the average silver to gold ratio was 49:1. In 1792, the US Constitution prescribed a ratio of 15:1. To give you a point of reference, in the Earth’s crust, the ratio of physical silver to gold is 17:1.  Right now, the silver to gold ratio is a whopping 86, with a silver price of $16.46. If this ratio were to revert simply to the average from the 20th century of 49:1, with the gold price at today’s level of $1420, silver would be valued at more than $28, a greater than 50% increase from today’s price.

The silver to gold ratio gives you something you think about. Based on the ratio, silver is significantly undervalued relative to gold. However, there’s no rule saying the ratio can't go even higher.

Another important consideration is storage. Silver is slightly less dense than gold, and so each ounce takes up a bit more space. Couple that with the fact that it takes 86 ounces of silver to equal the value of 1 ounce of gold, and it becomes clear that the stacker of silver has a much greater storage dilemma than the stacker of gold. If space is at a premium, or if you need to maintain a degree of mobility with your metals, gold may be the better choice. Needless to say, concealing gold from prying eyes is also a less daunting task than hiding silver. This may seem trivial to some of you, but I suggest you try walking down the street with a one ounce gold eagle in one pocket, and 86 one ounce silver eagles in the other, and you’ll quickly get a different perspective.

Which is the better investment?

Well, as of right now, I think silver represents the greater value. When a precious metals bull market begins, silver will most likely have greater upside than gold. However, if you value mobility and space savings, gold is the better choice. If price volatility is something you shy away from, gold also may be the way to go. Holding some gold and some silver is probably the best option, with your personal allocation depending on your individual needs. Regardless, I feel more comfortable holding either gold OR silver than I do holding fiat paper dollars.

So what will you be stacking next? Let me know in the comments below, or tweet at me @stacksmarter ! And remember don’t just stack, stack smarter!

(This is an updated version of a post originally published on a previous version of this blog on 11/24/2017.)

Three Ways To Get Free Silver (And Which Ones Really Work)

Every stacker loves the idea of free silver.  But free silver is hard to find, because most people with silver will not even sell it below the current spot price, let alone give it away for free.  However, there are a few ways a resourceful stacker can acquire some ounces for free, or at least for a significant discount to the current spot price.  The following are three techniques I have tried to get free silver.  I'll tell you how well they worked for me.

Metal Detecting

You don't have to be a retired senior citizen to comb your local beach or park with a metal detector.  Your success in finding silver (or gold, platinum etc) items will depend on your location, the quality of your equipment, your perseverance, and some luck.  Probably the most important factor is going to be where you are hunting for metals.  If there aren't any metals in the ground, you won't have much luck. 

Some locations, however, do have silver to find.  Try to research the history of a location, if people were frequenting the location before 1964, some of them may well have dropped some pocket change, and the dimes and quarters will be 90% silver.  Busy tourist areas on beaches may also be good spots to scan for lost jewelry.

I live near a lightly trafficed tourist beach, and I've gone metal detecting there many times, but I have never once found precious metals.  I have found a lot of interesting junk, quite a bit of pocket change, and I've cleaned up a lot of beach trash.   While metal detecting is a fun outdoor activity, I cannot make the claim that it is a particularly good way to find silver.

Coin Roll Hunting

Search through enough coin rolls and you will find some genuine 90% silver mixed in with the modern clad coins.  You can pick up boxes of dimes, quarters, or half dollars at your local bank branch.  Open them up, and begin checking the edge of each coin to see if it is clad, or 90% silver.  Once you're done, you can roll the coins back up and deposit them at the bank, or take them to a coin counting machine.

I've had some moderate success with coin roll hunting.  In my experience the most silver will be found in boxes of half dollars.  In one box I once found several 40% JFK half dollars.  Searching through all of the coins can be time consuming, and silver coins are quite scarce.  If you enjoy the process of coin roll hunting and have some time to devote to it, it's a great way to snag a few extra ounces for just the face value of the coins.

I personally prefer hunting through rolls of pennies (which almost always have a good amount of pre 1982 low premium copper bullion), but thats a topic for another post.

Garage Sales And Estate Sales

This is where I have had the most success finding low cost silver.  Check craigslist and estatesales.net for sales near you.  Sometimes listings will mention coins or silverware etc, but if they don't thats ok.  The key is to visit as many sales as possible as quickly as possible.  It also helps if you have a few other things you can look for at the sales to resell profitably.

For example, I used to resell books on amazon.  I found a lot more books at estate sales than silver, but I always made sure to ask about coins, silverware and jewelry when speaking with the sellers.  Many times the people putting on the sale said "hold on a minute", and came back with some old coins, jewelry, or silverware they'd been hording for a while.  Usually some hand-me-down from a distant relative, or some old "junk" they'd acquired through happenstance.  By playing it cool, buying a few other items, and making a casual offer for whatever type of silver they had, I've successfully purchased silver significantly below spot price on several occasions.

When scanning through garage sales and estate sales, you need to pay attention and sort through everything.  I was once at the estate sale of a retired engineer & inventor.  I picked out a few pieces of laboratory equipment to resell on ebay, and then began sorting through some old boxes of transitors, switches, and random electrical components.  At the bottom of one box I saw a sealed cardboard container labeled "AG".  After a small amount of haggling, the seller accepted $10 for the boxes of old electrical components.  Once I got the boxes home, I ripped open the box labeled "AG", and sure enough there were a number of oddly shaped silver bars inside.  I had them tested using a local coin shops spectrometer, and they were pure 0.999 silver.  I'm not sure what the application of the small bars was, but they were made of 6 oz of pure silver.

Conclusion

There aint no such thing as a free lunch.  Finding free silver takes significant investments of time and effort.  For the smart stacker with some time on his hands however, some of these techniques can be an enjoyable way to spend time, and add a few low cost ounces to your stack.

If you're serious about investing in silver, the free ounces you find aren't going to be enough to build your whole stack.  If you want to see the best deals out there from reliable bullion dealers like APMEX, JM Bullion, Bay Precious Metals & more, follow me on twitter @stacksmarter or look for hashtag #stackeralert , I'll be posting whenever I see great sales or special pricing.