Silver bullion is a favorite for many stackers, but being too narrowly focused on just one metal can prevent you from seeing other opportunities. For most, the first precious metal to come to mind after silver is gold. Think outside the box however, and you might consider stacking physical nickel or copper.
Nickel and copper share several of the attractive attributes of silver. These metals are consumed by a wide variety of industrial applications. Also like silver, the prices of nickel and copper rise during periods of inflation, and as such both metals serve as a hedge
against a devaluing currency.
A significant advantage for both nickel and copper is that they can be obtained in the form of currently circulating US coinage. Pennies minted in 1981 and earlier are 95% copper, and the currently minted US Nickel is composed of 75% copper and 25% nickel. At the moment, the value of the metal in a pre 1982 penny is $0.018, and the melt value of a Nickel is slightly less than $0.04. So for now, only the copper penny is worth more than the actual face value of the coin, but in 2011 when metal prices peaked, a nickel's melt value went as high as $0.07.
Because these coins are circulating US currency, they can be saved with very little downside risk. In the event of inflation, the metals price will increase to compensate for the loss of purchasing power the coins have as currency. On the other hand, if a deflationary period ensues, the coins will never be worth less than their face value. In this way, by saving your dollars in the form of pre '81 pennies, or the currently circulating nickels, you are able to hold wealth in your possesion in the form of a physical commodity and the US dollar simultaneously.
Of course, if buying nickels and pennies is so great, why isn't everyone doing it? Well, there are obvious downsides to investing in this manner. The primary difficulty with buying large amounts of pennies or nickels is storing them. To own a signifcant amount of wealth in this form, you would need a large space to keep boxes of coins stacked. Coins are heavy, $10,000 in pennies weights just over 6800 pounds, and the same face value of nickels weighs about 2200 pounds. If dealing with a large number of coins, you must be prepared to move them yourself, or arrange for assistance.
An additional hurdle for those wishing to obtain pre 1981 pennies is that they must seperated from the more recently minted pennies, which are primarily composed of zinc. Some methods you could use are seperating coins by hand, using a machine to sort large numbers of coins, or buying the pre sorted copper pennies outright from someone who has already sorted them. These techniques require investment of either time, or a premium to the face value of the pennies. For this reason, US nickels are a better choice for the investor who simply wants to quickly invest in base metals without a lot of fuss.
Although investing in physical pennies and nickels may seem like an even more obscure form of investment than stacking physical precious metals, there are is a small but active community dedicated to this cause, and some have even turned it into a business. Joe Henry is one such entrepreneur, sorting pennies with the aide of a machine and selling copper bullion on ebay. A quick search of eBay sold listings for copper pennies will show that several sellers are doing a brisk business in this manner.
It's not just small time investors who have taken an interest in base metal bullion. Kyle Bass, the founder of Dallas based hedge fund Hayman-Capital, purchased 20 million nickels for $1 million in 2011. Bass believes that runaway inflation in the US could dramatically increase the value of his nickel hoard.
So, next time you're looking for a way to diversify your holdings of physical metal, consider these circulating US coins. While both bulky and heavy, nickels and pennies may turn out to be a real bargain at today's prices.
