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It may be time to consider buying junk silver

Posted by John Reed on

My wife just asked me if maybe now is the time to buy silver. I revised and updated my spreadsheet on the matter.

Year price $/oz 2015 dollars
1965 $1.29 $9.77
1966 $1.29 $9.50
1967 $2.06 $14.72
1968 $1.96 $13.44
1969 $1.81 $11.77
1970 $1.64 $10.09
1971 $1.39 $8.19
1972 $1.98 $11.30
1973 $3.14 $16.88
1974 $4.39 $21.25
1975 $4.09 $18.14
1976 $4.35 $18.24
1977 $4.71 $18.55
1978 $5.93 $21.70
1979 $21.79 $71.62
1980 $16.39 $47.47
1981 $8.43 $22.13
1982 $10.59 $26.19
1983 $9.12 $21.85
1984 $6.69 $15.37
1985 $5.89 $13.06
1986 $5.36 $11.67
1987 $6.79 $14.26
1988 $6.11 $12.33
1989 $5.54 $10.66
1990 $4.07 $7.43
1991 $3.91 $6.85
1992 $3.71 $6.31
1993 $4.97 $8.21
1994 $4.77 $7.68
1995 $5.15 $8.06
1996 $4.73 $7.19
1997 $5.95 $8.85
1998 $5.55 $8.13
1999 $5.22 $7.48
2000 $4.58 $6.35
2001 $4.52 $6.09
2002 $4.67 $6.19
2003 $5.97 $7.74
2004 $6.82 $8.62
2005 $8.83 $10.79
2006 $12.90 $15.27
2007 $14.76 $16.99
2008 $10.79 $11.96
2009 $16.99 $18.90
2010 $18.27 $19.99
2011 $30.51 $32.37
2012 $29.90 $31.08
2013 $19.48 $19.96
2014 $15.67 $15.80
$15.49 average in 2015 dollars
The current price is $14.64. Generally, I say to buy silver when it is below its historical average price. It now is.
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The best form to buy is junk silver, which means U.S. dimes, quarters, and half dollars minted before 1965. They were 90% silver. They have very convenient denominations being worth respectively today $1.0648, $2.6620, and $5.3241.
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My article about why gold is a lousy inflation hedge (http://www.johntreed.com/golddisadvantages2.html) applies to silver as well except for items 2 (1933 confiscation), 7 (Gold Bug influence) 8 (overpriced), 10 (inconvenient denomination), and 12 (need for assay—note, I only recommend junk silver, not silver ingots or other forms of silver).
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So should you buy junk silver now? I would say maybe when it is below $14. Nickels, for example, will be taxed at 20% if and when you sell them for a capital gain; not 28% like silver coins. Waiting for $14 covers the 8% tax rate difference.
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Readers, where is the best place to buy junk silver?

Junk silver typically comes in bags with $500 or $1,000 face value worth of coins.

According to coinflation.com, 10,000 pre-1965 dimes would be worth today $10,682.93. Ditto 4,000 quarters or 2,000 half dollars. They use a silver value of $14.75 on 8/6/15.

Are these coins pure silver? No. They are 90% silver and 10% copper.

If you click on the name of the coin in question—like the 1946-1964 Roosevelt dime—at Coinflation.com, you can see today’s silver price multiplied by the 90% of the coin weight that is silver. So when Coinflation.com is using $14.00 or less as their price of silver, and the silver dealer will sell to you for the coin melt value value shown by Coinflation.com at that time, buy.

One reader recommended Golddealer.com. They charge spot plus $3.40 for junk silver. I sumise that means 715 troy ounces (per $1,000 face value bag) x [(today’s spot price for silver—I don’t know whose spot price) + $3.40] per bag. The $3.40 per ounce pays for the copper content plus the dealer’s profit margin. The copper value of a Roosevelt dime is about 12/100 of one cent or $12.91 per $1,000 face value bag. So the $3.40 per ounce is mostly dealer profit.

If the value of silver fell to $14 per ounce, and the value of copper stayed the same, the coinflation value of a pre-1965 dime would be about $1.014 instead of today’s $1.0682934027. To cover the other $3.40 Golddealer.com profit margin, the price of silver would have to fall to $10.60 such that the amount of junk silver you bought would would cost you about what Coinflation.com says it is worth.

Mind you, all this would accomplish is buying some no-assay-required, convenient denomination silver at a little bit below its historical average real price. No guarantee that it would not fall further. Over the long run, you should make no profit but also not lose. It is an asset-preservation play.

Seems to me that just buying US nickels makes more sense if that is your purpose. There is no dealer profit or overhead. And they cannot go down in value because the price you pay for them is the price that is engraved on them. Junk silver, like nickels, can drop in value to their face value. But with junk silver, that is 90% below what you paid for them. U.S. nickels in 2015 are what silver U.S. coins were in 1964 before the government stopped minting them. Nickels are the best asset preservation asset on earth and any day now the U.S. government will announce it will stop minting them. http://www.johntreed.com/U.S.-nickel-coin-actually-has-the-characteristics-falsely-ascribed-to-gold.html

You may want to choose another trigger value of silver—higher or lower than mine. But this is the way you ascertain when the price has fallen below your trigger.

John T. Reed


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