Investing in Physical Silver (Junk Silver vs. Eagles)

[106459]

Hi All,

I'm hoping to invest in physical silver; and would like to get some advice. As a fore-note, please correct anything you find factually incorrect, I would greatly appreciate it.

First of all, I consider the primary purpose of this investment to be a safe store of wealth. Given the predicament of our ballooning welfare state, the Eurozone debt crisis, and even the global debt crisis, I don't trust fiat money.

Personally, I feel like silver is a better investment than gold at the moment. Silver seems to be undervalued compared to gold, about $27.50/oz compared to $1,600/oz (58:1). There's also a greater industrial demand for silver than gold - which under the right circumstances, could act as a support. Yes, conversely, if industry collapsed, silver might be devalued. However, given I feel fiat money would collapse with industry, I think people would be scrambling for precious metal regardless.
Also, if gold really is $1,600/oz, you'd have to cut it into 1/100 of an ounce to pay for $16 worth of goods or services. I think half an ounce of silver would be far more reasonable. Yes, conversely, I believe the storage ratio is 8x more space for silver; but my investments aren't all that big yet.

Thus, I'd like to invest in silver. I hear a lot of people talking about investing in silver eagles, but it's about $3 over spot at apmex.com. That's almost a 10% premium, and I really don't like that idea. Considering I'm mostly interested in holding silver for financial security, "high premium in, high premium out" might not necessarily apply to me. I've looked into "Junk Silver Bags" which contain random U.S. minted coins containing 90% silver. I consider this a high enough ratio to minimize storage, and silver is silver, in my opinion. At apmex, it looks like they go for around a 5% premium, maybe less if you scoured places like ebay (I've searched some on silver eagles, and it looks like too common an investment vehicle to get "steals".)

So, I have a few questions regarding the junk silver bags. Are they just as liquid as other silver investments? If I were to search independent-sellers, is there a high risk equated with buying worn coins? Even if the year is legible and it is a silver coin, what are the chances it could be a counterfeit?

As a more generic question, how easy is it to exchange silver at fair market value for cash? Could I just walk into a pawn shop, sell it to them, and not take a substantial hit? Or is it easy enough to find individual buyers who would be interested in private buying?

Any insightful replies are appreciated; thank you for taking the time to read this post!

 

[TruthisTreason]

To see which is more liquid, run some ebay searches. Then, you'll probably want eagles.

 

[Schifference]

I have both. I think junk silver is great because it allows me to hand someone a dime, quarter, half, or dollar allowing me to pay for a transaction at varying denominations.

 

[roho76]

APMEX had Eagles for 2.99 over spot today. I picked up a bunch.

 

[ILUVRP]

i agree with scifference , junk silver ( 90 % ) , is something everyone knows and is very hard to copy or fake , its very easy to copy new eagles , but old junk silver is very hard to copy. also on ebay if you watch it very close many times you can get junk silver at very neer spot prices.

 

[pmbug]

...
So, I have a few questions regarding the junk silver bags. Are they just as liquid as other silver investments? If I were to search independent-sellers, is there a high risk equated with buying worn coins? Even if the year is legible and it is a silver coin, what are the chances it could be a counterfeit?

Yes.
Yes* (but not for counterfeiting IMO).
0.0000000001% IMO (ie. never heard of anyone counterfieting pre-65 coins)

...
As a more generic question, how easy is it to exchange silver at fair market value for cash? Could I just walk into a pawn shop, sell it to them, and not take a substantial hit? Or is it easy enough to find individual buyers who would be interested in private buying?
...

Pretty easy.
Pawn shop? No. Coin shop? Yes.
You can find private buyers via ebay, craigslist or even some forums where precious metals are bought/sold (via the mail).

One thing you should know about 90% silver is that many dealers sell it by Face value - ie. $100 face value bags are assumed to contain 71.5% silver, but that assumption many not be valid. Quarters and dimes have more wear than half dollars and can be "light". Half dollars are usually preferred if you can choose the coin type for the same price. *If the coins you are considering buying look really worn, you might ask the dealer to weigh the coins and sell them by (silver content) weight. The low premium on 90% doesn't mean that you shouldn't get every troy ounce of silver that you are paying for.

 

[Plague-of-Locutus]

Have you considered going generic ? Its pretty much the most bang for the buck. Lower premiums over spot which translates into more silver per dollar.

When you get into it more you'll discover most investors / stackers have calculated a DCA (dollar cost average). You want that as low as possible.

If you're not already surfing some related sites, http://kitcomm.com has a pretty good silver community. They helped me a lot when I started stacking.

Enjoy !

 

[cubical]

Both

no reason you can't strike for both when premiums take a dip.

 

[Steven Douglas]

I have a few questions regarding the junk silver bags. Are they just as liquid as other silver investments?

It depends on the criteria used to describe liquidity (convertibility into other forms of wealth). If it's just convenience, paper silver is more liquid than bullion and coin. Nothing to check. But paper silver -- including some paper silver considered allocated holdings -- is not necessarily silver, as MF Global/JPM fiasco proved.

BULLION
Bullion (NOT proofs or anything with numismatic value) is considered slightly more liquid than junk coins, en masse, and more because of fungibility than anything. Beyond checking for authenticity, bullion is cast by weight or mass, and one silver oz. is as good as another. There are no multiple issues with different weights and purity issues to deal with, and therefore no dates to check. Likewise, because they aren't circulated as junk coins were, constantly worn, damaged, or changing hands, wear is not usually an issue either. That is what makes bullion more fungible, and therefore liquid in terms of convenience, given that it tends to be more uniform in terms of both weight and purity. But that's only a slight edge in what is mostly a zero sum game. You end up paying more over spot for bullion, but because you're not APMEX or a coin dealer, you have to ask yourself whether that difference can be recouped when it's time to sell.

A potential (and potentially serious) drawback to bullion is that bullion with no numismatic value is considered a commodity only. If, for any reason, Roosevelt-esque laws are ever passed in the future, with an attempt to control, regulate, tax, or even abolish private ownership of mass amounts of PM's, you could end up screwed owning bullion, while there are strong legal issues with coins minted as money by the US government, which are all still considered money having a "dollar" face value. A whole different set of rules, including constitutional law and legal precedent protecting them, means that they cannot be as easily confiscated, and would likely end up exempted. Since security is an issue for you, that places all coins, and not just junk coins, in a different class.

Between junk coins and bullion with no numismatic value, the chances of getting counterfeit bullion is far greater than with junk coins. ESPECIALLY SILVER. I have yet to see a case (and I could be wrong) where counterfeit low denominated ordinary circulated junk silver coin has been a problem for anyone. That cannot be said of silver bullion. Likewise with Silver Eagles, which ARE routinely counterfeited. In that respect alone, "ugly" low-denominated junk silver coins are secure as hell!

JUNK COINS

Junk coins are bought by amount per coin. However, in all likelihood, especially with much older, more worn coins, they're going to be bought from you by weight only, and not face value. You bring a bunch of junk coins to a dealer, or someone who accepts junk coins as payment, and once the dates are verified, all the coins are simply put on a scale. So shave a percentage off the top. On average not much, but could be 2 or 3%.

The ability to verify the date is important, which poses some tradeoffs. For example, I like Mercury dimes (winged capped Liberty), because Roosevelt dimes range in silver content depending on the issue, which means that each date must be checked. With only one weight and purity established for Mercury dimes there is no need to check the date -- if you see Mercury's face, you know the silver content. Mercury dimes are also older, and tend to be slightly more worn (not much, less than 1% overall in my experience from pre-1964 Roosevelts). Then again, the preference for Mercury dimes has caused some to sell them for more over spot than Roosevelts, so take care there as well.

If I were to search independent-sellers, is there a high risk equated with buying worn coins? Even if the year is legible and it is a silver coin, what are the chances it could be a counterfeit?

Not much, especially if it's just a circulated coin with signs of wear.

As a more generic question, how easy is it to exchange silver at fair market value for cash? Could I just walk into a pawn shop, sell it to them, and not take a substantial hit? Or is it easy enough to find individual buyers who would be interested in private buying?

For selling, you can't beat ebay, IMO. If you want the convenience of a local dealer, get a long-term relationship going with one, and negotiate the terms with that dealer up front, so that you both always know what to expect, buying or selling. If you get a dealer that acts cold, distant, with doesn't-give-a-shit-take-it-or-leave-it terms, move onto another one, he's not the one you're looking for. There are plenty of dealers who value repeat business and won't mind getting a routine going with you, so that you don't have to haggle or be at the mercy of terms on a whim each time.

 

[ILUVRP]

speaking of coin weight , everyone has seen the groves in the rims of many coins , the reason being in the early years of gold coins the coins did not have the rim groves and people would get a gold coin and then shave the rim very little , spend the coin buying something very cheap , then get another gold coin and shave the rim with a knife , keep repeating while saving the shavings .

then groves were put on many coins to stop this shaving as people would not except coins w/o groves.

 

[pmbug]

Nice post Steven. One quibble...

...
The ability to verify the date is important, which poses some tradeoffs.
...

Checking dates isn't a big deal. You can look at the edge of quarters and dimes and easily see if they are 90% silver or not. If you see a two-tone (copper/silver) edge, it's not 90% silver. If you see a solid (silver) edge, it is 90% silver.

 

[Arklatex]

1 no metal on earth has more uses than Gold - http://geology.com/minerals/gold/uses-of-gold.shtml

Silver has dropped recently so it's a good time to pick some up, buy bullion. Numismatic bullion. Case in point, when I made a major purchase i lucked out when I picked the Canadian Wolfs over the maple leaf, I think I paid $.50 more per coin at that time, they currently sell for double what the regular maple leaf fetches. You make the call, you'll find this opinion in the minority and I have no idea why.

 

[rhelwig]

My take on it is to find a local coin shop and ask them. If you're getting physical silver for wealth preservation, you'll need to convert it into something people will use for trade.

[People are most definitely not going to go back to using coins for everyday trade. They'll clamor for a dictator to "save them" from having such an inconvenience before they'll use one ounce coins.]

 

[DEGuy]

Several people have mentioned that eagles are easily counterfeited. Evidence? And even if they are, couldn't an average investor just do some simple due diligence like measuring and weighing coins when buying them from a new source? Although I don't doubt there are high quality counterfeits out there, I think it would be tricky to pull it off with the same weight, dimension, etc. If the only way to know for sure it to cut it open, then who cares? It'll still trade just like a legit coin to pretty much everyone...

 

[TCE]

Several people have mentioned that eagles are easily counterfeited. Evidence? And even if they are, couldn't an average investor just do some simple due diligence like measuring and weighing coins when buying them from a new source? Although I don't doubt there are high quality counterfeits out there, I think it would be tricky to pull it off with the same weight, dimension, etc. If the only way to know for sure it to cut it open, then who cares? It'll still trade just like a legit coin to pretty much everyone...

Completely agree with your first sentence. Where exactly is everyone finding scores of counterfeited Silver Eagles? In general, especially in the U.S., they're the easiest to sell because there is intrinsic trust there. You have a coin that has its weight in silver certified, as others have noted, and is easily recognizable. No need to be scared off from Silver Eagles. I would double dip and have some of both. The problem with the junk coins is that there is a segment of the population that will not recognize their value. You say you have a valuable Roosevelt era coin and they scratch their heads because they see the face value. Most people I talk to have no idea about Pre-WWII silver coins and their true value. It isn't hard to read a Silver Eagle and see that it says it is almost 1 ounce of silver.

 

[mhad]

Note: Physical silver is NOT an investment, it is a HEDGE.

 

[Steven Douglas]

Several people have mentioned that eagles are easily counterfeited. Evidence? And even if they are, couldn't an average investor just do some simple due diligence like measuring and weighing coins when buying them from a new source? Although I don't doubt there are high quality counterfeits out there, I think it would be tricky to pull it off with the same weight, dimension, etc. If the only way to know for sure it to cut it open, then who cares? It'll still trade just like a legit coin to pretty much everyone...

No matter what the counterfeit, there's always a way of testing, and due caveat emptor and diligence applies for any buyer. And as tricky as it might seem to pull it off with the same weight, dimension, etc., it is being done.



As you can see from the video, Silver Eagles are routinely counterfeited, even though the original counterfeiters are "above board" about it (with the usual sleeze words -- e.g., "100% pure silver clad over 1 oz.!" -- words that imply to the truly ignorant that they're buying basically the same thing). My brother has two China-made Silver Eagles that he bought off the street in Shanghai for 50 RMB each (about $7.50). They are silver clad, but because of the based metals used, they weigh exactly 1 oz., the same as a Silver Eagle. The only surefire way to know the difference, as you mentioned, is to file into the side grooves and do an actual acid test. He doesn't have to do that with his, because he knows they're fake.

The point was not that counterfeits couldn't be tested for and detected, but that very good ones do indeed exist, which can be a problem for anything as popular as the Silver Eagle. That same problem does not exist (of which I'm aware) for old circulated lower denomination junk coins. US minted coins that are passed off as proofs, uncirculated, or of extra fine condition are another story. Again, however, that's for larger denomination uncirculated coins and proofs, like Morgan and Liberty dollars.

 

[oyarde]

My take on it is to find a local coin shop and ask them. If you're getting physical silver for wealth preservation, you'll need to convert it into something people will use for trade.

[People are most definitely not going to go back to using coins for everyday trade. They'll clamor for a dictator to "save them" from having such an inconvenience before they'll use one ounce coins.]

It will be alright

 

[oyarde]

Several people have mentioned that eagles are easily counterfeited. Evidence? And even if they are, couldn't an average investor just do some simple due diligence like measuring and weighing coins when buying them from a new source? Although I don't doubt there are high quality counterfeits out there, I think it would be tricky to pull it off with the same weight, dimension, etc. If the only way to know for sure it to cut it open, then who cares? It'll still trade just like a legit coin to pretty much everyone...

I have never seen a fake of any kind that the wt would be detectable , I do not think ..

 

[heavenlyboy34]

I've only got junk silver at the moment, but a little of both is not bad. I don't look at PMs so much as an "investment" as converting FRNs into real money and hedge against inflation. If you want a safe investment though, silver is a good bet.