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Investing in Junk Silver

Yesterday, I wrote about how to find the melt value of junk silver [3] after I found a really old silver quarter in a field by our house. As you can imagine, that took me down the rabbit hole of researching investing in junk silver, which apparently is a pretty popular way for main street investors to introduce a little precious metals into their portfolio. Silver doesn’t get as much love as gold because it’s far sexier to talk about something that’s $1600 an ounce rather than something that’s under $30 (plus, gold just has that caché).

Why Invest in Precious Metals?

Gold, and precious metals as a whole, is seen as a safe harbor against economic uncertainty. Whereas the dollars (or whatever currency you have) in your pocket is often fiat money, gold has an intrinsic value independent of the performance of various currencies against once another. What’s tricky to wrap your head around is the idea that gold has value despite having very little practical purpose. You can’t eat a bar of gold. You can’t plant it and grow crops. You can’t shoot it and defense yourself. That said, it’s recognized as a store of value and so people flock to it for protection. If the United States government were to collapse and you fled to another country, US dollars would have no value but you could take gold and convert it to the local currency.

I view precious metals like gold and silver as insurance. In a period of uncertainty, precious metals become more valuable because people are looking for safety. Here’s the tricky part – like any other asset, precious metals are subject to the whims of the market. Gold is valued at around $1600 an ounce. A year ago (Jan 1, 2010) it was around $1100. On January 3, 2000, it closed at $282.20. The USD price of gold has fluctuated with demand, the value of the dollar, and various other factors outside of its intrinsic value. Since we’re in a period of heightened economic uncertainty, gold demands a higher nominal price. On September 5th, 2011, gold was as high as $1896.50 an ounce.

Ultimately, it’s up to you. I haven’t purchased any precious metals, either physically or via an ETF or whatever, so I don’t know 100% the ins and outs of it all. The only thing I’ve done is read up a little on investing in junk silver.

What is Junk Silver?

Junk silver specifically refers to older United States coins (and coins from other countries) that contain silver. Before the Mint changed the metal composition of coins a few decades ago, many coins were made of 90% silver and 10% copper. Since the change, like in 1965 for quarters, cheaper metals like copper and nickel were used to make coins. When you buy it from precious metal dealers, you typically see them in $1000 face value bags, which contain 715 ounces of silver. Many places will sell it to you in smaller bags, like $250 face value and $500 face value, since $1000 face value puts the price at over $20,000 a bag at current prices (silver is around $29 an ounce now).

There are a few reasons why people invest in junk silver rather than going with silver bullion:

In the end, it comes down to personal preference but that about covers the basics to investing in junk silver. Whether or not it’s a good idea is up to you and your particular financial situation.

(Photo: fornal [4])