RoR: Forum

Post 0

Thursday, May 4, 2006 - 8:15am

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Throughout history, theorists who almost understood money posited some mystical ratio in the value of silver to gold. When the United States of America was created, that ratio was about 16-to-1. The US dollar was defined as silver, but also issued in gold. Naturally, this situation became untenable. Eventually, gold became the sole international standard for money.

Today, numismatists, financial antiquarians and others still maintain market support for silver as money -- and not without reason.

Although there proved to be more silver in the world than anyone had guessed, the supply has stabilized in the last 100 years. With silver no longer being used for fractional currency (coins or "small change"), the markets are driven entirely by industrial demands. Jewelry is another kind of industry. The striking of commemorative coins by national mints in the US, Canada, Mexico and many other nations is likewise an "industrial" -- not a monetary -- use.

Very little silver is mined these days. Most silver is a by-product of copper production.

This impacts the markets for silver. Some users perceive and react to elasticity, but many others ar in inelastic markets: they will buy regardless of the price. A good example of this is the 2% silver solder that holds our electronic world together. The price of silver is now about $16 per ounce. If it went to $160, the markets for electronic devices would not be affected. Silver is used in medicine as an anticeptic and in dentisty as a filling. These uses are likewise insensitive to the price.

Silver speculation drives much of the market, with Americans -- and to a lesser extent Indians and Chinese -- buying silver as a hedge against inflation. People in India and Asia generally have looked to silver as "the poor man's gold." In modern times, gold ownership was limited legally in India, though, like China, that situation relaxed a few years ago, with a concomitant move to gold by those who could afford it.

That has been the modern historical situation in Mexico. The Casa de Moneda is the oldest mint in the New World. The government of Mexico has enjoyed the opportunity to sell silver (and gold) coins to its own people, as well as for export, while inflating the living daylights out of a series of paper pesos, repeatedly devalued and re-established for lack of governmental solvency.

Americans who buy silver coins for investment are driven by a rightwing romance for frontier history and are rewarded by the realities of the marketplace. Morgan (and Peace) Dollars are a perfect example. Greatly overvalued and in no sense rare, they command a 60% margin over their bullion value; they always have; they likely always will; Americans love their 19th century "cartwheels." You can buy $1000 face bags of common U.S. silver coin for a few points over "spot." This common commodity is listed on the financial pages of your local big city newspaper, as well as the WSJ and IBD, of course. The best place to buy is at a local coin store whose owner is a member of the American Numismatic Association (www.money.org -- find dealers under the dropdown for Membership on the left of the homepage.) You can buy as much or as little as you want, a $1000 bag of 1964 Kennedy Half Dollars or a single Mercury dime.

These and other factors make silver a commodity for short-term speculation as well as a longterm hedge against inflation.

For more information, start here www.silverinstitute.org and follow the links. As with gold, one of the most popular websites for immediate prices and other links is Kitco www.kitco.com

Post 1

Wednesday, January 2 - 7:49pm

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Silver generally trends with gold and today is at $15.14. Over the years, I have had a preference for silver over gold because the sticker price is lower. Silver has been called "the poor man's gold." The preferred form of silver for the average person in the USA is 90% pre-1964 US Coin, dimes, quarters and halves. Personally, I have tended to the 1964 Kennedy Half Dollar because it has the most silver, being generally uncirculated. By comparison, if you stack up 20 Barber or Standing Liberty Quarters against 20 Washingtons, you will see that the older coins are measurably thinner. Franklin Halves tend to be on par with the Kennedys, but Walkers can be more worn, especially as higher grades are preferred for their numismatic value, leaving the thinner ones in bags of circulated Walkers

The truth is that the market does not care. You bring in your coins, the dealer runs them through a counter and you are paid "by tale" not by weight. At least that has been the case these past 35 or so years. So, if you can find Washington Quarters or Roosevelt Dimes, then objectively, this is fine.

Another interesting way to buy silver close to bullion or spot is in the form of Silver Art Bars. I prefer the well-known mints, of which, perhaps the leader remains Silvertowne of Winchester, Indiana. Their long run of specialty bars celebrate all the pioneer virtues of America that warm an Objectivist's heart. When you are at that ANA Member Coin Dealer buying 90% US pre-1964 silver, ask about the Art Bars.

Remember that there is relatively little primary mining for silver. Most new silver comes as a by-product of copper refining. However, there is still so much 90% US out there that it is listed on the Chicago exchanges by the $1000 face bag. There are 715 troy ounces in a $1000 bag. Because this is only 90% pure, they often sell at a discount below spot. Of course, they are always worth their face value. To figure out the approximate price, mulitiply the spot price by 0.715 which today is 15.14 * 0.715 = 10.8 or so times the face value. So, 40 silver quarters ($10) would cost nominally $108 or so.

At today's gold prices, for $100 you would get a singe 1/10 ounce US Eagle. (Mark-up over spot on the smaller coin is measurable.) It is nice little gem, but there isn't much you can do with it. On the hand, you can play all night with 40 quarters, sort them by date and mint, grade them, build little houses...