-- Posted 11 August, 2010 | | Discuss This Article - Comments:

There are a myriad of investing options for those looking for physical allocations of silver.  Among them are silver bars, silver coins, and junk coins.  Junk coins, most well known for having 90% silver (pre-1964 dimes, for example), can also have 40% silver content (think old Kennedy Halves and Eisenhower dollars).

Purity First

Investors should most certainly allocate part of their physical holdings to junk coins because of the miniscule premium dealers usually put on junk coins.  90% silver coins typically sell at a discount to the same amount of silver content in coins.  This discount grows even bigger as the percentage of silver by weight drops.  40% silver coins are among the least expensive ways to buy silver, but they are also highly illiquid.  They are harder to sell than similar silver content in pure .999 coins or bars or even 90% junk coins.

40% Silver Discount

Of the junk silver available on the market, 40% silver is the most discounted, and it is popular among a very small section of the silver buying market.  Some buyers like 40% silver because it can be classified as a numismatic, allowing for exportation of the coins if needed.  In addition, these buyers appreciate the flexibility of 40% silver in negotiating better prices with coin dealers. 

Most coin dealers, however, aren't too enthused with 40% silver, and they may choose not to buy 40% silver coins unless the coins make up a $100 or $1000 face value.  $1000 face value is as much as $5500 in silver content, whereas $100 is roughly $550.  For small time investors, that's a lot of money.  Therefore, unless you're going to invest entirely in a silver bag, you're better off buying 90% or better silver coins.

Ignore the Discount

While the number one goal of any metals investor should be to get the most weight for his or her dollar, investors should also realize that the benefit of more weight to the dollar disappears as the amount of other non-desirable metal increases. 

For example, a 10lb lot of 40% silver contains four pounds of silver; however, that silver is significantly costlier to separate from the other 60% than the 90% silver coins are to separate from the other 10%.  This is why these bags are often discounted; refiners who are interested in melting down coins have to factor in the cost to do so. 

In addition, to achieve as much silver content with a 40% bag as you would with a 90% bag, you'll have to buy 2.25 times the amount of coinage.  As you should be very well aware, silver is heavy, as is nickel and iron clad, and shipping costs and insurance fees only rise with weight and value.  Take shipping costs into consideration, and you just might find that a 90% bag is cheaper than a 40% bag, even with discounts.

The Bottom Line

Look at the physical metals market as if it were a bell curve.  On the bottom, you have 40% silver, and at the top are numismatics.  If you throw out both the top and the bottom, keeping anything better than 90% and nothing more expensive than American Silver Eagles, then you'll do just fine.

Dr. Jeffrey Lewis

www.silver-coin-investor.com