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Why 40% Silver is Usually Best Left to Refiners

Commodities / Gold and Silver 2010 Aug 12, 2010 - 12:51 AM GMT

By: Dr_Jeff_Lewis

Commodities

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.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Shelby Moore
12 Aug 10, 12:49
40% silver benefits

The PhD got it backwards.

When and if silver goes to 3 digits in fiat price, the public is going to be scrambling to invest in any silver and there won't be many sellers of bullion. There will be a lot of scrap for sale, but this will have to be refined before it can be sold to most investors.

In terms of perceived value (given your average person can't do math), the heavy bag of silver coins is going to sell for a higher price.

Right now, given we are only selling to savvy (high IQ) silver bugs, yes 40% is undervalued right now. But when the mania comes, 40% is going to sell for more than 90% on per silver gram basis, just because the center (average IQ) of the Bell Curve will have entered the market.



13 Aug 10, 14:12
Silver Maple purity

Sorry Shelby but I'm 99.9999% (Silver Maple purity) with Dr Jeff on this one.

Junk silver is for those with large storage capacity/ testing equipment and a furnace. The rest of us want some warrenty that the silver we buy is assuredly silver. Assayed bullion and BUNC coinage are/ will be the order of the day.


Shelby Moore
14 Aug 10, 00:17
Missed my point

The point was that the dumb people will becoming into the market when the price goes near the top, and they will buy based on how shiny it is, is it a USA coin, how big and worn are the coins, and how heavy the bag is. 40% will kick butt on 90% in that scenario. There won't be any need to assay or melt it, in fact you won't want to assay, because you don't want to try to educate a dumb person, just sell them what they think is valuable. Our PhD writer was arguing to stay in the bell curve of purity, and I am arguing to stay in the bell curve of the market. And I am correct, because the market of dumb people in huge and the market of small silver bugs is small.

You won't be selling to the silver bugs who are buying now, you will be selling to the dumb sheeple in the center of the IQ bell curve.


Len
15 Aug 10, 17:07
I agree with Shelby

The good doctor forgot to consider the cheapness of 40% silver over 90% silver.

If silver goes up to, say, $80 per ounce, many will be priced out of 90% silver. The 40% silver half will be the affordable silver coin for those who want silver in their portfolio.

As Shelby Moore has wisely pointed out, it is not always about what silver finds its way to the refinery, but what silver is held by silver bugs, what silver buyers can afford, and what will sell when silver really takes off.

How soon we forget the big silver melts of the late 1960’s and 1970’s, when millions of ounces of silver found their way to the smelter. At silver’s peak even the lowly 40% half (and 35% silver war nickel) were eagerly bought since low percentage silver was better than none at all.

Lastly, from 1957-1967, Mexico tried to keep One Peso silver coins in circulation by reducing their silver content to 10% silver 90% aluminum, thinking no one would bother to hoard coins with such a low silver content. Reality showed just how wrong they were.


Shelby Moore
18 Aug 10, 16:05
war nickels premium

http://www.apmex.com/Product/13021/5000_FV_Silver_War_Time_1942_1945_Nickel_Bags___35_Silver.aspx

War nickels are selling for $0.50 over spot and are sold out, compared to the 40% selling at spot and 90% only slightly over spot and not sold out.


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