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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How Investors Can Profit from Junk Silver

Commodities / Gold and Silver 2010 Sep 28, 2010 - 05:21 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticlePeter Krauth writes: Despite its name, junk silver is not junk.

Indeed, the term "junk silver" is actually a misnomer, since this form of silver investing has provided excellent returns over the past decade. Junk silver consists of U.S. quarters, dimes, and half-dollars minted before 1965, since coins struck before that time contain 90% silver and 10% copper.


But junk silver's real attraction is that it offers investors the best of both the two possible investing extremes that seem to be attainable right now:

•First and foremost, during intense bull markets in silver - like the one we're experiencing right now - junk silver tends to outshine (and outperform) silver bullion.
•But if some of investors' darkest fears are realized, and the U.S. government's overenthusiastic printing of money were to transform the greenback into so much worthless paper, then 90% of U.S. silver coins would be used for the purpose they were originally minted - as money that can be spent.

Junk Silver Basics
The term junk silver was adopted because the coins being referenced typically have no collectible value. Instead, junk-silver coins are valued for the bullion value of the silver that they contain. Here in the United States, the most commonly collected junk-silver coins are the Mercury and Roosevelt dimes, Washington quarters, and the Franklin and Kennedy half dollars that were minted in or before 1964. That's because these coins have a 90% silver composition that's known as "coin silver."

There are six solid reasons to make junk silver part of your portfolio. In short, junk silver:

•Is a finite commodity.
•Is no longer being produced (the scarcity factor).
•Is a product (currency coins) that is easily recognizable.
•Is divisible, meaning you're able to use small amounts to pay for something.
•Requires no assaying.
•Was produced by the U.S. government, meaning everyone recognizes what you've got, so you don't need to run any tests to prove its value.
•And is utilitarian, meaning you could actually put change into a payphone (remember those?) or a vending machine to purchase a product or service.

Kevin Drost, preferred client relations manager at Asset Strategies International Inc., says many of his company's clients feel there's a seventh reason to own junk silver that's no less important than the afore-mentioned six: Since it was produced by the government itself - and is "legal tender" - it can't be confiscated.

The Mathematics of Junk Silver
Junk silver is sold in bags of either $100 face value or $1,000 face value. Typically, the $100 face value bags contain 1,000 dimes, or 400 quarters, or 200 half-dollars (the coin denominations are usually not mixed).

Since these coins were in circulation for decades, wear and tear means they no longer contain 90% silver. In fact, they typically contain about 71.5 ounces of silver. So at recent prices of roughly $20 an ounce, $100 face value bags run about $1,530, which includes a 7% premium to the spot price of silver (On the smaller bags, that's the average premium you should expect to pay. The $1,000 face value bags, of course, contain 10 times the number of coins as the $100 face value bags, with a small pricing advantage of 5% premium over spot silver prices.)

Silver hit a low of $4.06 per ounce back in November 2001. Since then, the returns of the "white metal" have been extremely rewarding for those early - and patient - investors. The returns for silver have certainly been better than those for U.S. stocks.
Indeed, the Standard & Poor's 500 Index - the closely watched barometer of the U.S. stock market - has returned a big, fat "0" for that same period, having been essentially flat after nearly nine years.

Silver, on the other hand, has trounced the broader markets. Over that same span of time, silver has clocked a handsome gain of 429%.

It's true that silver is known to exhibit considerable price volatility. But, as these returns show, that's been mostly to the upside.

So the investor who'd have purchased a $100 face value bag of junk silver some nine years ago would have paid about $312. Today, that same bag is worth $1,650, or five times the original outlay.
Don't dismiss all this talk of junk-silver gains as just a lot of investing trash talk - with the U.S. government printing presses continuing to run overtime to fund its ongoing debt binge, investor interest in precious metals is only going to escalate.

And that means silver prices will head higher from here.

Just yesterday (Monday), for instance, silver futures for December delivery rose 7.2 cents an ounce, or 0.30%, to close at $21.471 an ounce on the Comex. Earlier in the day, silver futures hit $21.645 an ounce - the highest price for a most-active contract since October 1980, Bloomberg News reported.

And there's more to come. In fact, the smallest commodity moves since 1996 are signaling that there's a big move to come in precious metals in the fourth quarter of this year, according to a survey released yesterday.

The Standard & Poor's GSCI Index of 24 raw materials, tracked by as much as $80 billion worth of investments, had advanced only 1.6% so far this year (through Sept. 24) - the smallest advance in 14 years, Bloomberg reported yesterday.

Slumping oil and natural gas prices, the result of slowing growth in the United States and China, wiped out soaring copper prices and a record run-up in gold.

The Bloomberg survey of 24 analysts projected that copper, cocoa, coffee, sugar and soybeans will fall by Dec. 31, while cotton will rise. Corn, wheat and nickel may be little changed. Precious metals will gain through the end of the year - with silver reaching $22 an ounce.

The surge in silver won't end there, either. According to a recent Money Morning forecast, silver could reach $50 an ounce by the 2012 presidential election - a gain of 133% from here.

It's worth noting that Money Morning predicted the current breakout in silver.

Where to Look
If you decide that junk silver needs to be part of your portfolio, make sure you buy from a reputable dealer. This is probably the single most important aspect of buying junk silver. Make sure to do your homework and check them out first.

The list that follows is by no means all-inclusive. But some of the dealers that have established reputations include:

•Asset Strategies International Inc.: Located in Maryland, Asset Strategies (assetstrategies.com) offers a very good selection. Its premiums are reasonable. For more information on Asset Strategies' junk-silver offerings, please click here.
•Kitco.com: A very-well-known dealer, Kitco has offices in both New York and Montreal, Canada.
•Camino Coin LLC (caminocompany.com): Burlingame, CA.
•American Precious Metals Exchange (apmex.com): Oklahoma City, OK.
•The Tulving Co. (tulving.com): Newport Beach, CA.
•Gainesville Coins (gainesvillecoins.com): Lutz, FL.

Action to Take: It's called "junk silver," but it's anything but junk. Instead, junk silver is an investing venue that provides investors with all the important advantages of a precious-metals bullion investment while at the same time still featuring the utility of a metals-based currency whose value is widely understood.

As such, junk silver should be part of an investor's precious-metals investing program. Before you make a move, however - do your homework. Explore your needs. And find a dealer who can fulfill your requirements.
Silver is going to continue its run. Make sure you're aboard to profit.

[Editor's Note: Peter Krauth, a frequent contributor to Money Morning, is the editor of the Global Resource Alert, a private advisory service that focuses on precious metals, energy commodities and other natural-resource-related topics. Krauth spent two decades as a market analyst and portfolio advisor, and has covered all the commodities sectors, including gold, silver, coal, alternative energy and agriculture. He even makes his home in Canada - to be closer to the action. And several of his recent predictions have generated a genuine Internet buzz.

To find out more about commodities, or the Global Resource Alert, please click here.]

Source : http://moneymorning.com/2010/09/28/junk-silver-investing/

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Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

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Comments

Len
29 Sep 10, 18:59
Re: junk silver

“Since it (junk silver) was produced by the government itself - and is "legal tender" - it can't be confiscated.”

One caveat to this argument- gold coins were minted by the US Government and up until 1933 gold coins were ‘legal tender‘, until FDR issued the infamous gold turn in order.

I doubt the government would order Americans to turn in their silver, though you never know what DC might come up with next. The nice thing about junk silver, however, is that unless you look at the date of the coin of a Roosevelt Dime, a Washington Quarter or a JFK Half, you would not notice if the coin is silver or not. This makes it easy to hide junk silver in with non silver change so no one knows if your coins are clad or silver.


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