04 January 2011

An Easy Way to Invest in Silver

One of the biggest obstacles to owning investment grade silver today is the sheer scale at which silver must be purchased.  In order to buy silver produced by reputable mints, one is usually required to buy at least ten units of silver (usually one ounce bars), with the most common requirement being one hundred units, and occasionally one thousand units.  Since silver has been trading in the low 30s recently, most buyers will find that they will need to drop $300+ for the lower end requirements.  More commonly, buyers will find that they need to pony up three grand in order to be able to buy.

For those on a rather limited budget, there is a solution:  buy junk US silver coins.  Junk coins, at least of the investment grade, have at least 90% silver content.  Best of all, these coins are produced by the US mint, which means their silver content is known and verifiable, which makes them remarkably liquid investments.

In order to make the most of this particular type of investing, it is helpful to know what sort of coins is best to buy, how to value them, and the best way to acquire them.

To this end, it is important to understand that older coins are primarily valued for their collectability.  This means that high quality coins have a price that is significantly higher than the value of their silver content. In addition, some low quality coins may have a high value because they are quite rare.  Therefore, in order to find the best deals, it is necessary to focus on common coins that are of low quality.  Furthermore, these coins must contain silver.

These three standards (silver content, commonness, low quality) will pretty much disqualify all US coins produced before 1865 and after 1965.  Pennies, most nickels, and the variously denominated “Eagles” are also disqualified, since they are not made out of silver.

The coins to look for, then, are all dimes coined from 1916-1964; all quarters coined 1932-1964; all half-dollars coined from 1916-1964; and all dollars coined from 1878-1935.  All these coins are fairly common, and have plenty of junk coins available.

Valuing these coins is a rather simple process.  The linked site provides a table that provides the silver content, by weight, of all the coins listed above.  To determine the proper price for junk coins, multiply the silver content by the current price of silver, than add about ten percent as compensation for the seller.  A reasonable price for a junk 1959 half-dollar, for example, would be around $12.25, since silver is trading for $30.76 while the half-dollar contains .36169 ounces of silver and one is adding a ten percent markup.  Anything less than that price is a steal.

The easiest way to acquire these coins is to go to a coin dealer in the nearest city.  Make sure to have a list of the type of coins you want, by denomination and year.  Ask for coins that are graded G or VG, and have a rarity of R1 or R2.  Make sure the price is relatively fair, and compensate for market trends if necessary.

This should be everything you need to know to make it as a silver investor.  Good luck and happy hunting.

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