Why Junk Silver? – Bill Holter


by Bill Holter, JS Mineset:

By now you should already know the story behind the gold/silver ratio and why silver is the compelling buy of the two. The ratio is currently about 82-1 (it takes 82 ounces of silver to purchase one ounce of gold). Silver is found in the Earth’s crust at roughly 10-1 versus gold, let’s call this “God’s ratio”. Were the ratio to reach 10-1, silver would thus outperform gold roughly 8 fold. 10-1 may or may not be a stretch but suffice it to say that silver should certainly outperform gold in the coming bull market. Let’s call this anomaly #1,

If you understand the above then you understand you should be more heavily weighted in silver versus gold. But what “form” of silver should you own? Your choices are ETF’s or pooled accounts (a very poor choice as the metal may not even exist and all you own is a worthless piece of paper), bars, generic rounds, foreign sovereign mint coins, or US mint lineage coins.

Bars in my opinion are the worst possible form of physical ownership. I say this because they are the easiest to counterfeit and larger bars such as 10, 100, and 1,000 ounce bars are just too large for any utility. You may have originally purchased these because they were the “cheapest” but they are the cheapest for a reason which we will get to shortly. The potential counterfeit issue also exists for one ounce rounds. We have not seen this yet but rest assured that once the price of silver rises significantly, counterfeit silver will become a very real issue.

About a year ago, Jim spoke to the issue of potential gold (and silver?) confiscation. He believes this will eventually occur and gold/silver not issued by the US Mint will be “illegal” to hold or trade. The way to protect yourselves is by holding US Mint lineage coins rather than bars, rounds, or foreign sovereign coins like Maples, Kangaroos, Philharmonics etc. This basically leaves you with two choices, either American Eagles or “junk”. Junk, meaning 1964 and earlier dimes, quarters, halves and dollars.

Junk is by far the best form of ownership for several reasons. First, they are “fractional” silver meaning they are broken down to less than one ounce. Each $1 face amount of 1964 and earlier coin contains .715 of one ounce. In other words, for every $1.40 in face amount, you have one ounce. So 14 dimes holds the same amount of silver as does an eagle, do you see the advantage here? In a system down scenario which is looking increasingly likely, dimes give you the potential of 14 transactions rather than just one with an eagle. In other words, if one ounce of silver is valued higher than something you are trying to trade for, how do you get change back?

Another reason why junk is superior is the counterfeit issue. Bars, especially the larger ones are easily counterfeited with obviously more incentive than once ouncers. The incentive to counterfeit dimes or quarters is obviously less than one ounce AND, these old coins must show wear and tear because they circulated and were used for years. Unless it is a slabbed and graded coin, it better be worn somewhat, otherwise you are probably looking at a fake.

The last reason and we will call this anomaly #2 is “price”. Over many years, junk normally carried the highest premium of all forms of silver and generally equal to or higher than eagles. If you look back 4+ years ago, dealers were bidding $4-5 over spot for junk! Typically, and due to surcharge by the mint, eagles carry about $2.50-3.00 premium over spot. This premium does move up and down but not normally by much. The reason junk normally carries the highest premium is twofold, it is “fractional” and has not been supplied (nor will it) since 1964.

With the above in mind as to why junk is the best form of ownership, current premium is roughly $1.25-1.50 over spot (and currently rising) which allows an opportunity. Currently you can trade silver eagles for junk and end up with more silver ounces. If you trade Canadian maples or some other sovereign mint coins, you can do the trade even up and lose no ounces but end up with a better form of ownership. Swapping bars or generic rounds can be done at a small deficit but is very wise in my opinion as junk premiums will eventually normalize with junk being the highest valued form of ownership.

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