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The Cheapest Way to Buy SilverBy
Thursday, January 13, 2011
"What's the best way to buy silver?"
At lunch on Saturday, I asked the guy who would know... my longtime friend Michael Checkan of Asset Strategies International.
I've personally relied on Michael for his straight-up opinions since we first met in the 1990s. He's been a dealer of precious metals and foreign currencies for the last 44 years.
So who would know the best way to buy silver better than Michael?
One of Michael's favorite ideas today is "junk silver."
You buy junk silver for the low price and the convenience.
Junk silver isn't junk, really... It's simply U.S. silver coins minted before 1965 that have no collector's value today. They're just valued for their metal content.
It doesn't matter if it's dimes, nickels, or quarters in a bag of junk silver coins... All these coins minted before 1965 contain 90% silver by weight.
Right now, junk silver trades at a much lower premium over melt value than silver coins minted yesterday at the U.S. Mint.
Your typical one-ounce Silver Eagle coins produced yesterday at the U.S. Mint sell at a premium of about 10% to 12% over their melt value. (Typically, the more coins you buy, the lower the premium over melt value you pay.)
But when you buy bags of junk silver coins these days, you pay a premium of only around 4%.
You might think a 100-ounce bar of silver would sell for a lower premium over melt value than a bag of junk silver coins. But right now at least, that's not the case. Silver bars sell at a premium of between 4% and 5% over melt value.
Why are the old silver coins cheaper than the coins and bars minted yesterday? Refining silver and minting coins costs money... so the mints need to charge a premium over melt value. But those old silver coins already exist, no minting or refining required. Right now, supply and demand has kept the prices of junk silver coins cheap.
My friend Dr. David Eifrig (who writes the Retirement Millionaire newsletter) likes junk silver coins for their convenience in a worst-case scenario:
Silver is an easier and simpler metal than gold to use as money. If all hell breaks loose and China or crazy U.S. politicians debase the dollar, silver will be the better choice for transactions. After all, a one-ounce coin of silver is worth about $32. That matches up well with common prices of everyday goods.
Imagine trying to pay for an oil change... Wouldn't it be easier to hand the mechanic a couple of silver dollars than to borrow his metal cutters to shave off 2% of a $1,400 gold Krugerrand?
One thing you need to know about bags of silver coins: They're darn heavy.
You typically buy junk silver in "$1,000 face value" increments. That works out to over $21,000 for the bag... and it weighs something like 55 pounds. (As my friend the late Burt Blumert from Camino Coins used to tell me, "The hernia comes free with each bag.")
But if you like the idea of junk silver, Michael Checkan is kind enough to break the bags down into smaller increments... A $100 face value bag is one-tenth that size. It costs around $2,100 and weighs just 5.5 pounds.
Michael says bags of junk silver are the best way to get started in owning actual precious metals. They're cheaper than American Eagle silver coins, and they're more practical (and surprisingly cheaper) than silver bars.
For more on my longtime friend Michael and his business, visit www.AssetStrategies.com.
Good investing,
Steve
Further Reading:
"Demand for silver coins is taking off," Doc Eifrig says. "It's up almost sevenfold from the mid-1990s. The public is catching on to the value of silver, and I expect this trend to continue for years." See the charts that prove it here: The Silver Rush Is On.
"Mining sucks," Matt Badiali says. "But there's a way to get terrific upside exposure to a bull market in precious metals, specifically silver, without getting into the risky business of mining." Find out how here: Silver Mining Is for Suckers.
Market NotesTHE BIGGEST DANGER SIGN IN THE MARKET Of all the stock market danger signs confronting investors and traders, today's chart might be most worrisome from a short-term perspective...
Below is a three-year chart of Wall Street's "fear gauge," the VIX (short for Volatility Index). The VIX monitors the price traders and investors are willing to pay up for stock options, which are often used as portfolio insurance.
When the VIX is high (above 35), it tells us investors are scared... and willing to pay up for protective options. During the credit crisis, for example, the VIX skyrocketed past 75 (blue arrow). When the VIX is low (below 20), it tells us investors are complacent... and see nothing but blue skies ahead.
As you can see from the chart below, the VIX is "in the basement" right now... and sits around 16. We haven't seen this level of investor complacency since just before last April's Flash Crash. It's the same complacency level as mid-2008... just before the credit crisis. Call us crazy, but when everyone sees blue skies ahead, we start looking for rain clouds. Right now, we see two big ones in the U.S. municipal debt market and a euro meltdown.
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