As you know, I'm having fun making basic preparations for the Mayan Apocalypse on December 21, 2012. In turbulent times, it seems like everyone's attention turns to gold as a financial investment, but this post is about the benefits of junk silver for the purpose of exchange in a disaster situation.
What is junk silver?
Junk silver refers to coins that contain actual silver and that used to be in widespread circulation. In the United States, that means dimes, quarters, half-dollars, and dollars minted before 1965. These pre-1965 coins are 90% silver. If you look at the edge, they look silver all the way through. Pre-1965 silver coins are referred to as "junk" because they aren't collectors items, and thus don't command a premium beyond their melt value.
The Coinage Act of 1965 removed silver from new circulating coins. If you look at the edge of a post-1964 quarter, you can see a copper stripe in the middle. Modern dimes, quarters, and half-dollars are made of copper and nickel. Prudent people hoarded the pre-1965 silver coins, including 40% silver Kennedy dollars which the U.S. Mint foolishly continued to release after 1965. Some people are also hoarding pre-1983 pennies, which were made of pure copper and now are worth more than a penny.
What are the benefits of holding junk silver?
It's prudent to hold some financial assets in physical form in case the banking system freezes up, ATMs run out of cash, bad weather traps you in your home, or you don't have time to run to the bank during an emergency. Clearly, cash is ideal for short-term emergencies, but here are the benefits of junk silver in a longer-term disaster scenario:
- Age-old store of value: Silver, like gold, is a precious metal that has been used as money for millennia. (See the silver Roman coins at right.)
- Convenient value/weight: An ounce of silver is less valuable than an ounce of gold, which makes silver more convenient for actual exchange. Paying someone with gold would be like trying to use a $100 bill at a vending machine. Also, you don't want to chisel off smaller pieces of gold because others won't trust the purity or know the value without a scale -- and then they'll run into the same problem when they try to spend it.
- Widely-recognized and accepted: The value and denominations of junk silver are widely known and recognized -- and thus, will be widely accepted. (And yes, the survivors will get up to speed real quick on knowing the value of junk silver once the shit hits the fan.)
- No premium over melt value: Since junk silver isn't a collector's item, it doesn't command much of a premium above the melt value of silver (i.e., there is no numismatic value). If we face an actual survival situation, the numismatic value of collector's items will evaporate. This makes junk silver the most cost efficient choice.
As Rawls writes over at SurvivalBlog, "These coins will be eagerly sought in barter, because they encapsulate all of the key attributes of a genuine tangible currency: recognizability, scarcity, durability, portability, fungibility, and divisibility." So if you decide to hold a precious metal purely for the purpose of survival -- not as an investment -- junk silver should be your first purchase. Not gold, and not collector's items. (Note: cash and gold have their own advantages and drawbacks, and they each have a role to play.)
How do I buy junk silver?
I researched two options: in person at a coin store or online.
The benefits of buying in person at a coin store are no minimums (or lower ones), being able to inspect the coins for wear and tear, discretion about the purchase, taking immediate possession, and developing a relationship with the owner. (And of course, it's fun going to a coin store -- I have fond childhood memories riding my bike to a store called "Coins & Stamps" to look at baseball cards.) The drawback is that you end up paying a higher premium. To find a location, just look up your local coin store.
The main benefit of buying online is a lower premium on large purchases. The drawbacks are a higher minimum purchase (often $5k or greater, ouch), a higher likelihood that your transaction will be recorded in a database (if that matters to you), and anxiety around silver arriving in the mail (every operation I've seen has insurance and safeguards in place, but even so). I've spoken on the phone to people at CMI Gold & Silver, but haven't bought from any online vendor, so I can't offer a recommendation based on experience.
For beginners like me who are buying modest amounts, I would recommend calling a few online vendors to figure out what premium they're charging over spot. This will require a few calculations. Here's the equation to calculate the pure commodity melt value of junk silver:
[spot price of silver] x .723 x [face value of dimes, quarters, half-dollar]
(For silver dollars, multiply by .773, not .723.)
The premium is how much they charge above the melt value -- and it should be the lowest of any precious metal coin, hence part of the appeal. Then go to your local coin store armed with that knowledge. I ended up paying between a 3% and 4% premium. That's sounds like a big premium for a financial investment, but not as big for a one-time insurance payment for a worst-case disaster scenario.
Tips at the coin store:
- Indicate that you have the potential to be a repeat buyer. Before you start talking about price, make it clear that this is the first of multiple potential purchases. Say something like "Well, I'm just starting out with a small purchase, but I may be interested in more things down the road."
- Make it clear that you know that there is no numismatic value to junk silver. You are buying a commodity from a store that usually trades in uniqueness and rarity.
- Don't be afraid to ask for coins that aren't in bad condition. But don't expect all beautiful shiny ones, since these aren't collectors items and most have seen heavy use.
- Buy a variety of denominations. Dimes, quarters, and halves.
- Learn from the owner. Ask about which gold coins have the lowest premium over their melt value. Ask how long he's been in the business.
Remember, you never have to buy something on your first visit to the store. I visited once, met the owner, got price quotes, and came back another time when I had done more research and felt more comfortable.
Where should I keep junk silver to keep it safe?
The whole point of holding the physical asset is that you have easy access to it.
One option is to keep it in a safety-deposit box at a local bank. The main drawback is not being able to access it in an emergency, which don't always happen during bank hours. The more serious the emergency and the more you need access, the more likely the bank itself will be closed. But if you do go this route, make sure the bank is close to your home. A local bank where the owners or managers are members of the community is preferable to one of the giants.
Another option is to safely store the junk silver in your own home. If you take this route, there are a few guidelines you should follow. First, don't tell anyone that you have it. (Oops.) Second, if you happen to have a safe or a secure lock, you can use that. But be careful about safes and locked containers that can be easily found, picked up, and carried off. Third, put it in a location that is unpredictable and physically difficult to access. That means don't put it in your sock drawer -- or any place a thorough, but quickly-moving robber would look.
Another consideration is whether you plan to leave your home in the case of an emergency. I live in a Manhattan apartment, so in many emergency situations, one of my first priorities will be to leave Manhattan. So I'm not turning my apartment into a survival bunker because it would be a stupid place to hole up unless I had no other choice.
Remember, you can't eat silver. In a real crisis, the most important assets to have on hand are the ones that will keep you alive: water, food, a weapon, extra rounds of commonly-used ammunition, a plan to get out of dodge, and people you can trust.
Further reading: here, here, here, and here.