Investing Junk Silver — U.S. Coins With 90% Silver

Junk Silver — U.S. Coins With 90% Silver

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Junk silver is an informal term used in the United States and Canada for any silver coin which is in rough to fair condition. Junk silver usually, has no collectible value above the bullion value of the silver the coins contain.

Such coins are popular among investors seeking to invest in silver — particularly in small amounts. The word “junk” refers only to the value of the coins as a bullion investment and not to the actual condition of the coins; meaning, junk silver is not necessarily scrap silver.

The most commonly collected U.S. junk silver coins are the Mercury dimes and Roosevelt dimes, Washington quarters, and Franklin half dollars, and Kennedy half dollars, which are minted in or before 1964. These coins have a 90% silver composition (“coin silver”).

When minted some coins containe 0.7234 troy ounces of silver per dollar of face value. In practice, the silver content is usually assumed to be 0.715 ounces because circulation erodes the coins. Less common junk silver is the Kennedy half dollars from 1965 to 1970, which contained 40% silver. The value of silver content is one reason investors buy junk silver coins. The percent of silver is less likely to come into question, than silver bullion bars, which require certification and authenticity tests.

A “bag” of junk silver, ($1,000 face) contains approximately 715 ounces of silver. And, it will generally track the spot price of silver. If silver goes up ten cents, a bag of 90% silver coins will rise $70 or so; however, prices sometimes lag sharp spot price movements because of the liquidity of junk silver coins.

To gain the benefit of junk silver as an investment, investors must sell his or her coins through a coin dealer, on an on-line auction site, or classified advertising. Selling through any of those means usually takes a few weeks, therefore the liquidity of an investment is gradual.

When bags of circulated 90% silver coins can be bought — at about the same premium as 100-oz bars, or even at small premiums over 1-oz silver rounds — bags should be the first choice for many investors because of the reduction in price when an investor buys in bulk.

Buyers can expect to pay a little more for half-dollars than for dimes or quarters because of the higher silver content as well as half-dollars are much more popular. Yet another reason for the demand of half-dollars is fewer half-dollars were minted than dimes or quarters.

Although many investors buy junk silver coins as bullion investments, other investors buy junk 90% silver coins for “survival purposes.” These buyers fear the worst for the dollar. They fear the dollar will be printed until it becomes worthless. If this “worst-case scenario” were to become reality, then U.S. 90% silver coins would be used the purpose they were originally minted: as money.

The history of paper currencies have been to print until those currencies became worthless. Actually, today most dollars in circulation are not printed but are “electronic” or digital dollars, created by the Federal Reserve to increase the supply of money, which many argue increases inflation.

Choosing between junk silver coins or bullion bars is largely a matter of an investor’s goals and resources. Although before 1965, silver coins would be ideal for survival purposes. Junk silver coins sell at premium, or below premiums on 100-oz bars and, 1-oz silver rounds, junk silver coins hold greater upside price potential than .999 fine silver bullion products. At times, and especially during rising precious metals markets, circulated U.S. silver coins pick up premiums.

However, .999 fine bullion items (1,000-, 100-, and 10-oz bars and 1-oz rounds) can be produced at any time; as a result, there are limits to how high premiums on .999 fine silver bullion items can go.

To support this assertion — bags of 90% silver coins hold greater upside potential than .999 fine bullion items — a little background on junk silver coin prices and silver prices must be shown.

Over the last three decades, when precious metals enjoyed bull markets, 90% silver coins often achieved premiums of $1.20/oz to $1.50/oz over spot, sometimes as high at $2.50/oz. This is because many investors want silver in a form they know is silver, and pre-1965 U.S. 90% silver coins certainly fit the investors objective.

Following silver’s spike to $50/oz in the 1980′s, industrial silver users implemented efficiency moves which reduced industrial demand for silver. Furthermore, the rising prices of the 1970′s had spurred efforts to mine more silver and to increase the recovery of silver in the secondary market.

Today, reclaimed silver or recycled silver, is a major source of silver — the essential metal for many industrial consumptions.

Because of these efforts, silver went into “surplus” in the 1980′s. Meaning, newly refined silver exceeded industrial demand. This caused investors to avoid silver in the 1980′s, except for a shortly-lived strong market in 1987.

But, for most of the 1980′s, investors were net sellers of silver. Selling resulted in huge quantities of junk silver coins to be refined and converted into .999 fine silver.

Meanwhile, the Y2K scare in 2000, caused yet another huge melting of circulated 90% silver coins. Buying spurs junk 90% silver began when fears of the world’s computers would stop working on January 1, 2000.

Many people began preparing for the worst. And, fears were accelerated, as highly respected economists issued warnings and wrote books on the coming collapse.

Entire newsletters were dedicated to educating people: how to prepare. One recommendation was circulated instructed people, 90% silver coins should be stashed away so the coins could be used as money when banks closed and ATMs no longer dispensed $20 bills.

Consequently, people bought junk 90% silver coins at whatever prices, and bags picked up 50% premiums. The Y2K scare showed just how quickly 90% silver coins can pick up big premiums and that premiums on 90% silver coins can rise while the price of silver remains stagnant — during 1999, the price of silver was essentially unchanged.

And then, on January 3, 2000, as soon it became evident the world’s computers were not going to fail, investors began selling. And, sellers continued throughout the year, even into 2001. As the sell off continued — forcing down prices on 90% silver coins until they sold at discounts — some junk silver sold below the value of its silver content.

In addition to the sell off, untold quantities of bags were refined into .999 fine silver bullion. Therefore, bags of pre-1965 U.S. silver coins are in short supply.

After the Y2K crash became a nonevent, premiums on bags of 90% silver coins fell to record lows. Junk silver coins became less expensive than 100-oz silver bullion bars.

Indeed, the potential for 90% silver bags to pick up big premiums justifies the buying of bags circulated silver coins by investors who can manage the bags’ weight and bulk.