Silver and Gold.

     During the course of a typical week in the coin shop, I get many questions about the ownership of silver and gold bullion as an investment.  Almost everyone knows that it is currently a good investment, but they do not always understand why.  The following are the main reasons why I feel that most people should own some silver and/or gold.

     1 – Silver and gold are a hedge against inflation.  During inflationary times, the price of these metals tend to increase which in essence protects the purchasing power of your investment.  The example that I use is, if you can buy your bread, milk and eggs with the price of one ounce of silver at current prices, then five years from now you will be able to cash in an ounce of silver and the money that you get from it will still purchase your bread, milk and eggs.  If your bread, milk and eggs have doubled in price then chances are that so has the price of an ounce of silver.  By the same token if for some reason the prices have dropped then so too will the price of silver.

     2 – Silver and gold are metals with many uses.  They have the best electrical conductivity for use in many applications such as camera’s, Cell phones and computers.  They are beautiful art when made into jewelry and coins.   Silver has anti-bacterial properties along with many other qualities.  Silver tends to be used and not reclaimed whereas gold because of its price is almost always reclaimed.  Having said all of this, gold and silver have been in demand throughout history.  Traditional ratios of value have been that of 1 unit of gold was worth 17 units of silver, and the reason for this ratio is that throughout history there was about 17 times as much silver as there was gold.  In recent years, gold has grown in value many times that of silver and currently trades on the commodities market at 45 to 65 times the value of silver, which means that if gold is properly priced based on supply and demand, then silver is grossly under priced.  To complicate the variables even more, it is believed that because of the low price of silver, there is less mining of silver taking place and it is being used up which equates to a lower ratio of silver to gold, some sources estimate that there are only about 10 units of silver for every unit of gold.

     3 – In a worst case scenario, the currency of your country could lose its value and no longer have any purchasing power.  This happens when a country is taken over by another country or when the fiat money is no longer acceptable in daily transactions due to some loss of value and faith in the government which issued it.  Silver and gold have most always had a value and if you own some, you will be able to purchase your bread, milk and eggs and not starve to death.  For example, if the US $ loses its purchasing power, you would be able to convert your silver and gold to a currency which has some purchasing power such as the Chinese Yuan,  Japanese Yen, Canadian dollars, or even Mexican Pesos.

     These are just some of the reasons that everyone should own some silver and/or gold.  I prefer the ownership of silver because of its lower unit value, it is relatively easier to convert from and to cash, making it a bit more liquid.  Smaller units of silver can be cashed in periodically protecting the value during times of hyper-inflation.  Gold will provide a larger amount of money to start with, but could lose some of its value after conversion to cash due to the inflation. 

     Generally people ask me how much silver and/or gold should I have.  My answer in the past was always 10% of your investable savings, but with the current economy in the state that it is in, I am upgrading that amount to not exceed 20%.  Most wise investment models recommend some cash, some savings in banks, and some stock holdings.  I would say to replace some stock holdings with silver and gold bullion.  I also strongly recommend that you take delivery and store the precious metal in your own physical possession.  There have been too many less than honest entities that will give you a piece of paper that says that you own something and then not be able to produce it when you request delivery, or try to sell it.

     Having said all of that you will probably ask me to sell you some silver and/or gold.  I will say right up front, that if I have it, I will sell it to you, but most of the time I do not have any supply of it, and it seems to be getting harder and harder to come by.  There are suppliers who manufacture silver and gold items and make market in these precious metals and relationships can be developed in order to obtain what you may want.  The internet is a good place to find what you are looking for, but beware, do your research and be comfortable with who you are dealing with.

     I have gathered the following information to help people in knowing how things work with silver and gold and what the various terminologies mean.   I hope that it will be helpful.  The first thing that we should know is that silver and gold are considered commodities and are traded on the various commodity exchanges around the world.  Silver and gold are always quoted in troy ounces.  My favorite place to get price quotes for silver and gold is which is very close to real time quotes.

The troy ounce (oz t) is a unit of imperial measure. In the present day it is most commonly used to gauge the mass of precious metals. One troy ounce is currently defined as exactly 0.0311034768 kg or 31.1034768 g. There are approximately 32.15 troy oz in 1 kg. One troy ounce is equivalent to approximately 1.09714 avoirdupois ounces.

A pennyweight (abbreviated dwt) is a unit of mass that is equal to 24 grains, 1/20 of a troy ounce, 1/240 of a troy pound, approximately 0.054857 avoirdupois ounce and exactly 1.55517384 grammes.

An explanation of what the word karat refers to when used in reference to gold is that a karat, is a unit of purity for gold.  Pure gold is 24 karats.  An example might be, a gold ring might be marked as 14K which means that it is 14/24 pure or 58.333% pure.  In order to determine the amount of pure gold in the ring, we must multiply the weight of the ring time .58333.  For example, a ring that weighs 4 pennyweights would in actuality by only 2.333 pennyweights of pure gold.

Now that we understand the purity of gold, we can go on to silver.   Pure silver is usually referred to by the use of .999 or .9999 fine which is about as pure as it gets.  Sterling silver is .925 pure and coin silver can be anywhere from .75 to .90 pure depending on the coins that were used in making the item.  Generally United sates coins are 90% or .90 pure, so you have to know what coins were used.  Generally speaking, Canadian coins after 1920 were made of 80% silver so an item made from them and marked as coin silver would only be 80% pure.  All of these numbers can get really confusing, but you need to understand what you are buying in order not to get burned on your purchase of either silver or gold.  The buyer should err on the conservative side unless they can receive a guarantee of purity from the seller.

The following list shows the actual silver/gold weight for each denomination of United States coins listed.

War nickels from 1942 – 1945 with the large mint mark over the dome of Monticello on the reverse of the coins has a silver content of .05626 of an ounce.

Generally speaking all silver U.S. coins up to and including 1964 have a silver content as indicated below.

Dimes - .07234oz of silver, Quarters - .18084oz of silver, Half dollars - .36169oz of silver and Dollars - .77344oz of silver.  You will notice that a dollars worth of dimes, quarters or half dollars will add up to .7234oz of silver whereas an actual dollar has a silver weight of .77344oz of silver.  The two factors to keep in mind when calculating the value of U.S. silver coins are .72oz for dimes, quarters and halves times face value and .77oz for each dollar.  You should be aware that a dealer will discount the price of silver sometimes due to wear on the coins, if the coins are old and well worn, then this may be justified, but be careful of too excessive a discount for this reason.

From 1965 to 1970 the U.S. made half dollars consisting of 40% silver.  The actual silver content of these coins are .1479oz of silver.  From 1971 to 1974 special collectible Eisenhower dollars were made also of 40% silver and they have a silver content of .3161oz of silver.  In addition in 1976 special collectible 3 coin sets were made of 40% silver for the bicentennial celebration.  The dollars and halves are as shown above with the silver content of the quarters being .0739oz of silver.

It should be noted that there are current commemorative dollar coins being made today with the same silver content as the old Morgan and Peace dollars previously mentioned, their content being .77344oz of silver.  The silver coins found in the modern silver proof sets have the same silver content as the coins prior to 1965, these coins include the dimes, quarters and half dollars.

To conclude the silver coin issue, you should know that the U.S. is currently making silver bullion coins for sale to the public.  Silver bullion is generally marked as to the purity and weight in troy ounces.  The silver eagles are probably the best known, but there are also 5oz silver coins representing the America the beautiful quarters being produced.

Gold coins made by the U.S. are again made of 90% gold with the balance being some alloy to give the coins strength and better wear ability.  The following are the actual gold weights of the various coins made by the U.S..  $1 Gold - .04837oz, $2.50 Gold (Quarter eagle) - .12094oz, $3 Gold - .14512oz, $5 Gold (Half eagle) - .24187oz, $10 Gold (Eagle) - .48375oz and $20 Gold (Double eagle) - .96750oz of gold.

As with silver, there are bullion coins being made by the U.S. which are marked with purity and weight.  These coins can be purchased from the mint or on the secondary market.

All of these numbers can be very helpful to determine the value of you gold and silver and I believe that I have given you all the numbers that you might need to do the calculations for these values given the actual spot price of either silver or gold.  Now let’s talk about the real world.  In the real world people who purchase gold and silver from you will normally discount from the actual value because they feel that they have a right to make money on the transaction, and on the other side of the transaction they will charge a premium over spot for the same reason.  Some dealers will charge a premium over spot when selling material and buy at spot, or they may buy below spot and sell at spot price depending on which side of the transaction they feel should give them the profit.  Each dealer will have his own method and it is advisable to find out how you dealer operates prior to buying or selling silver and gold.  The best dealer for you is one which works on a small margin on either side.  There are lots of dealers around buying and selling gold and silver, so you should never feel pressured to buy or sell if the deal is not right for you.

Up to this point I have discussed the common money aspect of Gold and Silver that you may deal in.  The average person will have around some old silver coins and perhaps a few ounces of pure silver in various forms.  They will have both Gold and Silver jewelry which they most of the time do not even think of the value.  Pure gold and silver for investment purposes can be found in many forms and sizes.  I have seen hundred ounce bars of silver all the way down to ½ and 1/10 ounce rounds.  I know that there are 1000 ounce bars that are made just for the investors.  When investing in the larger size and value bullion items be sure that you are comfortable with the name on the item and the supplier of the item.  Do not hesitate to ask about a guarantee for the purity of the item.

BEWARE OF FAKES!  I see these kinds of things all of the time.  I currently have replicas of coins which are clearly marked COPY and are also marked 24kt gold in one place and 4Mils in another place.  4Mils is a very thin layer of gold plating, having little or no value.  Remember, knowledge is power.  Know what you are buying before laying out you hard earned cash.  Be comfortable with you dealer and establish a relationship which can be beneficial for both of you.

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