August 18, 2012 1 Comment

DEAR GOLDBUGS,

Here in Part III of Best Strategy, we are going to drill into the subject of ninety-percent, also known as “junk silver.” Ninety-percent is defined as dimes, quarters and half-dollars minted by the US government for circulation before 1965. We’re not including silver half dollars minted in 1965 or later, or US silver nickels minted from 1942 to 1944, and we’re not talking about any US silver dollars (Morgan and Peace varieties, 1878-1935). We are also going to learn why some online information is slightly misleading when compared to true market conditions existing today.

Calculating the pricing of ninety-percent silver can seem tricky at first, but the math just isn’t that tough at all. But to recognize, to appreciate, to buy and sell ninety-percent does require a bit of education. Think of it as taking personal responsibility to understand your own finances.

If you have $1 FACE VALUE in CIRCULATED silver coins, meaning 10 dimes, or 4 quarters or 2 halves, you have coins that were among the billions circulating as real, honest money in the USA for decades, until the end of 1964.

The bullion market sees that $1 face value as containing .715 ounces of silver. That’s almost an ounce of silver in that dollar. No questions asked. Point-seven-one-five is the standard. If you have $10 face value in circulated ninety-percent silver coins, the industry calculates that as 7.15 oz of silver, and so on. $100 in face value ninety-percent would be calculated as 71.5 ounces of silver. Once you determine the number of ounces of silver in the stack or bag of ninety-percent silver coins, you simply multiply that number of ounces by the spot price of silver.

Example: A $100 bag of ninety-percent holds 71.5 ounces of silver, multiplied by a $30 per ounce silver price, would mean the bag has a silver value of $2,145.00. (.715 x $100 x $30).

You can reverse the math if it’s easier that way for you: $30 silver price x $100 Face Value = $3000. Then multiply $3000 x .715 to get the silver value of $2145.00 ($30 x $100 x .715)

Let’s change the spot price of silver and the face value: At $ 28.50 per ounce, $43.40 (face value) x .715 = $884.38. [28.50 x 43.40 x .715]

You then add the dealer’s premium, or subtract the dealer’s discount, and you’ve got the price of your little stash of ninety-percent. Dealers premiums usually are much lower on larger face value amounts. A $1000 bag (715 ounces) for instance, is cheaper than buying ten 100-ounce bags, one by one.

I see today, 18Aug12, with silver at $28.28, the major online dealers are selling ninety-percent at fifty cents per ounce over spot value. That’s approximately a 1.5% premium, and that is truly hard to beat. But I know I can beat that price with any of several favorite coin dealers in a face-to-face transaction. The point would be, of course, ninety-percent is cheap, comparatively.

Putting a Really Fine Point on Ninety-Percent Silver

What do we mean when we say “the fractional number .715 is the generally accepted industry standard“? Because that’s certainly not the starting number you’d use for brand new, shiny uncirculated coins straight from the Mint back in 1964. That’s correct. It’s not. Ten brand new dimes ($1 face value) from the Mint in 1964 amounted to more than .715 ounces of silver.

That dollar’s worth of ten silver dimes walking out the front door of the Mint weighed .7234 ounces. That’s a big difference from .715 in big amounts — 8.4 ounces in a $1000 bag of silver ninety-percent. That 8.4 ounce difference amounts today to about $237.

Simply put, circulated coins are worn down, and have lost some of their silver. Ninety-percent for sale today consists of circulated dimes, quarters and halves mixed in with some nearly uncirculated coins. The key is that none of these coins are rare. No one is really interested in spending hours studying them, and so they are sold in bulk. The bulk is typically sold in a canvas bag of $10 face value, or $100 face value, and so forth. That bulk could also be a short stack of coins totaling just a few dollars.

A bag of ninety-percent offered for sale almost always has a mix of coins – some which saw circulation for 65 years and are now worn very thin – and some which were brand new when yanked out of circulation beginning in 1964 by folks who recognized their future value. Even dates from the late 1950′s and early 1960′s show very little or no wear. It’s common to find in some bags the old Barber and Standing Liberty coin designs from the turn of the last century, coins over 100 years old. Most Americans have never even seen those before.

When you mix them together, they weigh in, generally, on average, at .715 per dollar. Rather than weigh each individual coin each time it’s bought and sold, the metals industry settled on .715 as the multiplier to use. It would be an impossible task to weigh each dime in a $100 bag. That’s 1,000 dimes. It would take hours, and the infinitesimal savings or profit is not worth the time and effort or note-taking during the count. Plus, each time one of those coins is sold or traded, it would have to be weighed again for the new trading partner. A few cents here or there is just not worth that kind of trouble to buyers or sellers.

To make the point, dealers don’t use scales to price a bag of ninety-percent. They use mechanical coin counters. The current spot price number, and the .715 multiplier are givens. The only unknown is the dollar face amount. The accepted multiplier of .715 replaces the scales.

In case you are wondering, no one is charging for or paying for the 10% of that coin which is copper. One day, such tiny amounts of copper might become so valuable that it becomes a part of the selling price. I suspect it will years from now. But that’s not the case today. Even uncirculated Mint-sewn bags of US copper pennies (pre-1982), which are 90% copper, don’t command that much of a premium. So, for now, forget about the copper.

However, if you are buying strictly uncirculated coins dated 1964 or earlier, expect the bidding to start based on .7234 ounces per dollar. I feel strictly uncirculated ninety-percent is worth the extra very small price now, if you can find it for sale as silver bullion and not have to pay the collector price. I believe coming in the future, uncirculated, common date, non-rare, plain-jane ninety-percent is going to be completely separated from the circulated bags and worth more than the circulated bags.

Frankly speaking, a roll of 2012 US One-Ounce Silver Eagles, housed in a clear plastic coin tube is a beautiful thing to hold in your hands. But my eye sees a roll of uncirculated 1963 Ben Franklin Halves, or an uncirculated roll of 1962 Washington Quarters as just as beautiful. That roll of Franklins or Washingtons is also absolutely less expensive per ounce to buy, has more utility in trading or bartering, is actually more recognizable to the general public than Eagles, and carries more history. I’ll take the uncirculated roll of ninety-percent dimes, quarters or halves any day.

I fully expect, as silver increases in value, ninety-percent silver coinage will be bought and sold by exact weight, and not by an industry calculation based on Face Value meant for ease of marketing. But for now, in markets across the world it’s a mix of old and new, worn and not-so-worn.

The very popular and highly informational website www.Coinflation.com has informative tables available and updated daily, giving you some idea of what your ninety-percent (and other coins) are worth. Silver calculations are linked here.

But when using Coinflation’s tables, note their values refer to the weight of Uncirculated coins, straight-from-the-Mint-with-no-wear. That simply does not match the common pricing policy in the market today (a circulated mix). Coinflation weighs the coins at .7234 oz. per dollar, while the actual market weighs them at .715.

The information at Coinflation is slightly off – it supplies higher dollar values than the actual market price practiced widely today. Coinflation is very accurate with the math and is not misrepresenting its info, but it’s not pointing out there’s a difference in free market practices. Be careful when you interpret the data and tally up the tab.

Sleepers – The Unrecognized Value of Forty-Percent JFKs

If you already have an appreciation of ninety-percent, then take a hard look at the forty-percent JFK. That’s right, JFK half-dollar US coins containing 40% silver.

The US government stopped traditional silver coinage for circulation at the end of 1964, making the 1964 dated JFK half-dollar the last in the long line of traditional silver half dollars for circulation. The government would have preferred to end all silver coinage right then and there. The silver going into the coins was worth more than the stated face value of the coins. But in 1965, the memory of the very popular and recently murdered John F. Kennedy demanded that the coin with his likeness continue with at least some silver in it. Forty-percent silver JFK’s were minted for 6 years (1965-1970) after all other circulating coinage lost silver content.

If you are of the mind that you’ll need to spend your silver one day, just as unfortunate Syrian people wish they had silver to spend today in order to feed their families, linked here, then the forty-percent JFK beats regular ninety-percent US coinage by a mile.

Millions of forty-percent JFK’s (1965-1970) were yanked out of circulation the day they got to banks and stores. That means a very high percentage of all existing JFK’s are still in a very high grade of preservation, either uncirculated or close to it, still shiny and sparkly, and not worn thin like a 1916 dime. You will never find a worn-down JFK-40. All the silver is still there.

There is about 20% less silver in a JFK-40% than there is in a ninety-percent quarter coin, meaning that it makes an even smaller denomination (in silver terms) when it’s time to sell or trade just a small silver coin or a small amount of silver. Utility is the innate beauty of ninety-percent, and it’s even better with JFK-40s.

Add to that, they are less expensive per silver ounce than even the cheapie ninety-percent, because right now no one wants them! I’ve seen JFK-40s going in the past for $1.25 below spot silver price online, while face-to-face dealers were offering to sell at a buck and a half below spot. Dealers everywhere were aching to get rid of them. Today, as I write this, I made a quick survey of online dealers. They are selling bags of JFK-40 for five cents under spot silver value. Am I seeing shades of the not so long ago unwanted and unloved cull Morgans?

John Fitzgerald Kennedy is an icon to many, and the coin is attractive. Since a few half-dollars are still found in change now and then, the design of the coin itself is recognizable. The coin has a heft that a ninety-percent dime or quarter lacks, which is important to someone, especially someone new to metals, who likes to feel he’s getting something for his money. Very few newbies will believe a silver dime is worth several paper dollars until they see it in a book. They might feel a lot better about a big honkin’ silver half dollar.

I’ve noticed over the past year or two the private mints and some government mints are pushing their marketing of fractional silver rounds, in half-ounce, quarter-ounce and tenth-ounce sizes. These giant precious metal companies have excellent research departments added to decades of experienced personnel, so I have to conclude they see a future, growing market for fractional silver coins. Since smaller coins carry larger premiums, it makes sense for them to test that water.

If these industry giants are correct about that coming market, and I believe they are, I also note the market already has fractional coins (in dollar terms) in the very inexpensive Circulated ninety-percent, Uncirc ninety-percent, and the even cheaper JFK-40.

For all those reasons, I fully believe the forty-percent JFKs are today’s sleepers. Like cull Morgans and 60-year-old Engelhard bars, like all the products that were unloved and unwanted back in the day, JFK-40′s are destined to be the next hot trend in the value-oriented bullion market. As I said earlier in this series of articles, I don’t stand in lines and I don’t join crowds. Better to get there ahead of time, and be gone before the crowds show up.

An App For That? Or An Education?

I conclude this three part series of articles with a thought stemming from the math involved in valuing ninety-percent, accented by the differences in Coinflation.com’s numbers and the real market’s numbers.

Yes, there will one day be an app for that math, if there isn’t one already. There are apps available now which will tell you everything in general about any particular style of coin or bar or paper note. Just point the camera and click. Back comes the answer. I welcome hand-held digital media and the internet to aid in making financial decisions and calculations, as long as I can trust the information.

I learned from a lifelong career in media that media can be corrupted just like anything else, and will be corrupted if that’s what it takes to maintain power and control, and has been corrupted for exactly that purpose. I see everyday false and dishonest news reports from cowardly, corrupt ‘journalists’. It’s known as programming. Also brainwashing. For me, trusting information without question is not a given.

Which led me to wonder – if you can buy a hand-held device that will give you an answer to any question you can ask, that will solve any calculation you need to make, that gives you an instant solution to every puzzle that comes into your life – then why in the world would you ever need to spend even one moment on an education? Or an opinion? Or an idea? Just wondering….

[ Third of three part series: Link to Best Strategy Part I Link to Best Strategy Part II ]