How to Buy Silver Below Its Spot Price

by Luke Burgess

Most investors are skeptical when you tell them that they can actually buy silver below spot prices.

But it's absolutely true. And there's no word play, or gimmicks. Anyone can do it right now.

The only caveat is, to buy silver below spot prices you have to make bulk purchases of the right silver vehicle.

Standard silver bullion – like American Eagles and Canadian Maple Leafs – can often carry high premiums above the metal's spot price. And no matter how many you buy at once, you'd be very hard pressed to find any bullion dealers willing to part with Eagles or Maple Leafs below spot.

However, there is one specific set of silver coins that dealers quite frequently sell below spot prices.

They're called “junk silver coins”. And despite their less-than-flattering name, they've become one of the most popular investments for speculators looking to get the most silver for their money.

Investing in Junk Silver Coins

The term “junk silver coin” is broad, covering many world coins. But at its core, a junk silver coin is any government-issued coin containing any amount of silver that has little to no numismatic or collectible value above the value of the metal it contains.

Although there are many world coins minted in silver, the most popular junk silver on the market today are circulated U.S. coins minted before 1965. Prior to that year, the U.S. government produced many of its coins in alloys consisting of silver purities ranging from 35% to 90%.

Investors buy these coins today for their metal content, paying attention to what they call “melt value” – which doesn't imply the melting of the coin (that's illegal) but rather the intrinsic value of the silver contained.

Here are the most common U.S. junk silver coins that are available on the market today and an idea of their melt values:

Investing in junk silver coins below spot price

In the past few years, the market for U.S. junk silver coins has been quite healthy as buyers quickly learn that they can be one of the absolute most affordable ways to buy silver.

A new, uncirculated American Silver Eagle typically carries a 10% – 15% premium over spot prices right now.

Meanwhile, you buy can U.S. junk silver coins for as little as 1% – 3% over spot prices. Sometimes you can even buy junk silver below spot if you buy in bulk.

But you have to buy the right coins. That's because a growing interest in numismatics has greatly increased the premiums for certain, rarer U.S. silver coins.

A circulated Peace dollar in good condition, for example, will sell for a 15% – 20% premium from a coin shop or online auction – higher that the premium on a 99.9% pure silver American Eagle.

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So if you're interested in junk silver coins as an affordable way to buy silver, not all U.S. silver coins fit the bill.

But there are three specific U.S. silver coins that I believe provide for the best junk silver investment.

The Best Junk Silver Coins for Investment

The best junk silver coins are the purest. Junk silver coins with lower silver purities – like the 40% silver Kennedy half-dollars and 35% silver Jefferson war nickels – force you to mostly own other metals of much lesser value, like copper and manganese.

Popularity-wise, junk coins with lower silver purities play second fiddle to the 90% silver coins and are ultimately less liquid. So I recommend staying away from those.

So considering purity and rising numismatic values for the rarer U.S. silver coins, here are the three best junk silver coins for investment:

1964 Kennedy Half Dollar 1946-1964 Roosevelt Dime 1932-1964 Washington Quarter

Very few of these coins remain in general circulation. However, you will receive a silver dime or quarter as change once every blue moon.

Nevertheless, you certainly won't be able to put together a sizable investment from the silver coins you find in your pocket change. So you'll need to buy them somewhere. And the best places to do that are from coin shops and reputable online dealers. There, you'll find junk silver coins sold in small denominations, or in what are known as “silver bags”.

The Cheapest Junk Silver: Silver Bags

A silver bag is simply a bag of circulated U.S. junk silver coins – assorted in either single or multiple denominations with varying dates.

A typical 90% silver bag will contain U.S. Roosevelt dimes, Washington quarters, and Franklin and Kennedy half dollars with a specific face value. Dealers most frequently sell silver bags with $100, $500 and $1,000 face values.

These silver bags are the absolute cheapest way to buy silver. Sometimes you can even buy just below spot prices, if you buy enough. One online dealer, Apmex, is selling a $1,000 silver bag for about 0.2% below spot right now. Below is a brief approximation of current premiums on silver bags:

Premiums on silver bags

To buy silver below spot prices, speculators may need to make a sizable investment. But for serious silver investors, a large silver bag could be very profitable if the metal's price continues to rise.

Even though these coins are called “junk”, they contain one of the most important monetary metals known to man: silver. Today's coins are minted with base metals of much lesser value, like copper and nickel. It seems to me that they are the real “junk.”

But no matter what you call them, 90% silver U.S. coins can be one of the most affordable and fun ways to invest in silver.

Good Investing,

Luke Burgess

P.S. For a limited time, our friends at Asset Strategies International, Inc. are offering Investment U readers a special deal on “junk” silver coins.

To find out how to get your complimentary Morgan silver dollar, click here.

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The Best Silver Stock to Own

It’s been a tough year for silver.

As I write this, the iShares Silver Trust (NYSE: SLV) is currently trading just about 3% above its 52-week low.

And with production costs for mining operations skyrocketing, miners are doing even worse. But there’s one type of mining company poised to benefit from any rise in the spot price of silver – the royalty-based mining company. Last October, I wrote about some of the tax advantages of owning mining companies over precious metals ETFs. And if you’re going to own miners right now, you’ll want to stick with royalty-based mining companies.

The most popular royalty-based silver mining company is Silver Wheaton (NYSE: SLW). Carl Delfeld wrote awhile back about why Silver Wheaton is his favorite silver stock and why it has advantages over most mining companies:

Silver Wheaton follows a ‘royalty model’ by investing upfront in mines in exchange for the silver by-product.

“Silver Wheaton basically buys interest in this by-product silver for around $4 an ounce and then sells the silver at spot prices. This gives it high profit margins, lower risk and better diversification than owning and managing mines directly.

“In other words, the company shares in the upside for the price of silver without construction problems, coming in way over budget, or those pesky environmental liabilities.

“The company has silver interests in the first three of the top five silver deposits in the world. And it also has agreements in Canada, the United States, Mexico, Peru, Argentina, Portugal, Sweden and Greece.”

And right now Silver Wheaton looks to be an extraordinary bargain. It’s sitting on roughly $1 billion in cash, has very little debt and has a price-to-earnings-growth (PEG) ratio of just 0.66 – well below 1, which is considered fair value. Its forward P/E is just around 12 – and that’s all with silver’s price in the dumps.

For those that think silver is set to rebound later this year, this certainly looks like a stock to own.

– Justin Dove with Carl Delfeld

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