Silver's So Cheap, It's Practically Free! (No Wonder You Can't Find Any!)

August 21, 2008

Really, no hype, I found a way you can get physical silver practically for free.

I have always been frustrated with the premiums, or extra fees, for American Silver Eagles. I've never liked paying nearly $2/oz over the spot price, especially not when silver was $5/oz.! Instead, my personal preference for my own collection of silver, for 1 oz. silver coins, has been to buy the one ounce rounds, which, over the past few years, have sold for about 50 cents over spot. But you can't even get them today.

But I'm spoiled. Part of the reason premiums for rounds and 100 oz. bars has been so cheap in the last ten years is that they were often sold for the silver value alone, and were melted down, as existing supplies of silver were melted to fill the deficit. Or, perhaps private mints were making them as loss leaders, I don't know.

Lately, I've been thinking about that coin premium a bit more, especially as premiums have increased for bars and silver Eagles. About a year ago, I wanted to start making my own silver rounds, but the local mint didn't have the ability to make coin blanks, and he would charge me $1.50 per coin on top of the cost of the cost of getting the silver in blanks. I passed.

Thinking more, clearly it's more work to make 10 coins of 1/10th of an ounce, rather than 1. I would suppose that these would cost more, just as 1/10th ounce gold pieces typically cost more than a 1 ounce gold piece. One tenth ounce gold pieces can cost nearly 10% over the spot price of gold! At $800 for gold, that indicates $80 for a 10th oz. gold piece, which, at a 10% premium, would indicate a per coin minting cost of $8 each!

The higher cost for smaller coinage is also reflected in the fact that silver dollars contain more silver than half dollars, quarters and dimes. Silver dollars contain about .76 of an ounce of silver, and the small coinage contains .72 of an ounce of silver. The difference reflects the extra minting costs.

But there is an additional minting cost that was paid when silver dimes, quarters, and half dollars were put into circulation.

Most silver at the time was purchased by the U.S. Mint at about 70 cents per ounce. "The United States paid from 64.64 cents to 77 cents per ounce for domestic silver, which had a market value of 45 cents."

The mint then turned around, and turned that ounce of silver into $1.39 worth of coinage, as that's the inverse of .72 of an ounce, which made a full $1 of coinage.

So, the cost for silver in the coinage form, was $1.39, which got you an ounce of silver (worth 70 cents), or a full ounce in $1.39 worth of coinage! That's like paying $1.93 for every $1 value of silver, or paying a 93% premium over the spot price!

Monetary advocates love to preach about how the U.S. mint ought to mint silver for free, but I don't see how they ever did.

Mints earned quite a bit, which is called "seniorage".

Let me say that again. When silver dimes were issued, when silver was money, when a silver quarter was a day's wage, a silver dime would have been the equivalent of a silver coin that traded at a cost of 93% over the spot price of silver!

At $13/oz., that would be like a one ounce coin that circulated like a $25 bill!

Interestingly, today, a commemorative Silver Eagle, from the U.S. Mint, costs $25.95

So, what does a silver dime cost today? 90% silver trades at the spot price of silver. (Not at a 93% premium, fortunately!)

So, in that sense, aren't you glad that silver is not money, and that we are not living on a silver standard? I never thought I'd be so happy about today's opportunity! Since silver is not money, you don't have to pay the minting cost!

At $13.92/oz., a bag of $1000 face silver contains 715-720 ounces of silver, valued at spot, is $9553. That bag contains 10,000 dimes. So, each dime will cost 95 cents.

The cost to privately mint 10,000 pieces of silver, would surely cost well over $1 per coin today, with the size of each piece being completely unimportant.

Therefore, when you are buying 90% silver dimes, consider that you are paying what might be less than the cost to mint them or make them, and thus, the silver itself, is free.


Jason Hommel

18 karat gold is 75% pure gold.