Precious Metals

Wealth Insurance or a Waste of Money?

This is a highly debated topic in the finance world.

Some financial professionals believe precious metals will hold their value better than fiat currencies. They claim precious metals are God’s money which has been used since the beginning of time. They prefer to hold a small amount of these assets in their portfolios, not for creating wealth or getting rich but to use as wealth insurance. Just like you buy auto insurance, health insurance, and life insurance, they feel buying physical precious metals such as gold and silver can be like an insurance policy against an unpredictable economic world.

Others feel precious metals are a waste of money and do not own any. Dave Ramsey says there is a false assumption that precious metals will be a safe investment and that holding precious metals is not the best use of money. “Commodities are always going up and down, up and down. It’s got a poor rate of return, and there’s nothing that drives the price except for people’s fear or greed.” - Dave Ramsey

Remember everyone’s life, financial situation, and risk tolerance levels are different. You should decide what is right for you.

Do precious metals have a role to play in your portfolio?

“BUT I Can’t Eat Gold/Silver or Put It In My Gas Tank”

This is an argument heard time and time again, and if you feel gold and silver are restricting, then precious metals are probably not right for you.

No, physically eating these metals will be awfully difficult, and physically putting them in your gas tank will probably not help much, but having these on the sidelines might be helpful for a larger emergency. If you needed money, you could sell/trade these to pay/get what you need.

An emergency fund is good for these things, and you may have other assets you can sell, but remember, there have been a lot of banking issues just in 2022 and 2023 alone. It might take some time to get money out of the banks and/or transferred to an account you can use. Some feel it might be easier and/or quicker to sell physical gold and silver than other assets.

Again, this is purely each individual’s preference. It’s all about what helps YOU sleep better at night. Weigh your pros and cons and decide what is best for you.

Fiat currencies give the GOVERNMENT power over the people.

Sound money gives the PEOPLE power over the government.

Fiat Currency = Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the stability of the government that issued it.

Fiat currencies (money that is not backed by anything) give the government the ability to print and manipulate money any way they want.

However, when money is backed by something of real value, then that keeps our governments more in check.

Comparing Gold and the Dollar

Let’s take a look at how gold tracked over the last 100 years.

Per the United States Gold Bureau:

  • A nice suit would cost you about the same 1 oz coin today as it would have in the early 1900s. A nice suit in the 1910s cost around $25 or 1.21 ounces of gold ($20.67/ounce). In 2020, a nice suit cost around $2,000 which is 1.65 ounces of gold ($1,900/ounce).

  • A 1908 Model T costs about $825 or 39.91 ounces of gold ($20.67/ounce). In 2020, the average car price is around $33,560 or 27.85 ounces of gold ($1,900/ounce).

  • In the 1910s, one pound of steak cost about $0.17 or .0082 ounces of gold ($20.67/ounce). In 2020, that one pound of steak cost about $8.59 or .007 ounces of gold ($1,900/ounce).

There is a correlation between the U.S. debt and the price of gold. Gold values will rise with the deficit over time, and they say the price of gold typically increases by 1.6x whatever the U.S. deficit is increasing at.

The value of the dollar is decreasing, which is evident when we see inflation.

The value of the dollar has dropped significantly over the last century. A penny used to be enough for kids to buy candy or for adults to pick up a newspaper, but inflation has dropped the value of the penny so much that it now costs more to produce a penny than the penny is worth.

Could precious metals help persurve your purchasing power?

If Precious Metals are for You…

  • Then first, be sure you have built a solid financial foundation to ensure you do not go backward on your financial independence journey. It’s suggested to make sure you have worked through the financial steps and have made it to the building wealth or hyperaccumulation phase.

    • This means you have a solid emergency fund, paid off debts, and you are regularly investing for your future. (Precious metals are used to hedge your wealth. If you have credit card debt or other high-interest loans, then you do not have wealth.) After you have completed these steps, then you can start thinking about wealth preservation.

      Check out the Make A Plan page for steps or plans to follow or get ideas to create your own path to success.

      Per the prepping community, it’s also recommended to not invest in precious metals until you have 6 months to a year’s supply of shelf-stable foods and supplies. They say that if there was a big economic event, food and supplies would become more valuable to you and others, and precious metals would more than likely not be used for bartering right away.

Difference Between Spot and Premium Prices

This is one of the first things to understand when it comes to investing in precious metals.

Spot Price is the current market price of a security, currency, or commodity available to be bought/sold for immediate delivery. This is the price for the raw piece of material. This price is set by the Comex, which is the world's largest futures and options trading for metals. The spot price is the price at which the sellers and buyers value an asset at that moment. The spot price fluctuates minute-by-minute, but the number should be consistent across exchanges worldwide.

Understanding premium over spot is equally important for investors and collectors to understand.

Premium is the additional cost you may pay above the spot price of the metal. This is the cost for everyone who handles that piece of metal after it comes out of the ground before it gets to you. This accounts for melting the metal down, putting a stamp on it (minting it), paying the brokers or shops who handled it, and/or any other business done with the metal before it got to you. The premium price can vary from place to place, so it’s important to shop around before you buy.

Collectible silver coins do not always sell for spot price plus premium. They can sell for several times their precious metal value due to demand and rarity. If you are only buying precious metals for security from a financial crisis, then buying constitutional/junk or bullion coins will be better as you will get more precious metals for your money.

What Physical Silver Bullion to Buy?

If you are interested in purchasing/holding silver, then below is a breakdown to help you decide what is right for you.

Physical silver is primarily broken down into four categories: silver bars, silver coins, silver rounds, and junk silver.

Silver Bars: Rectangular pieces of .999+ silver

Advantages:

  • They are easily stackable, and often sold in sheets of 10 or 20.

  • They usually have very low premiums, as bars can be produced by any private mint.

  • Widely available in a range of sizes due to their popularity and demand.

Disadvantages:

  • No face value or government backing.

  • Not always IRA-approved, depending on the mint of origin.

  • Different brands, even with the same weights, will not have the same dimensions.

Silver Coins: Disk-shaped pieces that are typically .999 or .9999 purity. These are produced by government mints, and carry a face value in their country of origin.

Advantages:

  • Offers a collectibility factor due to limited annual runs.

  • Easily stack in tubes or stored in mint “monster boxes”.

  • Carry a face value in their nation of origin, and are typically IRA-eligible.

Disadvantages:

  • More expensive on a per-ounce basis than comparable silver bars or rounds.

  • Only available in 1 oz and 5 oz weights.

  • Occasionally go into “allocation” due to mint delays, making them hard to get.

Silver Rounds: Disk-shaped pieces of .999+ silver.

Advantages:

  • Along with silver bars, offer the lowest premiums on physical silver bullion.

  • Easily stored.

  • Typically IRA-eligible, depending on the mint of origin.

Disadvantages:

  • Offer little to no collectibility.

  • Typically only widely available in 1-troy ounce weights.

Junk Silver (a.k.a. Constitutional Silver): USA currency (pre-1965) coins containing 90%, 40%, or 35% silver.

Advantages:

  • Extremely divisible with pieces as small as a nickel or dime.

  • Inconspicuous, as the general public doesn’t realize these coins contain valuable silver.

  • Can occasionally be found in circulating currency.

Disadvantages:

  • Can be extremely expensive and hard to find in retail markets nowadays.

  • Can be harder to resell as many prospective buyers prefer shiny new silver bullion.

Junk or Constitutional Silver

Junk Silver (a.k.a. constitutional silver) refers to U.S. currency coins that contain 90%, 40%, or 35% silver. They were formally part of the United States’ standard circulation coinage until silver was formally removed from large circulation coin strikes by the 1965 Coinage Act, so these are pre-1965 U.S. silver dimes, quarters, and half-dollars. They are referred to as junk silver because they are not considered collectible and have no numismatic value, however, they contain a high percentage of silver making them desirable to silver investors. These formerly circulating United States silver coins are sometimes referred to as Constitutional Silver, Junk Silver, pre-1964 silver coins, pre-1965 silver coins, or 90% or 40% Silver Coins (struck from 1965 - 1970). Junk silver coins are no longer being made, and many of the coins have been melted down over the years.

Types of 90% US Silver Coins, 40% Silver, and 35% Silver

  • Pre-1965 90% Siver US Dimes - includes Mercury, Liberty Head, and Roosevelt

  • Pre-1965 90% Silver US Quarters- includes Washington, Liberty Head, and Standing Liberty

  • Pre-1965 90% Silver US Half Dollars - includes Liberty Head, Walking Liberty, Kennedy, and Franklin

  • Pre-1965 90% Silver Dollars - includes Peace Dollars and Morgan Dollars

  • 40% Silver US Half Dollars - includes Kennedy Half Dollars minted between 1965-1970 and also 1976

  • 35% Silver War Nickels- minted 1942-1945

Benefits of Investing in Junk Silver (SD Bullion)

Constitutional/Junk Silver Coins are still official US currency and thus can be used as a means of legal tender face value payment, however, they are often saved and held for the long term due to the silver bullion value contained within them. Both old US 40% and 90% silver coins are most actively traded based on their overall silver content and not their legal tender face values.

Junk Silver is the real thing. Dimes, quarters, and half-dollars made by the U.S. Mint prior to 1965 are instantly recognized and don’t need to be assayed to determine their precious metals’ content and they don’t need to be appraised by an expert to tell you what grade they are. Virtually anywhere you go, you can find a buyer who knows that a $100 face-value bag of these coins contains 71.5 ounces of pure silver and will pay you accordingly.

They can work more easily as “pocket change” if needed. These coins are smaller and have smaller silver values than say a one-once pure silver coin or 100-ounce silver bar. Many silver savers like owning these old US silver coins for potential use in direct barter or trade. For example, small old US 90% silver dimes contain about 2.25 grams of silver in each coin. Many contend these small denomination silver coins could come in handy when purchasing everyday goods and services if a financial crisis hits.

Silver content has proven to be a good hedge as it has retained its value over the long term allowing holders to keep a portion of their wealth in these private, tangible, legal tender, precious metal silver coins of our forefathers.

Silver is a finite commodity and is used in a lot of the everyday modern technology we use.

How Much are Pre-1965 coins worth?

  • A pre-1965 silver dime contains approximately 2.22 grams of silver. That works out to approximately $1.79 worth of silver, assuming the recent spot price of $25.00 per ounce.

  • Pre-1965 quarters contain 5.55 grams of silver. That’s $4.46 in silver value with a spot price of $25.00 per ounce. That means that 4 pre-1965 quarters could be valued at almost $18.

Books To Read About Precious Metals

Good as Gold - This book asks why there has never been a proper audit of the official US gold supplies, held at Fort Knox and elsewhere. It is a call for transparency in an area where there has been none since gold was confiscated from Americans in 1933.

Food for Thought…

Some say silver could be one of the first elements to disappear from our resources. With the dramatic increase in demand for technology, could this be true?

They say Gold will be known as Unaffordium

and Silver will be known as Unobtainium.

What are your thoughts?

When it comes to technology, copper is known as the highway, and silver is known as the glue.

Tip for 2023

They say the premiums on sovereign coins are getting out of control, so it may be better to buy reputable bars and generic rounds as you may be able to get more for your money.