By February 4, 2013 5 Comments Read More →

SILVER 101: Why Every American Should Own Silver

by Al Doyle for CoinWeek ………

Every American should own at least a little silver.  No weaseling around, no exceptions.

What kind of radical declaration is that?  If it seems like something straight from a Ron Paul rally, keep in mind that what I’m proposing is really a very old and proven idea..  It’s amazing what nearly a half century can do to obliterate the truth.

Regardless of income, just about every American was a silver owner until 1965.  Dimes, quarters, half dollars and silver dollars struck in a .900 fine alloy were the stuff of pocket change.  Silver coinage was so routine that no one gave it a second thought.  Even though gold ownership had been largely banned since 1933, honest silver money was a way of life, and more so in the west.

silver 101 coins SILVER 101: Why Every American Should Own Silver Montana residents routinely turned down $1 bills and demanded silver dollars in change.   What was seen as a convenience (paper money) elsewhere wasn’t sought in Montana, where locals often accumulated cartwheels.  Morgan and Peace dollars were also a common item at Las Vegas casinos.

Does it make any difference if the round metal things in pockets or purses are silver or base metal?  This very simple example will show what takes place when a nation cranks up the printing presses and abandons sound money for an inferior product.

What would happen if your grandfather placed $2 in a drawer 50 years ago (1963), and the money was just discovered?  In this instance, it was a new 1963 $1 Federal Reserve note (the first issue of $1 FRNs) and a circulated, common as dirt 1921 Morgan or 1922 Peace dollar.

Those items were interchangeable in 1963, and the paper currency or the silver dollar bought four gallons of gas during the Kennedy administration.  The same $1 would have obtained five McDonald’s hamburgers (15 cents each) and two sodas (10 cents apiece).  Round up the 95-cent total to $1 to allow for sales tax.  What would Grandpa’s forgotten cash purchase today?

silver bars 275x153 SILVER 101: Why Every American Should Own SilverThe $1 FRN would buy a third of a gallon of gas.  Using the current retail price of $33 to $35 for a circulated Peace dollar as a guideline, let’s put a $30 wholesale price on the found coin, which would be sufficient for nine gallons of unleaded.  In this case, the purchasing power of the FRN dropped by 91.7 percent, while the silver $1 gained 1250 percent.

When it comes to McDonald’s, you’ll have to add a little change to buy a single item from the $1 menu to cover the sales tax with the $1 bill.  Decline in purchasing power: 86.7 percent plus the sales tax.  The proceeds of $30 from the circ Peace dollar is good for 30 $1 purchases before tax.  That’s a net gain of 3290 percent.

The obvious increase in value of silver over time (and that includes a dreary 25-year bear market in the metal) has nothing to do with being numismatically savvy or cherry-picking PQ rare coins.  The date used in this comparison is as common a lump of silver as you’ll find.  Keep in mind that the track record of the U.S. dollar, widely ballyhooed as “the world’s most stable currency”  is much better than what most of the world has experienced over the same period, and it’s easy to see the perils of fiat money unbacked by gold or silver.

silver eagles tubes 275x228 SILVER 101: Why Every American Should Own SilverSadly, there is widespread ignorance on the nature of money.  Being convenient and widely accepted are very important elements, but honest money is also a store of value.  Semi-literate farmers and backwoodsmen of the 1800s had a far better understanding of what money should be than the typical 21st century Ph.D.

That’s why early Americans gladly used and accepted Spanish and Mexican silver reales and gold escudos in daily commerce over dubious notes issued by local banks.  The coins had a well-deserved reputation for being the proper weight and fineness as compared to fly-by-night con artists who issued worthless notes.  Such currency is referred to as “broken bank notes” by modern collectors, and that term refers to the fate of the institutions that issued inflated paper as well as those who ended up holding the bag.  Even the copper coinage of the era maintained a relationship between the metallic content and the face value.

Who cares about silver in a world of credit and debit cards and other electronic forms of exchange including e-gold?

Keep this rule in mind  when it comes to precious metals: if you don’t hold it, you don’t own it.  An ounce of physical silver in hand beats 100 ounces of theoretical silver when you need the real thing right now.  Imagine Jews fleeing the Nazis and offering a bribe in e-gold to border guards.  In a world drowning in lies, spin and broken promises, silver’s old-school integrity stands apart from the herd.

If every American should own silver, what about gold?  At the current spot price of $1662 an ounce, even a fractional bullion piece is beyond the reach of many working folks.  A handful of silver dimes or a few one-ounce rounds is something that Ralph Kramden or Ralph Lauren could afford.  The current gold/silver price ratio of 53 to 1 also indicates that silver has more upside than the yellow metal.

While some investors buy silver hoping to resell the metal for more paper dollars in the future, that isn’t the main reason for becoming a bullion owner.  Think of your silver holdings as financial insurance in an increasingly unstable world.

Posted in: Al Doyle, Silver 101

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5 Comments on "SILVER 101: Why Every American Should Own Silver"

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  1. Stephen says:

    I agree and I do hoard as much as possible.

    Ninety percent silver coins are on Ebay all the time.

  2. Tim Ramich says:

    I think using the example of 1963 only shows silver as gaining value in 50 years because it was just about the end of the game for precious metals as money. $1 was really pushing it. Plus, that $35 for a 90% silver dollar is just numismatic value, which is subjective and won’t mean much if massive inflation comes. The melt value of a Morgan of Peace dollar at this moment is only $24.46. If you want to get into the game of 90% silver you should stick with halves and smaller and go for American Silver Eagles or Silver Maple Leafs as dollars. If you’re in silver for an inflation hedge, it’s my opinion that $35 for 1 ounce of 0.999 pure silver is a better deal than $35 for 0.77 ounces of 90% alloyed silver.

  3. Al Doyle says:

    There were no one-ounce Eagles or Maples to stick in a drawer in 1963, but there were plenty of Morgan and Peace $1s on hand. I deliberately used an ultra-common date as an example to try and be objective as to what would normally be in circulation.

  4. douglas says:

    Thanks Al. Great article, and the hypothetical illustration was a good one.
    Here’s another.
    I launched my business w/ $70k of 401k money in 2001. that same year my wife came to America with a small inheritance and spent most all on a bachelors and masters degree, or about the same money.
    Figure $150k altogether. if we had INSTEAD bought silver eagles sometime that year, even missing dips and paid $5.00 per oz those SIXTY (60 !!!!) green monster boxes would be worth about $1 million dollars today.

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