The Coin Analyst: What’s the Best Way to Invest in Silver?
By Louis Golino for CoinWeek
I often hear newer coin collectors and silver investors ask what is the best way to buy silver. There are certainly many ways to accumulate, or as some people put it, stack silver, in the physical form.
For those looking to acquire physical silver, I think one has to begin with some basic questions about objectives.
If your goal is to put aside as much silver as you can afford, your best bets are either low-premium bars, or what is called junk silver, which refers to 90% silver U.S. dimes, quarters, and half dollars made in 1964 and before. Half dollars sell for a small premium over the smaller coins.
If the monetary system ever does fully collapse, it could be quite useful to have smaller silver coins as a means of barter since it is hard to make change for a large silver bar.
Bars have the advantage of being easier to stack and store than a bunch of coins. I would not pay extra for a premium bar, so look for the lowest cost bars you can find. When it comes time to sell them, you are likely to get the same price for all bars unless they are very special ones with collector value such as items which were recovered from ship wrecks.
90% silver is very popular because it sells for the lowest premium over melt of any form of physical silver. In the past, dealers were able to acquire these coins at substantially below melt value and they would sell them to refiners for a profit.
But today these coins generally sell, even on the wholesale market, for a small mark-up over metal content. If you hold those coins until silver rises by say $10 a ounce, you can sell them for a profit and not lose a chunk of your initial outlay to premiums which disappear at the time of sale.
For those who prefer purer silver in one-ounce coin form, there are many options.
The most popular is of course American silver eagles, of which almost 40 million were sold last year. So far this year, sales of these coins are running below last year’s levels for this point in the year.
One would think buyers would be taking advantage of lower silver prices.
But the volatility of silver prices in the past year has been unusually high, and I think that has scared some people away. In addition, investors have a tendency to chase higher prices rather than buying on the dips. That is especially true of newer investors.
American silver eagles are guaranteed by the U.S. government, and can be very easily bought and sold. In addition, the premiums they sell for over melt, which vary over time and by seller, have come down in recent years.
It is hard to say precisely why premiums are usually lower today than in the past, but in my view, two factors best explain this situation. One is dealer inventory levels and the supply of silver eagles on the market, which is pretty solid these days, and the other is increased competition, as more companies get into the bullion business. I would try to deal with established dealers with a solid track record.
Another way to buy silver eagles is to acquire the proof version, which sell for a premium over silver content. The 2012 version was released on April 12 and currently sells for $60, or close to twice melt value.
Some people find that price high, but it is actually quite reasonable if compared to the premium which collectors paid for many of the earlier issues when silver was worth much less. Last year when silver made a run to $50, proof coins were trading for $100.
Moreover, as a recent analysis in Numismaster by Patrick Heller found, proof silver eagles are one of the best-performing numismatic coins of recent years. Besides, they are the only numismatic coins, besides proof American eagles made of gold, which can be held in an IRA, or Individual Retirement Account, which has increased demand for the coins.
Foreign silver coins are gaining in popularity. Several years ago (for one year only in 2008, I believe) the most widely sold silver coin in the world was not the silver eagle but the Austrian Philharmonic, which is also made in various sizes in gold.
Maple Leafs from Canada, which are made in silver, gold, and platinum, are also very popular. They tend to sell for a slightly lower premium over melt than eagles and bring close to the same amount as eagles if you sell them to a dealer.
One advantage for those willing to do some homework is that Maple Leafs in the past were made in much smaller numbers than eagles. Whereas silver eagles have always been minted in the tens of millions, as are Maple Leafs today, until the last couple years, only a few million Maple Leafs were sold per year. In fact, there are some with mintages of only a couple hundred thousand that sell for a premium.
If you are looking to acquire pure silver coins at a reasonable premium over the metal content and want the additional potential payoff of low mintages, you have several choices.
Some of the coins with the greatest long-term potential are the Canadian Wildlife series that started with the 2011 wolf coin and have a mintage limited to one million coins per issue. Since the release of the wolfs, coins have been issued that depict grizzly bears, cougars, and moose with two more releases planned for the series. If purchased within the first couple months of their release, these coins can generally be purchased for about the same premium as more common silver coins.
But over time, as the coins sell out at the Royal Canadian Mint and then at bullion dealers, premiums rise. Today, for example, silver wolves sell for $65-70 or more each, but if purchased when they were new, the coins were available for a small premium over silver content. The wolves are also a very compelling design, which makes them popular with buyers.
Finally, the best coins in terms of price track record over time are Chinese silver Pandas, which I discussed recently and silver Lunar coins issued by the Perth Mint in Western Australia.
As silver blogger Bullion Barron has written, an analysis of the price performance of bullion Lunar coins compared to numismatic versions of the same coins shows that the bullion coins performed better over time.
The only problem with bullion Lunar coins is that some of them, such as the 2012 Lunar Dragons, become so popular so quickly that it can be difficult to purchase them for a reasonable premium, especially outside of Australia. And prices in those cases may decline later, though they may rise to new levels over time.
But those are the exception, as coins depicting other Lunar animals and the Dragons from 2000 have continued to perform well.
Also worth considering are the very popular Perth lines of silver Kookaburras and Koalas. Personally, I prefer the Kookaburras, or Kooks, which have a much longer track record having been first issued in 1990. And with a mintage limited to a half million per issue, the Kooks have increased in price beyond their melt value, but not to the same extent as Chinese Pandas or bullion Lunar coins. Since none of them is very hard to find, one can collect a full date set of attractive Kooks for a reasonable price.
Finally, Mexican silver Libertads, which feature an image of winged Victoria of Mexican Independence Victory Column, are issued in many sizes and in gold, are hard to find, and are made in small numbers. Britannias from the United Kingdom, which feature different depictions of the quintessentially British symbol, are also lower mintage coins with a solid track record. Some Britannias and Libertads have mintages below 100,000, and both are great coins for building a date set.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.