Adding Silver to the PP (Small Quantities)

[TripleB]

HB's argument against silver is that it's not purely an inflationary device, but reacts to industrial pressures as well. Thus, silver prices can drop, even if inflation rises, due to reduced industrial demand.

That said, I find that silver does have major inflationary characteristics and is cheaper than gold for trading small quantities. I personally believe that one can modify the PP such that 5% or less of the Gold portion (or about 1% of the total PP) can be in silver, and you're essentially going to get the same returns as the traditional PP. Mathematically you could put 1% of your PP into anything and get substantially similar returns because even if the 1% dropped to $0, it would only affect the PP by 1%.

My reason for wanting to put 1% of the PP into silver is so that I can have easily partitionable precious metals in the event of a major catastrophe where people have returned to bartering.

The problem with gold is that if one goes to 1/10 or 1/20 ounce gold coins, you are paying 40%+ premiums over the value of gold. That's absurd. If one wanted small tradeable coins, then you're far better off putting 1% of your PP into silver, than putting 1% into 1/10 ounce gold coins, because of the huge premiums involved.

How do you trade gold coins for a tank of gas? How about for some canned food? Assuming massive inflation in a post-TSHTF world, gold should rice as commodities prices rise. We'd have to experience 10,000x inflation of canned food relative to gold to make it possible to trade a 1 ounce gold coin for food.

The question I have, is how to best add silver to the PP? There's absolutely no reason to add it via an ETF, because the entire purpose is to have easily barterable coins in small quantities.

I've looked into junk silver, which is 90% silver US coins made in the early 1900s. Currently, with silver at $30/ounce value, every $1 face value of junk silver coins are worth about $22. The amount of silver in various old US coins is proportional to the face value. Thus, 20 5-cent nickels have the same silver as 4 25-cent quarters and 1 1-dollar coin.

My first trip was to ebay where it appears junk silver is selling for 15% to 20% above melt price. That's absurd because I can get brand new 1 ounce silver coins for around that range such as Canadian Maple Leafs.

I found a few companies that deal with bullion like GoldMart that sell junk silver by the bag with substantially lower spreads (about 1.5% above spot) but the minimum purchase is around $1300.

One might think arbitrage opportunity but Ebay plus PayPal fees = 15% so that explains why sellers want 15% above spot to sell on Ebay... but it doesn't explain why buyers are willing to buy it.

One interesting thing about US Junk Silver is that there appears to be a wide variety to choose from. I gain a small amount of personal satisfaction from looking at things I like, so having a huge bag of silver coins with cool images would be nice. I don't like mixing and matching too much, so I wouldn't want a mixed bag. I'd prefer picking 1 or maybe 2 and standardizing.

I thought I wanted quarters, because quarters are seemingly a good size. I find that the two images I like the best are the Mercury Dimes with the winged crown face that looks like a Greek Mythological image, and the Ben Franklin half dollar because I respect Ben Franklin. Also my paper $1000 denomination I-Bonds have Ben Franklin's image on them so that's a cool combo.

I might also get into a very low level of numismatic silver coin collecting as well. I figure if I can buy a few interesting silver coins that are no more than 2x spot price, then I can "mark" 1/2 of the price paid towards my PP, and the other 1/2 just doesn't get accounted for since I don't believe in collecting as an investment. Or perhaps I count the non-melt price value into a "collectibles variable portfolio" but the primary purpose of ownership is to get some enjoyment of having a few cool interesting coins.

Thoughts on this plan? Suggestions on places to buy junk silver? Suggestions on how to store silver so it doesn't turn black? Suggestions on interesting silver collectible numismatic coins that don't sell for too much above spot that I can add to the collection?

[craigr]

Nothing wrong with keeping some small amounts of junk silver/silver rounds around for emergencies. But I don't think it replaces gold.

[MediumTex]

So you would be talking about a PP that is:

25% stocks
25% LT bonds
25% cash
24% gold
1% silver

I don't think that would hurt anything.

[l82start]

i hold some Canadian maple-leaf 1 oz for the exact same reasons you have given for wanting silver, i just count it as VP and keep the PP as simple and true to the 4x25 as i can...


edit to add- the VP is supposed to be for gambling with the money you can afford to loose, but as far as i know there is no rule saying you cant use it for safe or relatively secure investments that don't fit in the 4x25 model

[lazyboy]

I have some junk silver: pre 1964 dimes, quarters and half dollars that I bought in the late 1970s when silver prices were rising. (Nickels are not made of silver). The content of silver is considered to be .72 of face value of the coin. So, if you have $100 face value x .72 it would = 72 x the going rate of silver. In this case, 72 X $30 per ounce should be worth $2160 for $100 face value of silver coins. I've held the coins through thick and thin just in case TSHTF and had never really considered it to be part of my PP or even fully considered its worth until just recently. I intend to pass it along to my daughter. 

[WildAboutHarry]

HB's argument against silver is that it's not purely an inflationary device, but reacts to industrial pressures as well. Thus, silver prices can drop, even if inflation rises, due to reduced industrial demand.

Note that Harry basically made a market timing call justifying why he no longer recommended silver in Why The Best Laid Plans...:

During the 1970s, I suggested both gold and silver for the Permanent Portfolio.  But now that silver has compensated for the decades of price control, it no longer has a built-in reason for appreciation.

The same could have been said for gold, at least the price control part.  Harry also notes that gold and silver sometimes move in opposite directions.  Sounds like a perfect PP-type asset to compliment gold.

And if the chart of "World Gold" posted elsewhere on the forum is accurate, a substantial majority of current gold production is used for non-monetary purposes.

You can buy silver below spot on the bay.  You just have to spend an inordinate amount of time looking.  And generally, coin silver does not turn black.  Assuming reasonable humidity, non-smoking environment, etc.

[cowboyhat]

I could see buying old silver coins if you like to look at them, but for a barter situation I would want something that would be easy for my counter party to understand. Explaining that an old quarter has silver in it but it is a certain percent base metal, ect, seems unnecessarily complicated when you are trying to trade for a case of canned beans and not get shot. Why not a nice 99.99% silver 1 oz coin minted by the former government of the country you are in?

[Tortoise]

Cowboyhat beat me to it. I was going to say exactly the same thing.

I've never understood the idea that junk silver would be particularly useful for bartering in a SHTF scenario. Only precious metals enthusiasts and coin collectors have any inkling (without access to Google or reference books) of what percentage of various coins from various years have various amounts of silver in them.

Pure silver coins are pure silver--period. Very easy for anybody to see written on the coin itself.

[murphy_p_t]

"The amount of silver in various old US coins is proportional to the face value. Thus, 20 5-cent nickels have the same silver as 4 25-cent quarters and 1 1-dollar coin"

my local coin/pawn shop told me differently...you might want to check on this...I recall him telling me that the silver dollar has more silver content than 4 quarters...or something like that....in any case, its not a huge difference.

you may find excellent premiums if you deal w/ a pawnshop that focuses in coins/jewelry.

if you're planning on dealing in 1 oz rounds when SHTF, you may well wish you had some "junk" silver so you have close to exact change...if people use cash, most walk around w/ more than $100 & $50 bills...1 oz round might be like a $50 spot if SHTF...or it might be like $5...in which case u won't bother w/ dimes.

there's another thread somewhere on this board talking similar questions..might want to check that out....

I like silver, but I don't consider it part of the PP...the amounts you're talking sounds more like part of the cash component, to keep close to hand.

[WildAboutHarry]

Nickels are not made of silver

For a brief period during WWII, nickels contained 35% silver (the so-called war nickels).  They actually have the highest proportion of silver to face value of any circulating US coin.  A dollars worth of war nickels contains over 1 ounce of silver, a dollars worth of silver quarters only about 3/4 of an ounce.  Obviously a dollars worth of nickels is considerably more bulky than four quarters.

Pure silver coins are pure silver--period. Very easy for anybody to see written on the coin itself.

Quite a few (maybe all) of the old Mexican silver coins do list the percent of silver in the coins (e.g. "Ley 0.720" for 72% silver) and the weight of silver in grams.

Murphy_p_t is correct that US Silver dollars have slightly more silver than 4 quarters (or two half dollars or ten times).  Canadian silver coins (at least through 1966) have about the correct proportions of silver in the various coin denominations (dimes, quarters, halves, dollars).

In a true SHTF scenario (or any sort of barter-based economy) silver legal tender coins from the U.S., Canada, and Mexico are more likely to be recognized in North America than silver rounds from private mints.  In my opinion

[stone]

I can't help thinking that the archeological record shows that in SHTF scenarios people bury their silver and run off. That says to me that silver isn't much use in SHTF scenarios. To my mind the only asset of any use in a SHTF scenario is the goodwill of your neighbours and perhaps some useful skills.

http://www.bbc.co.uk/ahistoryoftheworld ... gI8fVlOpuw
"Around AD 920 Britain was divided into a southern Anglo-Saxon kingdom and the Viking kingdom of Northumbria, with its capital in York. The hoard probably belonged to a member of York's powerful Viking elite. The dates of the later coins show that the hoard was buried after the Anglo Saxon king, Athelstan, conquered Northumbria in AD 927."

http://www.bbc.co.uk/programmes/b00sfgx8
" the elite of Roman Britain sustained their appetite for luxury goods and good living in the years before their demise. He tells the story through a silver pepper pot that was discovered as part of a buried hoard - hidden possibly by Romans on the run."

[TripleB]

Why not a nice 99.99% silver 1 oz coin minted by the former government of the country you are in?

1 oz 99% silver coins have about a 10% premium over spot. Junk silver has a 1% premium over spot. Quite simply, I can have 9% more silver, for the same out of pocket cost, by using junk silver.

My plan is to use about 25% Junk Silver coins, 50% pure minted silver coins, and 25% numismatic "fun" to look at silver coins, where only the actual spot value of silver is considered towards the silver portion.

There's going to have to be some trust involved in bartering, post-TSHTF, so if you can't convince your neighbor that you won't shoot him in the back of his head and take his stuff, then you can't do a deal. If you can convince him the deal is good, then you can likely convince him of the value of junk silver. If anything, print a few pages from wikipedia explaining the silver content. You should probably have the same for yourself in case someone trades you other silver coins that you don't know the content of.

Do I think that in a post-TSHTF world, I'll be living like a king because I have a few thousand dollars worth of silver coins? Am I sure anyone will want them in barter? No to both. But, this seems to be a low-cost method to diversify my physical holdings in such a way that would enable me to barter using fractional pieces of precious metals that are less than 1 ounce of gold, and without the huge premiums of 1/10 ounce gold coins.

If I could buy 1/20 or 1/10 ounce gold coins with a 3% premium over spot, then I'd probably not consider owning any silver. However, the premiums are 40%+ over spot. Consider the two alternatives:

1) Have 99% of your gold portion in 1 ounce coins and 1% in 1/10 ounce coins (paying 40% premium over spot).
2) Have 99% of your gold portion in 1 ounce coins and 1% in silver coins (paying 1% over spot for junk silver)

The price of silver would have to fall nearly 50% compared to the price of gold, just to make the 1/10 gold coin option break even. While that's certainly possible and has even recently happened, plan 2 seems like a wiser choice.

[WildAboutHarry]

I can't help thinking that the archeological record shows that in SHTF scenarios people bury their silver and run off. That says to me that silver isn't much use in SHTF scenarios. To my mind the only asset of any use in a SHTF scenario is the goodwill of your neighbours and perhaps some useful skills.

I think it might depend on whether the "S" hits the fan in small handfuls or all at once   I think you are right about goodwill and useful skills (owning the means of production and the knowledge of how to use those tools) being valuable (heck, those things are valuable now).  Money is a pretty old concept, and at some point a medium of exchange, like precious metal coinage, would have to evolve.

British sovereigns have no denomination on them, only the heads of Kings and Queens of England (and St. George, a horse, and a dragon).  My understanding is that these have been used as circulating money in many places inside and outside the Commonwealth.  The US minted trade dollars for the same type of use and these also circulated widely outside the US.  Trade Dollars include the weight of silver (in grains) and the purity (90% silver).  Other countries have produced similar coins (e.g. Austria).

Given Harry's early fondness for silver, I would really be interested in reading his newsletters, since they spanned the time from when he favored silver to when he no longer recommended it.  Anyone out there have copies of the newsletters? 

[BearBones]

For pre-1964 90% silver dimes, quarters and half dollars, the weight is proportional to the face value. Not true for silver dollars, as indicated above. But when you buy "junk" silver coins, it is often a mixed bag of the above.

As for the SHTF scenario, junk silver coins would be more useful than most forms of pure silver, IMO. It is widely recognized, the true value could be easily calculated based on face value, and it is in small enough denominations that it would not have to be divided or assayed.

Imagine this transaction:
"I'll take 10 pounds of flour, a bag of yeast, and some of that ammo, please."
"What ya gonna trade, buster?"
"How 'bout I pay ya in silver?"
"Fine."
"You got change for a 100 oz bar from Northwest Territorial Mint, or should we just saw off a slab?"

[l82start]

i think the guy that wrote the SHTF book about the collapse of Argentina pointed out that currency exchanges (both legal and black market) popped up almost over night and keeping up with the rapidly changing exchange rates became a part of daily life for everyone very quickly.  if things followed the same course during a SHTF here, both junk coin and 1 oz silver would be functional and usable. switching silver into currency to use for a day or a weeks worth of shopping for your needs in places that cant value or wont take the silver, and using the silver itself in places that can....

[TripleB]

Question: where can I buy junk silver coins for around spot price? Ebay is 15% above spot which is ridiculous. The few large online bullion places are selling for ~1.5% above spot, but they have $1k+ minimum purchase.

I'd like to get my hands dirty with a few hundred dollars worth or so to start.

[WildAboutHarry]

Ebay is 15% above spot which is ridiculous.

You can buy silver at or below spot on the Bay.  But you have to be careful and know what you want to buy.  Single coins tend to carry a greater mark up than larger lots.  US junk tends to be higher than Canadian junk.  Also, the premium/discount for silver on EBay can vary tremendously over time.  Kind of like the premium/discount on GTU.

Realize that the EBay deck is stacked in the seller's favor, so buyers have to be wary.  The old saying "Knowledge is Power" applies to EBay in spades.

Tulving is usually among the lowest cost bullion dealers.  They are currently 55 cents under spot for a $1,000 face bag of junk silver (or about $20,000).  While it is difficult to find such deals on the Bay it is possible, but not often and not every day.

It all boils down to whether you want to take the time to search EBay for deals.  I just took a quick look at completed auctions and found a dozen US 90% quarters sold for $66.69 (plus $3.00 to ship).  That is about 8% over spot.  Not a great deal, but I didn't look very hard either

[craigr]

i think the guy that wrote the SHTF book about the collapse of Argentina pointed out that currency exchanges (both legal and black market) popped up almost over night and keeping up with the rapidly changing exchange rates became a part of daily life for everyone very quickly.  if things followed the same course during a SHTF here, both junk coin and 1 oz silver would be functional and usable. switching silver into currency to use for a day or a weeks worth of shopping for your needs in places that cant value or wont take the silver, and using the silver itself in places that can....

Very true. That book is really interesting because it shows a glimpse into the evolution of human trade on the micro level. After the collapse barter started, but then it quickly broke down because a chain of barter needed to get to what you really want becomes way too long.

Then there is the idea of trading dangerous goods like ammo to people that look like they are going to use it against you later. Here are some quotes about that topic:

https://web.archive.org/web/20160324133 ... -collapse/

Survivalists spend countless hours discussing what product to stock specifically for post SHTF [craigr: Shit Hits The Fan] barter. Tools, needles, candles, shoes, and sometimes the most ridiculous suggestions are considered the wisest statement. This or that item, ‘will be worth its weight in gold’.

Well, no.

Only gold is always worth its weight in gold. Bar none.

- FerFal – Surviving the Economic Collapse

How about Uncle Bob’s ammo stash. He read somewhere that .22 Long Rifle would be the new currency after the SHTF, and the best barter item, so he bought a few 500 round packs.

Again, his surprise was big when the egg guy told him that he didn’t need .22 ammo, he doesn’t even like guns, he simply needs a plumber.

Since he was at the ‘Barter Club’ he checked around to see what was the actual market for his .22 stash, and was sort of disappointed by the few offers he got. Seemed that each person wanted a different item, and those that were interested…they looked like people from the wrong walk of life, and Bob wasn’t sure he wanted to give ‘them’ ammo. Ammo that would end up being used in delinquent’s guns and possibly against him and his family.

- FerFal – Surviving the Economic Collapse

So I disagree with those that think some junk silver or gold wouldn't be useful in a currency emergency. People will quickly learn what is valuable and any business owner will immediately know what they will accept for trade for their goods. I suspect the vast number of them will know that silver coins will be something they'll accept.

BTW. That's a really good book. It focuses on practical aspects of urban emergencies and what kind of emergency preparations are actually useful for natural or manmade disasters.

[craigr]

These people sell junk silver from time to time and have good prices:

http://ajpm.com/silver-bullion.html

[AdamA]

BTW. That's a really good book. It focuses on practical aspects of urban emergencies and what kind of emergency preparations are actually useful for natural or manmade disasters.

I second that.

[Ad Orientem]

There is another practical aspect to silver.  It is cheaper than gold.  A lot of people don't have the money to buy gold in any significant quantity.  If you are a working stiff who has a hard time putting aside money for anything nonessential, gold may just be out of reach.  Silver is often called the poor man's gold for a reason.  I would not substitute silver for gold in a PP.  But for those whose financial circumstances are tight, I would encourage stashing some silver away rather than waiting until you can save enough to buy a 1 oz gold coin.

[FarmerD]

I think it's important to realize you should not base your decision based solely on the purchase price.  Someday, you will likely need to sell some of your coins so you need to look at the Buy/Sell price delta to determine where the best buy is at.   

I just checked Goldmart and Tulving and found the following buy/sell deltas:

                 Silver Eagles               Silver Buffalo Rounds     Silver maples          Junk silver
Goldmart     +2.69/+2.00                     +0.99/+0.50             +2.19/+1.40          +0.19/-0.50
Tulving        +2.49/+1.70                     +0.79/Spot              +1.99/+1.30          +0.35/-0.55

I picked these coins since all major dealers sell these coins.  Based on this, it looks like the Goldmart's Silver rounds have the best buy sell differential, however, in the final analysis, the deltas for all the major coins listed above are pretty close so you can probably just takle your pick.  It might best if you buy some of each.  That's what I've done.  Keep in mind you can purchases in any quantity you want at Goldmart, Provident, Gainesville, etc., if you can't afford Tulving's minimums.   

[TripleB]

I did some further thought and agree with CraigR. I will hold some silver, but I will not count it as part of the PP.

It's really splitting hairs because whether I keep 99% of my money in PP and 1% in a VP that holds silver, it's essentially the same as putting 1% of my gold into silver. While technically, the VP shouldn't be rebalanced from the PP, and that could be one difference to these two strategies, even if I did rebalance into silver, I can't imagine silver dropping 90% in value, 100 times in a row, and I'm still rebalancing in from other PP assets.

Regardless, I do like Craig's idea of keeping the PP pure, even if it means expanding my VP to hold other things that I want.

For example, I like to hold some Berkshire Hathaway stock. Currently I keep it at 1% of my total PP, and I count it towards my stock allocation. In my new system, I'll move it into VP and just reduce what I consider as PP.

I will then maintain two sets of metrics:

A) Total Portfolio Value
B) Total PP Value

The first will give me a clearer picture of my net worth. The second will give me an idea of what percentage of my networth is really "safe" considering PP principles.

[MachineGhost]

I would stick with legal tender junk silver since it would be most practical for day to day transactions.  Even 1 oz of silver could become worth a lot in a SHTF scenario and become prohibitve to making change as well as working with existing cash registers.

But, don't be stupid and pay a 40% premium above spot for any kind of bullion.  Even 15% above premium for a 2012 Silver Eagle is criminal when compared to semi-numismastic rare gold coins.  Or the even more ridiculous  premiums for Early Release Silver Eagles in PR70.

MG

HB's argument against silver is that it's not purely an inflationary device, but reacts to industrial pressures as well. Thus, silver prices can drop, even if inflation rises, due to reduced industrial demand.

That said, I find that silver does have major inflationary characteristics and is cheaper than gold for trading small quantities. I personally believe that one can modify the PP such that 5% or less of the Gold portion (or about 1% of the total PP) can be in silver, and you're essentially going to get the same returns as the traditional PP. Mathematically you could put 1% of your PP into anything and get substantially similar returns because even if the 1% dropped to $0, it would only affect the PP by 1%.

My reason for wanting to put 1% of the PP into silver is so that I can have easily partitionable precious metals in the event of a major catastrophe where people have returned to bartering.

The problem with gold is that if one goes to 1/10 or 1/20 ounce gold coins, you are paying 40%+ premiums over the value of gold. That's absurd. If one wanted small tradeable coins, then you're far better off putting 1% of your PP into silver, than putting 1% into 1/10 ounce gold coins, because of the huge premiums involved.

How do you trade gold coins for a tank of gas? How about for some canned food? Assuming massive inflation in a post-TSHTF world, gold should rice as commodities prices rise. We'd have to experience 10,000x inflation of canned food relative to gold to make it possible to trade a 1 ounce gold coin for food.

The question I have, is how to best add silver to the PP? There's absolutely no reason to add it via an ETF, because the entire purpose is to have easily barterable coins in small quantities.

I've looked into junk silver, which is 90% silver US coins made in the early 1900s. Currently, with silver at $30/ounce value, every $1 face value of junk silver coins are worth about $22. The amount of silver in various old US coins is proportional to the face value. Thus, 20 5-cent nickels have the same silver as 4 25-cent quarters and 1 1-dollar coin.

My first trip was to ebay where it appears junk silver is selling for 15% to 20% above melt price. That's absurd because I can get brand new 1 ounce silver coins for around that range such as Canadian Maple Leafs.

I found a few companies that deal with bullion like GoldMart that sell junk silver by the bag with substantially lower spreads (about 1.5% above spot) but the minimum purchase is around $1300.

One might think arbitrage opportunity but Ebay plus PayPal fees = 15% so that explains why sellers want 15% above spot to sell on Ebay... but it doesn't explain why buyers are willing to buy it.

One interesting thing about US Junk Silver is that there appears to be a wide variety to choose from. I gain a small amount of personal satisfaction from looking at things I like, so having a huge bag of silver coins with cool images would be nice. I don't like mixing and matching too much, so I wouldn't want a mixed bag. I'd prefer picking 1 or maybe 2 and standardizing.

I thought I wanted quarters, because quarters are seemingly a good size. I find that the two images I like the best are the Mercury Dimes with the winged crown face that looks like a Greek Mythological image, and the Ben Franklin half dollar because I respect Ben Franklin. Also my paper $1000 denomination I-Bonds have Ben Franklin's image on them so that's a cool combo.

I might also get into a very low level of numismatic silver coin collecting as well. I figure if I can buy a few interesting silver coins that are no more than 2x spot price, then I can "mark" 1/2 of the price paid towards my PP, and the other 1/2 just doesn't get accounted for since I don't believe in collecting as an investment. Or perhaps I count the non-melt price value into a "collectibles variable portfolio" but the primary purpose of ownership is to get some enjoyment of having a few cool interesting coins.

Thoughts on this plan? Suggestions on places to buy junk silver? Suggestions on how to store silver so it doesn't turn black? Suggestions on interesting silver collectible numismatic coins that don't sell for too much above spot that I can add to the collection?

[TripleB]

Is there supposed to be sales tax on junk silver? One shop I called said there is, and this sounds odd.