Wednesday, July 21, 2010

2010 Proof Silver Eagle Update

2010 Proof Silver Eagles at Risk of Cancellation

July 16, 2010 | Filed Under Silver, US Mint

One of the consequences of the record pace of United States Mint silver bullion coins might be the cancellation of the popular Proof American Silver Eagle for the second year running.

The Proof Silver Eagle had been issued each year from 1986 to 2008. During this period, it has sold between 372,168 and 1,092,477 coins per year and had firmly established itself as one of the United States Mint’s most popular products.

2009 Proof Silver Eagle (not issued) 

The offering was abruptly canceled for 2009 to the dismay of many collectors. The US Mint explained that it was legally required to produce the bullion version of the American Silver Eagle in quantities sufficient to meet public demand. They were not under any legal requirement to produce the collectible proof or uncirculated versions of the coins. Because demand for silver bullion coins apparently outweighed production, the US Mint sourced all incoming blank supplies towards the production of bullion coins.

The announcement of last year’s cancellation came by way of a press release issued October 6, 2009, which highlighted the two collectible precious metals offerings that would be available in 2009, before enumerating the long list of products which were canceled. As if in validation of the high demand for US Mint bullion Silver Eagles, in late November the US Mint was forced to temporarily suspended sales of bullion coins after inventories were depleted.

During 2010 to date, Silver Eagle bullion coin sales are running at a higher pace than the prior year. An average of 3,028,083 ounces have been sold per month this year, compared to an average of 2,397,208 ounces per month last year. Demand shows no signs of abating, as investors continue to buy every silver bullion coin the US Mint can produce.

The US Mint recently unveiled a numismatic product release schedule for the remainder of 2010. The 2010 Proof Silver Eagle and most other precious metal products were conspicuously listed as “TBD.” The Mint is still preserving some hope that these coins may be issued, but the situation looks rather bleak.

Why can’t the United States Mint produce bullion coins in sufficient numbers along with the traditionally issued collectible precious metals products? Is it the result of the onerous requirement that precious metals must be sourced from newly mined domestic sources? Is there a lack of manufacturing capacity? Or is it a case of managerial incompetence?

The same excuse of blaming “unprecedented demand from investors” is getting a bit old after two years

Still No 2010 Proof Gold and Silver Eagles

Other News & Articles

• Build a Portfolio with Affordable Coins

• Mint Stats: Whatever the Number, it’s Over

• Coins Disappeared in War Year 1862

The following is an excerpt from David Ganz’s upcoming book, Rare Coin Investing: An Affordable Way to Build Your Portfolio, due in bookstores mid-August. It can be pre-ordered at www.ShopNumisMaster.com.

What attracted me to coin collecting (and ultimately coin investing) some 50 years ago was the ease of entry. No forms to fill out. No disclosure. Just sift through your pocket change and transform money into MONEY – real money. Perhaps my story is typical, but in 1960 I used to check my pocket change for things that were unusual. I found a well-worn, circulated 1906 Indian head cent in my pocket change, probably from a comic book or baseball card purchase. That wasn’t unusual, because D.C. Comics charged 12¢ for a Superman comic, which meant tendering a dime and a nickel, with three cents change.

Thinking that I had been given a worthless foreign coin, I complained to the wise fountain of information, my mother, who took me to the Rockville Centre, N.Y., public library. A red-covered book by R.S. Yeoman set me straight at once: the coin was an Indian head cent, American issue, and was in very good condition (three letters of the word “Liberty” were visible). According to the Guidebook of United States Coins, then in its 14th edition, my pocket change investment was worth somewhere between 15 and 70 cents.4 This wasn’t rocket science; my allowance in those days was 25 cents a week in return for which I made my bed, cleared the dinner table, and dried the dishes. (This is so long ago there wasn’t widespread use of dishwashers, except for the two hands of a child). For an investment of 1/25th of my weekly allowance I was hooked on coin collecting very quickly. Before long I was helping the local newspaper delivery boy go around each week to collect for the paper’s subscription delivery costs. My fee: 25 cents, which I could apply toward buying any coins that I needed for my collection at double face value.

That started a lifetime of collecting, though in those days, I rarely bought anything more than an old, well-worn Shield nickel (cost by this “method,” a whopping 10 cents), but still not a bad deal considering that the Red Book was quoting Shield nickels in good condition at $1.20 to $1.50 for the inexpensive common dates. I picked up some 2-cent pieces (4 cents cost) that way, too: the Guidebook listed inexpensive dates in good condition at 85 cents to $1.30.

What is astonishing is to place this investment (the real start of a coin collection) in a very affordable coin from pocket change and to overlay on the same scale the price of gold, which in 1960 on the nascent “free” market averaged $36.50 per troy ounce, and to carry the returns over a 50-year collecting lifetime. Because the “investment” is so nominal, a convenient and practical way to measure the success is to borrow the price shown in the Guide Book of United States Coins (the Red Book) in seven years selected at random during the period: 1961 (the 14th edition, covering 1960), 1964, 1970, 1979, 1997 and 2010.

The overall gain is from the base cost of 1 cent. I measured it against the price quote in 2007, as well as 2010. Even as gold topped $1,000 per troy ounce in the late fall of 2009, the rare coin from pocket change had a better return when holding both for essentially a half century.

Almost a dozen years ago, I wrote a book called Planning Your Rare Coin Retirement. It built a $10,000 portfolio and a $100,000 portfolio in 1997 and suggested reasons why these portfolios could grow over the long run. The results, in 2010 and beyond, exceeded my expectations and, I am assured, anyone who followed that advice. A more expanded view of the premise and results will be discussed in upcoming chapters.

This is not a book about 1804 silver dollars or 1913 Liberty head nickels. It’s a book of affordable rare coins that you can collect or invest in, or if you agree with Harvey Stack’s theory – and I do – both.

Here are some of the statistics that form the basis of my underlying thoughts on the general topic of this book. It summarizes my experience as a writer for various coin magazines over the last 45 years and the experiences that were polled when I was on the board of (or legislative counsel to) the ANA, as the lawyer to the Professional Numismatists Guild, as a founding board member and counsel to the Industry Council for Tangible Assets, as a member of the Citizens Commemorative Coin Advisory Committee, and as a lawyer in New York City with a significant practice dependent on offering of advice that draws on this.

It’s not the questions or answers from the surveys, but the impressions and trends that are the bulwark of my philosophy of collecting and investing. Each aspect of this counts in taking either a contrarian view, or one which you think will lead the herd.

So here is a summary of key analytical data and points from all the interchange with collecting investors:

• The average collector spends $2,500 annually maintaining and expanding his collection.
• Prior to 1999, most collectors (95%) were men
• Prior to 1999, there were about three million coin collectors in the United States.
• Prior to 1999, there were about 200,000 serious coin collectors in the U.S.
• Prior to 1999, there was a thin market for coin collecting items.
• Prior to 1999, the number of serious investors in rare coins was probably under 200,000.
• Post 1999 and the introduction of the state quarter program, the U.S. Mint says that between 120 million and 150 million people collect coins (most of them collecting state quarters)
• Today there are probably more than 300,000 serious collector-investors.

Population of serious collectors and investors
• Median age of collector: 63
• Average investment position: $380,000
• Average investment position excluding coins: $342,000
• Average value of numismatic collection: $39,100
• Collects popular series such as silver dollars (59%)10
• Collects other silver coins (50%)
• Collects gold coins (25%)
• Collects modern U.S. 1964-date (45%)
• Collects other things: antiques (28%), old books (12%), toys (11%); autographs (5%).
• Social and economic:
• Gender – Male (92%)
• Married (74%)
• Attended college (70%)
• Own my own home (89%)
• Average net worth (about $800,000)
• Average household income exceeds $100,000

Tax laws recognize three types of “collector” investors: those who pursue their hobby regardless of the profit or loss, investors who seek a long-term profit, and dealers. Some collectors become “vest-pocket” dealers; some dealers are also collectors. Some investors become collectors – but every collector is ultimately an investor, the longer that he or she holds on to the coins in their collection.

This book will look at some models of portfolio building as well as past performance as analyzed by Wall Street wizards of another generation – the Salomon Brothers survey that took a model portfolio for a dozen years starting in 1978 and showed how rare coins stood up against other investment entities. The method works so well, and is grandly illustrative, that you can compare how the extended Salomon charts look at the market of yesteryear and that of tomorrow. (I have extended some of the coins back 80 years, and carried all of the coins forward from the last time Salomon did the chart to the 21st century, now a generation later).

You’ll also have the opportunity to look at the model portfolio of $10,000 that I suggested in the original 1998 edition of Planning Your Rare Coin Retirement, and the expanded $100,000 portfolio. This will give the opportunity to see how not only the portfolio as a whole made out, but selected individual coins as well. (There are too many coins to have extended analysis on each, but the typical specimens are included). Ditto on the $100,000 portfolio. At the end, I’ll ask you the question, “How’d we do?” You can’t hide from the printed recommendations. The answers will be black and white and may surprise you.

Please remember that past performance is not a guarantee or even a hint that a new portfolio – or the same one – will yield similar or identical results. Indeed, it could be the opposite. That’s a hint to do your own research and draw your own conclusions.

Other News & Articles

• Build a Portfolio with Affordable Coins

• Mint Stats: Whatever the Number, it’s Over

• Coins Disappeared in War Year 1862

This article was originally printed in Numismatic News.
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As the year 1862 opened, matters were not going well for the Union government in Washington, D.C., and its monetary system. At the end of December 1861 the public had suddenly begun to hoard gold coins and the banks were forced to suspend specie payments; the United States Treasury followed suit the same day. This meant, for practical purposes, that the so-called Demand Notes ($5, $10, and $20) issued under the acts of July 17 and Aug. 5, 1861, were now fiat money and could not be exchanged for gold or silver.

However, and most importantly, these bills could still be used to pay customs duties, meaning that importers could use either gold or Demand Notes for this purpose. This had the desired effect of keeping the Demand Notes at close to par with gold coin. Once paid to the customs they were not re-issued, forcing importers to buy gold coin on the open market at ever-increasing premiums.In late December 1861 the Army’s command notified the Treasury that there were serious difficulties in paying the soldiers their monthly stipends, small as they were. An unpaid military is a disaster waiting to happen so the Lincoln Administration asked Congress in January 1862 for authority to print and distribute another $10 million worth of Demand Notes. In due course the legislators agreed and the President signed the enrolled bill on Feb. 12, his birthday.Prior to Dec. 30, 1861, when specie payments were suspended, the face side of the Demand Notes carried a notice to the effect that they could be used for any debt owed the government, which of course included customs fees. This particular face, which was similar on all three Demand Notes of 1861, is called ‘The First Obligation’ by modern collectors. It is presumed, however, that the $10 million worth of Demand Notes printed under the Act of Feb. 12, 1862, used the earlier plates, which were dated Aug. 10, 1861.

According to a later statement by the Treasury, the total value of the Demand Notes issued through the spring of 1862 was just over $60 million. Between July 1862 and June 1863 redemptions totaled $47.7 million and by the fall of 1864 more than 99 percent of the issue had been recorded as destroyed. No more than a few thousand notes of all three denominations escaped official burning and of these many were lost in fires and other disasters of time.

The $10 million of Feb. 12, 1862, proving inadequate, Congress discussed various solutions and over the course of the next few days produced a comprehensive bill incorporating fresh changes to the monetary system. The new legislation was signed into law by the President on Feb. 25, 1862.

Under the newly drafted regulations, the Treasury now had the authority to issue up to $150 million worth of “Legal Tender Notes,” which were similar in appearance (on the face) to the 1861 Demand Notes but minus the right to be used for the all-important customs duties. This was the first time the law recognized that we were now using fiat money, with virtually no backing, just the good faith and credit of the government.

Because there was confusion over the exact status and value of the 1861-dated Demand Notes, on March 17, 1862, the President signed a supplementary act which, in essence, verified that the Demand Notes could be used to pay customs duties even though a fiat currency in the marketplace. Perhaps a rumor had made the rounds indicating that the $10 million of Feb. 12, 1862, could somehow be distinguished from the notes printed in 1861.

Under the legislation of July 17, 1861, the Treasury had the right to call in the Demand Notes and the new law of Feb. 25 stated that, of the $150 million authorized, $50 million was allocated for this express purpose, an oddity since legislation had allowed for $60 million of the Demand Notes to be issued.

On July 11, 1862, the Feb. 25, 1862, act was amended to add another $150 million in Legal Tender Notes for Treasury use. In a significant change, however, the government was now authorized to print notes of less than $5 in value but with a maximum of $35 million in circulation at any one time. It was originally planned to issue $1, $2 and $3 notes but the last-named exists only as unadopted proofs. A further stipulation in the July 11 act was that notes of less than $1 could not be issued. Notes issued under the July 11, 1862, legislation were dated August 1862.

Part of the Feb. 25 law was taken up with combating the growing threat of counterfeiting. As early as the fall of 1861 it has been reported that counterfeits of Demand Notes had already appeared and such activities were a threat to the stability of the Union currency. The United States government secretly encouraged the counterfeiting of Confederate notes and it is possible that rebel sympathizers were busy with U.S. currency to balance the scales.

The notes dated Aug. 10, 1861, issued under the Acts of July 17 and Aug. 5, were all printed by the American Bank Note Company, judging from those seen to date. On the other hand the new Legal Tender bills of 1862, produced under the Feb. 25 act, were printed by both the American Bank Note Company and the National Bank Note Company.

With the implementation of the Feb. 25 law, the Union government once more seemed to have the monetary system under control. Silver coins still circulated and these were supplemented by the Legal Tender Notes. The old “7.3 – 20s” Interest Bearing Notes of 1861 did see occasional use in the marketplace or in payment of debts, but otherwise were rarely seen by the general public. In addition even the smallest of these notes at $50 was a considerable sum of money.

(The “7.3 – 20s” earned their name from the fact that each note earned 7.3 percent interest, payable every six months, and could be exchanged for 20-year government bonds.)

The continuing litany of Union military defeats, with few victories, meant that the Northern population grew increasingly nervous about the war. These fresh concerns came to a head at the end of June 1862 when the public suddenly began hoarding silver coins. For some odd reason the trime (three-cent silver) remained in daily use for a few more weeks and then it also disappeared.

After the silver coins left the marketplace, the work of the two operating mints, Philadelphia and San Francisco, sharply diverged. At the California Mint matters proceeded as before with enough silver coinage being made to satisfy local demands while gold minting remained strong due to deposits by area mines and miners.

Philadelphia was in quite another league. The coinage of silver showed a precipitous drop as few people wished to pay gold, which was required, to obtain minor silver coins that did not circulate anyway. Gold, mostly double eagles, continued to be struck, though in diminished quantities. Many of the $20 pieces were exported to Europe to pay for military supplies ordered by the Union government.

Proof coins were another matter entirely. Prior to 1862 the collector could purchase entire sets or just individual pieces, a rather handy arrangement if one collected, say, $3 gold pieces or half dollars. For reasons that are not entirely clear, Mint Director James Pollock at the beginning of 1862 changed the rules by requiring that complete silver or gold sets be purchased; even the lowly cent had to be obtained in the silver set, which cost $3 but which had a face value of $1.91. The buyer had to pay in silver or gold, whichever was appropriate in the circumstances. It is not clear if Demand Notes were accepted for the proof sets but one suspects that they were.

It is worth noting that the Treasury had made a strong effort to keep silver coins in daily use. Dimes and half dimes in particular were coined heavily during the first six months of 1862 but in retrospect they were being poured into a seemingly bottomless pit. The hoarding of silver coins no doubt had actually started in December 1861, when specie payments had been suspended, and then had slowly gathered momentum until the sudden exceptional demand came in late June 1862.

In July 1862 it was assumed by Treasury officials that this sudden hoarding was only temporary and the coins would again be used in the marketplace once the war began to show better results for the Union. However, much of the silver coin had not been retained by the public but rather sold to bullion dealers, who promptly shipped large quantities to other countries, especially Canada and Central America. The coins went into local circulation in these countries although many of them also went into private hoards where the political makeup of the country was unstable.

The removal of silver coins meant fresh problems for the Treasury. Except for the lowly copper-nickel cent there were no coins in circulation in the United States east of the Rocky Mountains; west of those same mountains the San Francisco Mint held sway in an area where paper money was banned by popular demand. From 1861 to 1865 California and surrounding areas were well supplied with gold and silver coins.

The complete removal of silver coins from the marketplace caught Treasury officials, and Secretary Salmon P. Chase especially, completely off guard. As with the similar crisis of the early 1960s, there was little in the way of contingency plans to deal with a very serious monetary problem. The war then raging on many fronts occupied everyone’s mind but the Treasury had an obligation for contingency planning and in this case there was little or none.

With a sudden need for small change, the Treasury abruptly decided to use postage stamps in lieu of the silver coins so recently hoarded. On July 14, 1862, Secretary Chase asked Congress to consider two different plans in dealing with the crisis, neither of which addressed the problem all that well.

The first suggestion dealt with reducing the amount of pure metal in the minor silver coinage. While on the surface this seemed reasonable, in practical terms it was not. The coins had been hoarded in part because the value of the paper money, now universally called “Greenbacks” from the color of the ink used on the reverse, had fallen in value compared to gold and silver. No one knew how far the paper money would fall so a reduction in weight for the minor silver coins might have to be repeated. It would have caused considerable confusion.

The other suggestion was almost as bad. Chase thought that postage stamps could be used a small change. In his book Fractional Money, Neil Carothers calls the plan “grotesque,” which is as good a description as any. Carothers went on to note that, “It is at first glance difficult to believe that a responsible finance minister would propose the circulation of tiny squares of glue-coated paper as a national currency.”

Actually the idea had already occurred to many people during the first week of July and there were several methods tried by the public, including pasting stamps to sheets of paper. In most cases, however, the stamps were simply passed hand to hand until they literally fell apart or became stuck to one another and no longer usable.

In a related development, on July 16 Congress had passed a law that stipulated relatively harsh penalties for the reuse of canceled stamps. Apparently, due to the need for stamps as small change, unscrupulous individuals were soaking stamps off envelopes and removing the cancellation marks whenever possible. Congress thought that a prison sentence up to three years or a fine up to $1,000, depending upon the severity of the offense, was a reasonable response.

Because there seemed to be nothing else to do, Congress quickly accepted the postage stamp suggestion and passed a poorly written bill on to the President, who signed it into law on July 17, 1862. Once the law became widely known, there was a sudden demand for postage stamps by the public. Normal daily sales of stamps at the post offices in New York City, for example, were around $3,000 but immediately after the law was passed the amounts skyrocketed; the total for the 18th and 19th of July, for example, was $26,000.

Part of the problem with the new law was that Postmaster General Montgomery Blair had been virtually ignored when the bill was being drawn up and passed. He retaliated for this slight by ordering local post offices to restrict sales to regular customers only and in normal amounts.

One of the more ingenious temporary solutions to the problem of stamps falling apart in use was patented by John Gault. He developed a small round frame with a mica window to protect the stamp. Merchants then put advertising on the back (metal) side and the “encased postage stamps” circulated among the public. It worked, and Gault had several competitors, but the idea was relatively expensive and only a short-term fix. These appear to have been issued through the late fall of 1862 and perhaps even into 1863.

It did not take all that long to realize that the idea of stamps being used as small change simply would not work. One section of the law said that the Treasury would redeem stamps no longer fit for use and this provision proved a nightmare for everyone involved. At first the Post Office refused to carry out the law but under public pressure had to do so in limited circumstances. In reality the Treasury was supposed to redeem the worn-out stamps but it had no means of doing so despite what the law required.

The Treasury then hit upon the idea of printing stamps in a different form. For example a 25-cent stamp would be much larger than normal and the design motif would be five stamps of five cents each. It was an innovative solution except for one thing: the law did not authorize any such innovation, a point which seems to have been lost in the scramble to provide currency for the public. Secretary Chase should have gone back to Congress for an emergency bill to cover this plan but did not.

The new idea amounted to issuing greenbacks in fractional amounts of a dollar, a clear violation of the law. The latest authorization (July 11, 1862) for paper currency had specifically banned notes of less than $1. Despite this inconvenient fact, Chase ordered that every effort be made to print these “postage notes” as quickly as possible. To speed up the process, there would be no signatures and no serial numbers, an open invitation to mass counterfeiting but perhaps unavoidable under the circumstances.

In order to provide a semblance of adhering to the law of July 17 as well as speed up the whole process, the Secretary ordered the printing contractor, American Bank Note Company of New York, to use depictions of actual stamps in preparing the plates. The 25-cent note, as indicated above, showed five overlapping five-cent stamps. The 10-cent issue, on the other hand, had only the single 10-cent stamp. Denominations ranged from five to 50 cents for this first emission of fractional paper money.

On Aug. 21 the initial disbursement of Postage Currency was made, for use by troops in the field. Printing was slow at first but by early in September 1862 public distribution had begun; by Oct. 1 the rather inadequate sum of $800,000 worth had been printed but this gathered momentum as the weeks passed. By the first week of January 1863 more than $100,000 per day was being issued.

The first notes carried the stamp affiliation almost to the extreme. The printed sheets of Postage Currency were perforated just like sheets of stamps and tore off just the same, except that the new issues were much larger than ordinary stamps. It was not long before there were complaints about the difficulty of tearing a note off cleanly so the Treasury changed the format by dropping the perforations and using a straight edge as on regular paper currency.

One of the stipulations of the July 17, 1862, act creating stamp money was that no private person or business was permitted to issue fractional notes of any kind. The law was widely ignored, however, despite a possible jail sentence of up to six months. There was too much public demand for currency of any kind, so federal officials just looked the other way.

As if the problems with the silver coinage and stamp money were not enough, during the summer of 1862 the public began to hoard even the lowly copper-nickel cents. Considering that the intrinsic value of these pieces, even with the relatively expensive nickel contained, was less than a half cent, this hoarding was baffling to contemporaries.

Some idea of the lack of urgency in the coinage of late 1861 and early 1862 may be judged from the following figures for cents on hand for distribution by the Philadelphia Mint at a given point in time. 1861 – Aug. 31: 420,505; Oct. 31: 92,290; 1862 – Jan. 31: 737,935; April 30: 940,379; Aug. 31st: 368 pieces. The reserves had collapsed.

In May and June 1862 the cent coinage was sharply increased to meet the expanded demand, but it was too little and too late. As late as July 3, 1862, the Mint presses were still keeping up with the demand, if only on a daily basis with no reserves. An order from a bank received on that day prompted a Mint reply to the effect that the coins would be shipped in “a day or two.”

Within a few days of the above there had been a drastic change in the situation. An order received on July 20 for $50 worth of cents (5,000 pieces, a common order for the times) was not shipped from the Mint until Sept. 12, nearly eight weeks later. Although not realized at the time, the abrupt change of July 1862 and increased hoarding was to signal the death knell for the copper-nickel cent. From this point until June 1864 the Mint was unable to fulfill cent orders on a timely basis.

The cent coinage of the last six months of 1862 was about triple that of the first half. From 7 million the total climbed to about 21 million pieces, nearly one million pieces per week. Mint Director James Pollock was sparing no resources to fill the orders but it was a losing effort.

By the latter months of 1862, Pollock was sufficiently alarmed about the state of the coinage in circulation – there was precious little of that except for the lowly cent coins – to write Treasury Secretary Salmon P. Chase on Dec. 1. Pollock was concerned about the future of the cent coinage as there were increasing difficulties in obtaining sufficient supplies of nickel; there was no problem with the copper, however.

During the fall of 1862 the first private cent tokens began to appear as merchants needed something by which to make change for the fractional notes tendered for purchases. At first these tokens carried purely patriotic themes on both sides but as the need for such pieces intensified merchants placed their advertising on one side. By the end of 1862 these Civil War Tokens, as they are known to modern-day collectors, were becoming a staple in the marketplace.

In 1862 the monetary system of the United States underwent profound change. Even more changes would come in 1863 as marketplace pressures continued to increase.

Why Silver is a sizzling investment

By Jeff Clark
Silver has been sizzling and causing lots of buzz in the industry. Investors are excited.Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low.This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record.

Take a look at the jump in U.S. Mint coin sales since 2007.

Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.

There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own?

We have all the answers straight ahead, including lots of actionable info, so let’s jump right in…

Why Should I Buy Silver?

There are several reasons to own silver in addition to gold.

First, it’s cheaper! Known as the poor man’s gold, those with limited budgets will find it easier to purchase. You might hesitate plunking down $1,200 for an ounce of gold, but you can pick up 32 ounces of silver for half that amount.

Second, silver has wide industrial use and this component can help or hinder its price. As its consumption increases across a growing number of industries, this should help place a floor under demand. And because of its unique properties, new uses continue to be discovered.

Third, silver is money and has served this role more than any other material on earth, save gold. Due to its historical role, silver will always have monetary value and offer similar protection as gold to the ongoing global currency devaluations, and will definitely benefit from the inflation hurricane we see as inevitable.

Silver is more practical as a currency used for everyday purchases. When the time comes, you can sell the requisite number of silver coins to cover a specific need, as opposed to being forced to liquidate a high-dollar-value gold holding. Silver is perfect when smaller amounts of cash are required.

Fourth and last, silver could possibly outperform gold before this bull market is over. The market capitalization of silver (and silver stocks) is much smaller, making its price more susceptible to demand spikes than gold.

In the latter part of the 1970s precious metals bull market, gold gained over 700% – but silver soared over 1,400%. If you’ve got a bit of Gordon Gekko in you, we recommend investing a portion of your dollars in silver.

Caution – Hot!

Like all things, silver has its drawbacks, two in particular.

First, the price is volatile. Over the past 12 months, silver has seen gains of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period of months or even weeks.

If you’re going to own silver, you must be prepared for big price gyrations. The best way to do that: buy it and forget about it. And…

►Make price volatility your friend. Big price swings present the opportunity to snag silver at a big discount. We give some guidance on prices below.

Second is the storage issue. As your pile grows, the advantage to storing gold will become self-evident. At $1,200 gold and $18.50 silver, $10,000 will get you eight gold eagles that will fit nicely in the credit card slots of your wallet; however, it will buy 540 silver eagles, weigh nearly 34 pounds, and fill a small bank safe deposit box.

►How to store physical silver. There are several ways to solve the storage dilemma, even if you plan to buy like the Hunt brothers.

Spread your holdings around. Not only is it wise to avoid keeping all your physical silver in one place, diversifying your storage arrangements allows you to buy more. Hide some at home in several locations (no cookie jars, though), and obviously tell only one trusted person. Store some in a bank safe deposit box and use more than one bank as your holdings grow.

Buy bars. Silver bars take up less space than a pile of coins of the same weight. We wouldn’t start out with nor have all our holdings in bars, because you want the advantage coins offer. But the larger your holdings, the easier it will be to store some of it in bar form.

Use pool accounts and unallocated storage. With a pool or unallocated account, you’re essentially getting free storage no matter how big your stash. That’s hard to beat. You’ll pay fabrication and delivery charges if/when you convert your holdings and take delivery, but in the meantime, you save on storage costs. Great value for the large holder.

Private storage. Store your silver with a private vaulting company. The advantage is that it’s outside the banking system; the disadvantage is that it’s usually expensive, though it can be cost effective for large holdings. Do your own due diligence if you go this route because we can’t vouch for any facility, but you could start by checking out delawaredepository.com. Keep in mind that using a vaulting facility beyond a reasonable driving distance will mean added shipping/insurance costs and restrict quick access.

Is Now a Good Time to Buy?

With the gains we’ve seen in silver, would we buy right now?

Let’s first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980.
.Since our current bull market in precious metals began in 2001, the ratio, while fluctuating wildly, has never gone below 45. And yet look where it went during the precious metals peak in 1980: it bottomed at 17. Even though gold was soaring at the time, silver outran it.

The ratio might show relative strength between gold and silver, but it’s not a good buying indicator. A falling ratio could mean silver is rising faster than gold, like it is currently, or it could mean silver is falling slower. As a result, we’d use the ratio to determine silver’s upside potential but not necessarily when to place an order.

These big-picture signals tell us silver is undervalued and, at the moment, a better bargain than gold. And given the currency crisis we’re convinced is in the cards, we wouldn’t want to be caught without any. If you have a long-term mindset, silver is a buy today.

Would we wait for a better price?

If you do not own any, and plan on holding what you buy until a mania develops, then we wouldn’t wait. The risk of buying silver at current prices is lower than owning none at all.

If you do own some but want to add to your holdings, we’d probably wait for a drop in price, in part because silver could more easily fall when the economy is found to be more fragile than what many believe. And with industrial uses comprising approximately half of silver’s demand, it would be more susceptible to sell-offs than gold if our research is correct about global economies.

Further, summer usually brings pullbacks in prices, and this can be especially true for silver stocks. This is the tendency, though we can’t be sure if this summer will follow past trends. Still, our best guess is to anticipate another leg down this year. If you already own silver, we’d look for a correction to add to your holdings.

In our opinion, owning no silver in this bull market would be a mistake. And your first (and biggest) investment in silver should be in a physical form.

How much physical silver should you have? There’s no right answer and one size will not fit all. But we do recommend holding more gold than silver. Our suggestion for your precious metal holdings is roughly 80% gold and 20% silver.

Like gold, silver comes in different forms. We’d start with the more popular one-ounce coins and then branch out into other types as your holdings grow.

Jeff Clark Senior is a Editor with Casey’s Gold & Resource Report

Courtesy: www.caseyresearch.com