“How to Buy U.S. Government Backed Silver for $1.25, and get a Free Retirement Loan”

By Travis Johnson, Stock Gumshoe, July 21, 2009

This ad sounds a little bit like a very popular one we looked at a few months back — then, it was for $1 “Silver Shots”, and it was a teaser for a leveraged derivative trade on silver futures (or, in plainer speak, it was for long-term call options on the SLV ETF).

If you invested in those so-called “silver shots” when I wrote about them, you would have seen your investment come close to doubling, then fall apart. I estimated that Zachary Scheidt back then was teasing January 2010 SLV call options at about a dollar, they were $1.15 when I wrote about it and are now about 55 cents thanks to the decline in silver prices and the time decay on the options. If you were to try a similar strategy now you might look at the $15 strike price for a bit under a dollar, or, for a somewhat larger speculation, the January 2011 options. That’s not a recommendation, of course, just an update.

But that’s not what we’re talking about today — what’s being teased is a different way to invest in silver, something else you can buy for a very low price if you believe silver prices will spike, without the same kind of “bet it all” leverage that you get with one of those options trades.

And this tease is for the Retirement Millionaire newsletter, which is an interesting letter from Dr. David Eifrig that doesn’t necessarily focus on investing all the time — he writes about finding special deals and freebies and living well in retirement. You may have seen his ads before, it’s published by Stansberry so it gets quite a bit of exposure.

Today he’s teasing two things: First is the cheap silver that I noted above, second is the “Free Retirement Loan from the U.S. Government”. To take the second thing first, I can tell you that the “free retirement loan” must be the same thing that we’ve seen teased by several newsletters before, taking social security early, banking those payments, then repaying them after a few years to “reset” your social security for a higher payout — it does end up being an “interest-free loan” as far as I can tell, but of course, you also have to be in a position where you’re taking the money but you don’t necessarily need it, and there are lots of details that I don’t know about. I wrote about this last Fall, so you can see the details and the long discussion here.

So now, the point of our note today, dear friends — silver and gold have been on a bit of a recovery slope in recent days, so what is this “U.S. Government Backed Silver for $1.25?”

What could this be? The letter includes a nice, long argument that the price of silver will spike in the years to come, and that it will outpace any gains from gold. The rationale is the same stuff we’ve probably all seen before: Silver is “real money” and should rise with inflation; unlike gold, it has real uses as well and is largely consumed by industry, including healthcare and lots of new electrical and green technologies that demand silver; government stockpiles are either gone or historically very low, and silver coin demand has spiked to remarkable levels; there are a limited number of “primary silver” mines and it doesn’t get the same mining attention as gold; and silver is historically very cheap right now relative to gold (that’s the “gold/silver ratio” that you’ll probably hear a lot about as long as it’s below historical averages).

So if you buy all that (and many people do), what’s the way to play silver here?

Here’s the spiel to get us going …

“Created by and Courtesy of the U.S. Government…

“Well, you could buy silver stocks.

“But, mining and silver stocks depend on a lot of variables beyond the price or even fundamentals of silver itself.

“You could buy into a silver ETF, but no one can say with any certainty how reliable this will be as prices take off. After all, they are fairly new investments and have no real track record.

“You could buy ordinary bullion, but you’ll need to pay 25% OVER the price of silver to buy these investments.

“You could buy newly minted silver coins, but expect to pay premiums of 30% or more.

“In fact, I just looked up a newly minted 1 oz Silver Eagle Coin on E-bay. They are selling for $21.95… that’s a 50% premium above the current price of silver.

“That’s why I believe the absolute best way to buy real silver is through a U.S. government-created vehicle that will act as a store of value and give you a chance to own real silver and reap a hundred, even thousands of percent gains… for as little as $1.25.”

So, that’s interesing, no? How about some more specific clues?

“The U.S. government ceased production of this silver in 1965 because people were hoarding it and not circulating like the government had planned.

“Since that time, it has quietly changed hands from one investor to another and no one knows for certain how much is available.

“There are 3 unique properties of this U.S. government – backed Silver that make it such an ideal investment:

* “This silver is widely recognized and therefore liquid. It has always had an eager market for owners who want to sell it.

* “It is easily divisible should you need to “cash-in” a portion of your investment or use it to buy goods and services in the future.

* “It is already “pre-certified” and should not need independent verification of purity and value like silver bars, silver rounds, or collectible grade coins… because every piece of silver is date-stamped and has official U.S. Government markings.

“As I mentioned, you can buy this silver investment in very small increments (for as little as $1.25). You’ll basically pay the “spot” price, which you can find quoted in many places on the internet… plus 2% to 4%. (Remember… most silver bullion you buy will have a mark-up as much as 10-times higher.)

“And best of all, because you are getting this silver cheaper than most any other silver investment, you’re opportunity for gain is that much greater.

“A small $500 stake today could realistically turn into $2,345 over the next several years.”

So, that’s enough for the Thinkolator to pipe in with an answer — and if you’re a silver investor or coin collector, it’s probably enough for you to have the answer at hand as well. This is …

Junk silver.

Junk? Who wants junk? That’s the term that’s used for circulated currency, often in terrible shape, from before 1965, when the silver content of U.S. coins was cut drastically. Coins from that era — quarters, dimes, half dollars and dollars, particularly, are prized for their silver content even if they’ve been clobbered and beaten up and are almost unrecognizable as coins.

And for good reason — through 1964, U.S. quarters, dimes, half-dollars and dollars were minted in 90% silver — and their size at the time was perfectly proportional, with the currency value reflecting their silver content, so five dimes has the same silver content as two quarters or as one half-dollar … the silver didn’t just back the money, it was the money. I don’t know why, but this doesn’t apply to nickels — as you might note, they’re a lot bigger than dimes and contain no silver (with the exception of the war years, when they had a lower silver content), maybe the original size had some relation to the historical value of the nickel in the coins, not sure, but they should not be included in any “junk silver” finds. Nor should pennies, of course, since they never included any silver.

So why “junk silver?” Junk silver has been hoarded ever since the coins were taken out of production, people started using the new, 1965 and later coins that had little intrinsic value, and saving the silver coins. You can still find them in your pocket change every now and then, and if you find your dad’s old coin jar in a box in the attic it’s probably full of 90% silver coins, but for the most part what we’re talking about here is not scavenging silver, but buying junk silver as a way of getting silver cheap.

How does it work? Coin dealers will sell you bags of junk silver, or sometimes rolls of the old silver coins — these are almost always priced based on their silver melt value, since the coins are usually extremely used and worn. They do theoretically all have the “US Government Markings” that were teased, like the date and the denomination, but those are often unreadable on junk coins after being circulated for a decade or more and then jostled around in a bag for 40 years. And they are still legal tender, so they can’t ever be worth less than a quarter or a dime, but of course the silver content is far more valuable than their face value and, one imagines, it probably will always be so.

What does the $1.25 mean? Well, it’s hard to tell exactly what the value was when this letter was written, but at the current price of about $13.60 a 1964 Roosevelt dime is worth about 98 cents if you melt it down for the silver, and that’s the smallest silver coin you can buy (in U.S. currency, at least), so that’s probably what they’re referring to. You can typically buy these for a dollar on ebay or from a dealer, perhaps a hair more since coins that are sold individually are probably in better shape.

And as I said, the values increase in step with the currency — so a quarter from 1964 or the decades before is worth just under $2.50, a half-dollar is worth a little less than $5 at current silver prices. Dollars almost always get a premium over other junk silver coins, so you’re unlikely to see them in junk bags that might be sold for investment.

Oh, and though we always talk about “melt value” for junk silver coins, as far as I know it’s still against the rules to melt U.S. currency — this rule has changed several times in history under different regulatory changes from the Treasury, but the last time they came out on this was 2006, when they specifically targeted the melting of nickels and pennies, since copper and nickel prices during the commodity surge meant that both were worth much more melted down than their face value, and they feared hoarding and mass melting and export of coins. So don’t go start the barbecue and smelt your own bars in the backyard on my account.

For folks who are interested in investing in bulk junk silver coins, the key number to remember is .715 — the standard calculation is that each dollar of this 1964 and earlier coinage contains .715 ounces of silver (they were minted with .723 ounces, but .715 is a standard assumption to take account of the level of wear on circulated coins).

Junk coins from dealers are often sound in bags based on their currency value, so you’ll see bags of $10, $100, $500, $1000 — a $10 bag includes 7.15 ounces of silver, a $100 bag 71.5 ounces, etc.

It used to be that you could typically buy these junks silver coins at a significant discount to the melt value — but that was silver enthusiasm was low, and like anything else when interest climbs, premiums follow, so today you will almost always pay at least a few percentage points above the melt value, as the teaser states.

Of course, you pay a premium for almost any kind of silver these days — U.S. Silver Eagles trade at ridiculous premiums these days, but even generic silver rounds and bars typically trade at a premium. You can use ebay to get an idea of what some folks are willing to pay, though premiums are often higher there, or check out any of the major dealers to see what it would cost you to buy physical silver.

As I check now, I see 100 oz bars of silver available from reputable mints, like Sunshine or Johnson & Mathey, selling for 60-80 cents over spot per ounce from big dealers. That doesn’t sound like a whole lot, but silver is at $13.60 so that’s in the neighborhood of a 5% premium over spot prices. The same general premium holds for other really generic lots of silver, like bags of silver shot, and smaller sized rounds or bars generally have slightly higher premiums.

Junk silver bags, I’m afraid, almost always trade at … pretty much the same premium right now. I only checked a few of the more aggressively advertised dealers, but the prices they were quoting were about the same, premiums of 60-70 cents per ounce for even a $1,000 face value bag (which will cost you between $10,200 and $10,500 for 715 ounces of silver).

So you may well find bargains out there, and you might decide, for whatever reason, that you’d rather hold old US coins with melt value instead of already refined pure silver, but the prices are, for relatively large purchases, pretty similar — the attention that junk silver has gotten in recent years has not been good for people looking for cheap silver investments, I’m afraid.

One thing is certain, though: If you see a pre-1965 coin, don’t put it in the vending machine. And as a final note, please do double check all of the numbers I’ve used above — I’m pretty sure they were accurate, typos notwithstanding, when I typed them, but these things change quickly.

What do you think? Are you interested in buying physical silver, and if so, do you prefer junk silver, bars, coins, or something else? Or do you think that the SLV ETF is a fine way to go with a smaller premium … or those “silver shot” ETF options or a silver miner for a more leveraged or speculative play? Or are you convinced that buying silver of any flavor is silly today? Let us know what you think with a comment below.

full disclosure: I own shares of some silver miners as a speculation, and Johnson & Mathey silver bars and U.S. Silver Eagle coins, among some other silver bullion, as part of my long-term savings. I won’t trade in any mentioned investment for at least three days.

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Share Your Thoughts

ShowHide Comments (40)
    1. darrell
      Jul 21 2009, 08:50:26 am

      In times of depression, hyper-inflation, shortages, these coins are a great trading vehicle. During the Carter gas problems, these coins allowed some folks to purchase goods and services others coul;d not because of the inflation of paper money. If you find it, get it if they aren't trying to rob you. Yes, I own junk, rounds, squares, bars, granules and any physical means possible as long as its legal and I own stock.

    2. Timothy
      Jul 21 2009, 10:45:27 am

      Silver has been following a beautifully clear Elliot wave pattern since its peak last year. After it completes its current short-term bounce to the high 14's, the wave pattern is due to complete its primary wave down into the single digits, somewhere below $8.39. If it gets to that level I'll be mortgaging my house to buy silver bars.

    3. Mike
      Jul 21 2009, 11:47:07 am

      One way to do this on a very small scale (requires a lot of patience) is to search rolls of coins (especially 50 cent pieces) and pull all of the 90% (or 40%) silver coins from the roll, rinse and repeat. A very, very slow process, but the margin of profit is high, since each silver half dollar would be worth almost $5.00 and would cost you $0.50. Just a thought.

    4. SageNot
      Jul 21 2009, 12:00:39 pm

      I have/had this R/M subscription until last month, it’s priced low at $49.95, but try & get the good Dr. or the Stansberry Customer Service to reply to your questions, NEVER happens! I doubt it would change even if he charged the full $99. for his new service.

      One way communication is not for me, & even though I’m in my 70’s, & semi-retired, not one of Dr. Eifrig’s suggestions worked out for me, not one. (I did not try the junk silver deal, my brother is in numismatics & he indicated that it might be a waste of time with even a slight downturn in COMEX Silver.

      BTW Dr. Eifrig is very bearish on the stock market & missed the entire rebound from last year’s lows!

      If your Life Settlement Insurance policy isn’t at least $500K, forget about using the two brokers he recos, they are NOT interested. Yet, Dr. Eifrig never mentions this minimum in any letter he sent me.

      The Equity Option deal has only one company in San Diego doing any business, yet despite not having the fees charged by the Reverse mrtg folks, what they offer is sort of insulting to a guy with my background, but suit yourself if you don’t want much for your equity.

      Sorry to be so down on this service, trust me, both my wife & I were extremely disappointed in what didn’t work out for us after nearly 6 mos of trying his few ideas.

    5. Richard
      Jul 21 2009, 12:24:39 pm

      One of the advantages of buying US coins (silver or gold), from what I understand, is the fact that you don’t have to pay capital gains on the profits. It’s strange but true. Now if you melt the coins down it’s a different ball game.

    6. StockGumshoe
      Jul 21 2009, 01:44:40 pm

      I don’t know what the policy is for junk silver like this, but I think that for collectible and bullion coins you do pay capital gains taxes at your income rate. Not sure about that, but I think it’s true — and I think the same is true of the ETFs, GLD and SLV, but again, anyone who listens to me about tax advice is probably going to be misled more often than not.
      P.S.: Forgot to say great post!

    7. BUphaus
      Jul 21 2009, 06:52:37 pm

      Travis – I’m 62 & started to dive into the soc sec info mentioned in this article but running into dead links after going to the Oct 14, 2008 Gumshoe article. Could you please make an attempt to update links? Tried to research doing the SS thing before turning 62 but even phone calls to SS and IRS ended up being a waste of time. Thanks

      Jul 21 2009, 09:25:44 pm

      Silver coin has one distinct advantage over bullion in that it will never be worth less than face value, however, the likelyhood of silver declining to such low levels again is about the same as hearing a TV preacher say he does not want you to send money to him,
      ie: never.

    9. John
      Jul 21 2009, 09:44:12 pm

      Waves notwithstanding, there are moves in progress by the US CFTC to review position limits in COMEX futures trading. This has the potential to significantly change the silver market, since position limits in silver are way out of line compared to other commodities. Ted Butler at Silverseek.com has argued long and persuasively that the price of silver has been systematically manipulated downward for many years through massive short positions held by a handful or even two major banks.

      If it starts to look like the CFTC will succeed in lowering these limits, then well before the new limits are in place, the smaller players will likely start buying. The big players may be forced to change tactics and go long. Would this not cause a surge of interest in silver with obvious consequences for price and availability? Considering as well such factors as the potential for future inflation, now seems a prudent time to take a position for the longer term.

      But puhleeze, fellow Gumshoers, don’t get drawn into those snake oil ETFs that ‘promise’ or ‘guarantee’ that you personally own an ingot in their custodians vault which you can withdraw any time if you choose. Ever heard of fractional banking? And look at who is sponsoring the major ETFs.

      Some ETFs appear to be legitimate but readers are referred to http://www.GATA.org and to Matt Taibbi’s superb article The Great American Bubble Machine, if they haven’t already seen it.

    10. snakeflake
      Sep 28 2009, 06:23:11 pm

      Great post,

      One thing that wasn’t mentioned in the calculation of pure silver in coins was that during hard times people would shave silver off of the edges of coins. Just a little, but imagine x 1000 coins. I wonder if they take this into account when assigning value to junk silver?

    11. ram
      Dec 14 2009, 01:54:08 am

      Silver is still at a great price. The price of silver actually peaked centuries ago at $806 inflation adjusted, that is until Columbus found the new world.

    12. Monnie
      Dec 29 2009, 11:32:03 pm

      Anyone subscribe to Money Map Report?

      It’s touting a tiny Texas oil co. with rights to 40 billion barrels of oil under Paris.

      I have an account with Euro Pacific Capital. I wonder if they’d tell me without my having to subscribe to their newsletter.

    13. Rick
      Jan 3 2010, 02:37:11 pm

      ETF’s – The Next Scam House of Cards to Fall?

      Please be careful about investing in PM ETF’s. I’m concerned about their scam potential for the following three reasons:

      1. The customer has NO RIGHT to request an onsite examination of the alleged silver or gold storage facilities to confirm the PM’s actually exist.

      2. The top silver and gold shorters have a significant stake in these funds. Conflict of interest much?

      3. The law does NOT require any independent accounting verification of the PM reserves supposedly held and notated in the ETF prospectus. I guess we’re expected to just trust them!

      I bet Bernie Madoff is even jealous of this scam!

      There is only one way to insure you own something of real value – silver or gold stored in your safe at home. Anything else is just another “Madoff” waiting to happen.

    14. SilverSmith
      Jan 10 2010, 11:08:50 am

      Looks like they’re at it again — I just got this one in a teaser ad from the Daily Crux, now they’re calling it How to buy u.s. govt backed silver for $1.37 because prices are higher. Coinflation says the fair value of a silver dime today is $1.33, not sure how much you’d actually have to pay to get one.

    15. Release Digital
      Oct 4 2010, 03:12:20 pm

      Genco Resources (TSX:GGC) has the potential for greatness within the next couple of months. A Mexican Silver miner turnaround story, was previously a $4 stock a few years ago, when it was producing Silver profitably. Because of politics and other issues, the stock has declined to where it is today. Recently with management changes, a new NI 43-101 compliant technical report and feasibility study completed the company’s fortunes are improving. On September 20, 2010, Silvermex Resources (SLVXF, TSX:SMR) offered a merger with the company. Interview with CEO here: http://seekingalpha.com/instablog/503905-marco-g/

    16. Bigg Fredd
      Oct 6 2010, 10:43:01 pm

      90% silver nickels (actually half dimes) were made from 1837-1873. Before that, they were 89.24% silver.

      The face value multiple holds true for silver 3¢ thru half dollars (including 20¢ pieces), but not silver dollars. Any of the "change" coins have .72338 ounces per dollar when new, dollars have .77344 ounces.

      There are a few exceptions in early 1800s issues, but I've probably provided too much information already.

      The no-melt law about cents is really stupid. If you check a hundred cents at random, it's unlikely there will be five pre-1982. If all the pre-1982 cents were melted, it would have no effect on commerce. I'm sure hoarders are saving them in anticipation of the ban being lifted, if they aren't being melted clandestinely now.

    17. StockGumshoe
      Oct 27 2010, 08:27:21 pm

      Always good to have someone on board who clearly knows more than me — didn't know that about silver dollars, thanks! For what it's worth, I keep my collection of old pennies in the couch cushions 🙂

    18. Bigg Fredd
      Oct 28 2010, 01:33:49 am

      Another way to buy silver cheap is to buy scrap sterling.

      Sterling, by definition, is 925 parts silver, 75 parts copper. This is more pure than coins, which are 900/100.

      Because something like a broken spoon is useless, it needs to be melted (to cast into jewelry, for example), or refined to .999 fine. You can buy misc sterling for actual metal value, and sometimes even a little less, from a dealer who saves refining charges.

      The disadvantage is you have to weigh whatever you have, and multiply that by .925 to know how much silver you have.

    19. Bigg Fredd
      Oct 28 2010, 01:42:25 am

      to snakeflake:

      Bullion (scrap) silver is calculated at an approximate weight per bag, or the coins physically counted.

      Filing or “clipping” the edges hasn’t been a problem since the 1700s, when rims were lettered, and later milled (reeded) to make such activities obvious.

      On gold pieces, a popular means of stealing gold was “sweating”. A bunch of gold coins were put in a bag and bounced around to make tiny pieces fall off. The bag would then be processed to remove these specks of gold.

      Another con, requiring a lot more skill, was to drill a tiny hole in the edge of a $20 gold piece and then use a tiny pick to whittle gold out of the inside of the coin. It would then be filled with lead and the hole plugged and reeding retooled.

      A skillful whittler could get $5 worth of gold in a few hours. Keep in mind that this was before Henry Ford shocked the world by paying auto workers an incredible $5 a day!

    20. lerybeach
      Jan 22 2011, 10:27:44 am

      Would you know how the canadian dime value com.pared to the U.S dime and which year contained more silver ex. pre-65 and if Dr. Eifrig's trick would be useful for canadians?

    21. Stansberry CS
      Feb 10 2012, 09:41:32 am

      If you have any questions about Stansberry and Associates, please do not hesitate to call customer service at 1-888-261-2693. We would be happy to assist you. We are open Monday – Friday 9-5 EST.

    22. Bob
      Jun 12 2013, 01:41:03 am

      I am a coin collector and I have tried doing this but for other reasons. IMHO youmight as well forget about it. It is very unlikely that any of the 90% silver coins you are looking for will turn up in rolls of coins. These coins have been gone thru time and time again, not only by individuals (like me) but by the banks and the govt, all looking for the elusive 90% silver coin which — remember — has not been minted in the USA since the mid-60s. To put that into perspective, I was in college then and I am retired (OLD) now.

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