Can you Really Buy Silver for $2.08?

By Travis Johnson, Stock Gumshoe, December 20, 2010

If you’ve been treading the boards at the good ol’ Gumshoe Theater of Oddities for more than a few months, this teaser for silver may sound familiar to you:

“How To Buy U.S. Government Created Silver For $2.08”

The tease is an attempt to get you to sign up for Dr. David Eifrig’s Retirement Millionaire newsletter from Stansberry & Associates, and the versions of the ad I’ve seen play off of publisher Porter Stansberry’s conviction (and he’s certainly not alone in this) that silver will be one of the best safe havens/inflation hedges in the year to come due to the fact that it has underperformed gold during the long gold bull market (though it has substantially outperformed gold more recently, like this year).

Still, I think it’s been a year or so since I last looked at a teaser like this, so it seemed time to revisit. Here’s the pitch:

“The U.S. government has created a little-known way to own silver – real, hold-in-your-hand silver – for just $2.08.

“This has nothing to do with stocks. And nothing to do with options or anything risky like that.

“Why should this government-created silver investment be of interest to you?

“Well, I believe silver is set to explode in the coming years… and this is one of the best and cheapest ways to own it.”

The basic arguments in favor of silver are probably ones you’ve heard before: “Silver is real money,” meaning it can’t be created from nothing like dollars and it should perform well if the dollar is effectively devalued by inflation; “Silver is cheap” because it’s far, far below the all-time highs and at a thousand-year inflation adjusted low using the chart that you may have seen before that puts the all-time high for silver around $1,000 back when Christopher Columbus was in his mother’s womb; Silver is “Disappearing” because, unlike gold, it has a lot of non-decorative uses and gets consumed by industry (batteries, medical devices, still some in photography, etc.).

And we’re told that this “$2.08 Silver” was produced by the government, but that production ceased in 1965. And then we get a bit more detail — actually, more detail than is usually provided in these kinds of teasers, so they’re not obfuscating as much as they could:

“There are 3 unique properties of this U.S. government-created 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 $2.08). 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.) “

So … in case that still sounds confusing, let me just quickly explain what this is. $2.08 silver would be, in all likelihood, a scuffed and scarred 1960s Roosevelt dime. And actually, as of the last silver price I saw it probably wouldn’t be $2.08, you’d probably pay more like $2.20 apiece if you were buying a small number of ’em.

Still sound odd? This ad is teasing what’s usually called “junk silver,” pre-1964 circulating coins (dimes, quarters, half dollars and dollars) that were made of 90% silver. Silver was removed from most circulating coins in 1965, in part because those coins were being hoarded for their silver content, and though you’ll still occasionally find a “silver dime” in your change, almost all of these coins are held now by collectors or silver enthusiasts as a relatively inexpensive way to buy silver.

And the tease is right — there are some nice things about these coins: since the smallest denomination is the dime, which does indeed have just about two bucks worth of silver in it at the moment, they are easily divisible and if the world goes to hell in a handbasket and we move to a barter system where you have to produce “real” value in exchange for goods, you could use your old silver dimes to pay for stuff; and yes, they are just as government-certified as the American Eagle silver coins that you could also buy if you prefer just straight silver; and, despite the fact that I don’t think it’s legal to melt down the coins to extract the silver, there is a pretty active market for “junk silver” and you should be able to sell it in the future.

Of course, “junk silver” isn’t exactly a secret — most coin dealers would happily chat with you about it, and those who deal in collectible coins probably keep a little jar on their desk to toss in the silver-content coins that are marred or scratched or otherwise have no collectible value, so probably anyone in the business has at least a few of these little unimpressive-looking coins hanging around (and “unimpressive” is no exaggeration — some of the “junk” coins I’ve seen are so worn that they’re barely recognizable).

The basics to know are this: these coins, which largely consist of Mercury and Roosevelt dimes, Standing Liberty and Washington Quarters, and Walking Liberty and Franklin half dollars from 1916-1964 (there are earlier coins, too, those from after the Civil War almost all have the same silver values, but you almost never see them), have a silver content that’s directly correlated to their face value — you may not have noticed, but these are all 90% silver coins and the weight of those coins is precisely correlated, too, so a half dollar weighs five times as much as a dime… and since the silver content is the same proportion, it’s also worth five times as much today as a silver investment.

There are two exceptions that you may have noted for the silver coins — nickels and silver dollars. Nickels don’t count in this equation, since they were largely made of nickel and copper instead of silver (as you’ve noticed, they’re a lot bigger than dimes — a proportionate silver nickel would have been too small to handle, though I think there were some tiny ones in the 1800s). There are some silver-content nickels from the WWII years (nickel shortage) that are also collected as such (they’re worth more than half a dime, more like $1.60 at the moment) … and, actually, modern nickels also have a melt value that’s slightly above their currency value, with about three cents worth of each copper and nicke