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More than one reason to buy silver

My blog on Tuesday about the decline in silver American Eagle sales elicited comments on Facebook that I found interesting.

Everybody has many reasons for buying silver Eagles or not buying them as the case may be.

There were a number of factors mentioned that might be influencing the decision-making process.

One writer pointed out that mintages are very high.

Another said the never-changing design was getting tiresome. Buyers are looking for something new and cheaper. He then asks the question, “What is really collectible about them?”

My understanding of the mission of a bullion coin is that it is a universally recognized piece that offers a known and unchanging amount of the precious metal and it is bought and sold as a convenient way of acquiring that precious metal at the lowest possible price.

The intent of a bullion coin is not to be collectible.

That does not mean collectors won’t buy some, but trading on the basis of some numismatic premium is not the goal of a bullion coin.

Allowing buyers to amass as much of the metal as cheaply as possible is the goal.

Higher mintages should be seen as aiding in fulfilling this goal.

If some buyers prefer lower mintages and a variety of designs, it is their right.

However, this defeats the universal availability and recognition factors. These also have a tendency to raise the premium charged for each of the coins.

Premiums on bullion coins have been high because demand has exceeded supply for much of the past seven years. Higher premiums perhaps now seem normal as a result, but that should not be the case and it cannot be counted on forever.

If you buy American Eagles and are not picky about dates, you can acquire them for 15 percent more than spot price.

That means 85 cents of your purchase actually pays for metal and the rest is a handling charge.

In more normal times, premiums can drop below that level. I have seen silver coins sold at a discount – admittedly this was long ago and applied to pre-1965 90 percent silver U.S. coins bought and sold by the $1,000 face value bag.

But the fact is bullion buyers should at all times be looking to get the metal at the lowest possible price, because bullion coin premiums – even premiums for bullion coins with changing designs can shrink during times of falling demand.

Adding collectibility as a factor in making purchase choices also increases the premium paid for the underlying silver. This then increases the risk  buyers are taking.

If this risk is known to them and they willingly take it, fine. But if there is a belief that this premium will somehow always exist even in down silver markets, they might face a very unpleasant surprise.

Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

 

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