Silver Drops Below $20; Is this a Buying Opportunity?

old dimes and quarters
Dimes, quarters and half-dollar coins minted in 1964 and earlier, are 90 percent silver. Known as "junk silver," they are recommended for preppers.

The price of silver plunged over the weekend, dipping to $19.23 as I write this. The ratio between gold and silver increased as gold performed better, dropping just below $1,800, meaning that at the time I write this, it takes 92 ounces of silver to buy one ounce of gold, well above the average.

This raises the question, is this a good time to buy silver?

In my opinion, it is. Keep in mind that I am no chartist, no financial planner, and my advice is worth what you pay for it, but yes, I think this is a good time to buy silver.

Could silver continue to drop? Sure. It might lose another dollar or two, but I doubt it would go lower than $17 per ounce. The upside potential is much higher. One year ago, silver was more than $26 an ounce. I think we are more likely to see $26 again than $15. There are some out there who think we could see $50 silver. Of course, they might have a vested interest in saying so.

If you are concerned about buying before the price hits it’s low, buy on the way up rather than the way down. In either case, you’re saving money compared to the price earlier this spring.

The True Value of Silver to a Prepper

For a prepper, the true value of silver is not as an investment we expect to appreciate but as a substitute currency once the dollar (or the government that backs it) has collapsed. Many preppers expect silver to be the choice for small, day-to-day transactions after a SHTF. I think that is likely once things settle down and stabilize and some form of trade and commerce can be reestablished.

Having a stash of gold is one of the best ways to preserve your wealth through a currency collapse and periods of high inflation, but you don’t want to waste a gold coin to buy dinner. A gold coin might buy you the whole cow, but if all you want is a hamburger, then you need silver, possibly in the form of a pre-1965 dime or quarter.

Junk Silver

The value of so-called “junk silver” or “constitutional silver” is that it’s immediately recognizable and contains a known quantity of silver. When you consider that a pre-1965 dime has 0.0723 ounces of silver in it, chances are no one is going to the trouble or expense of counterfeiting them. Another nice thing about U.S. silver coins minted and circulated before 1965 is that the quarter has 2.5 times as much silver as the dime (0.1808 ounces) and the half dollar has twice that, or 0.36169 ounces. So if you are the guy selling hamburgers for a quarter and someone gives you a half dollar, you can give them a silver quarter, and no one has lost out.

Silver dollars are the exception, having an extra 0.05 ounces of silver than two half dollars. The one-ounce coins of more recent mintage, such as the U.S. Silver Eagle or the Canadian Maple Leaf, have far more than the 0.7734 ounce of silver in of the Morgan or Peace dollars minted between 1878 and 1934. Don’t trade your Eagles for four quarters. They are worth about $1.35 in junk silver if you look only at their melt value.

This is my favorite web page for determining the melt value of coins.

Melt Value vs Retail Price

The problem with buying junk silver or other coins is that everyone wants silver and this lower price is going to increase the sales pressure. That means fewer coins in stores. It also means higher premiums.

The premium is the amount a dealer charges above the value of the silver in a coin. For example, if you check the website above and calculate the melt value of a roll of silvers quarters to be $150, the dealer might charge you $200. That $50 is his margin. Of course, he may also pay more than melt, in part because physical silver is in short supply.

In the example above, where it costs $200 for old U.S. coins with a face value of $10, the dealer would say he is selling at 20 time face. He might be buying at $16 face. That extra $4 is his profit margin.

That should give you an idea of how bad inflation has been since 1964. In 1964, a quarter was worth 25 cents. Today, that same 1964 quarter is worth $5. Not because of a shortage of silver but because of an excess of dollars printed by the Fed.

The Perils of Paper

It is important to remember that the value of an ounce of silver I quoted in the opening paragraph is called the paper price. Paper silver, or paper gold for that matter, is less expensive than buying the physical coin or a bar, but it is far easier to exchange or trade. However, it is also riskier. If the end of the world happened overnight, that paper silver would be out of reach and worthless. The silver coins in your pocket or buried under a fencepost in your backyard would still have value. This is why it is important for preppers to own physical silver stored in a secure or secret location they control. Silver coins in a vault in Switzerland or New York won’t do you any more good than paper silver if you can’t access it.

There is also the possibility that the organization holding your silver might not have enough on hand to cover all their customers. If everyone showed up and wanted to withdraw their silver, people near the back of the line might not get any. This kind of run would be much like a run on a bank.

I would also caution you not to keep all of your precious metals in a safe deposit box at a bank. During a bank collapse or a government-declared bank holiday, those coins would be inaccessible. 

If you wish to speculate on silver and make money when the price rises, then invest in a silver ETF. It is easy, inexpensive, and has a low cost. If you want silver because you fear inflation or want to have some form of currency after an economic collapse, then this might be a good time to buy and hold silver coins.