Saturday, January 2, 2016

US Mint Will Increase Silver Content of Collector Coins

One of the most misunderstood topics I see while doing research for this blog is the use of silver by the US Mint in producing coins. Because the US took all silver out of most of its circulating coins way back in 1965, many Americans have now grown up never having seen a US coin made with silver in it. While collectors are pretty well informed on the silver coins that the US Mint does make, most people are not. So I will use this article to try and provide some background on this topic.

Until 1965 US circulating dimes, quarters and half dollars contained actual silver. The silver content was known as "coin silver" which was an alloy of 90% silver and 10% other base metals. The reason for the 10% base metals was to increase the durability of the coins so they would not wear out as quickly.

In 1965 the US made the decision to remove silver from its circulating coins. From that year forward silver was removed from US coins except for some silver that remained in the Kennedy half dollar until 1970 (those coins were 40% silver). After that, no more circulating coins containging silver were made. 

The US Mint did continue to make silver coins however. The Mint produces a special collector version of coins knows as proof coins. They produce a non silver proof set each year as well as a silver proof set. The coins in the silver proof set contain 90% "coin silver" just as the old circulating coins used to. In addition to the silver proof set coins, the US Mint also has produced one ounce silver eagle coins since 1986 which are 99% pure silver. The Mint also produces a variety of other silver commemorative type coins as well.

Recently, President Obama signed new legislation which will increase the amount of silver used in the silver proof coins to 99% from 90%. The reason for this change was that the US Mint learned from a study that the cost of making 99% silver coins is actually less than making 90% silver coins because the dies used to make the coins last longer if 99% silver is used. This recent article explains the new law very well.

In recent years the US Mint has had to suspend sales at times for its one ounce silver eagle coins because demand for those coins has exceeded their ability to make the coins. That was true again this year as the Mint sold an all time record of 48 million silver eagles this year. When this happens, some are quick to assume that because the Mint temporarily suspends sales at times, it means there is a shortage of silver.

While it is possible that this could indicate a shortage of available silver, that is not what usually causes the Mint to suspend sales. The silver blanks used to make the coins are made to very exact standards. There are only a handful of firms that can produce these blanks. When demand for the coins jumps up in a short time frame, the company making the blanks simply cannot keep up with the short term demand. So the Mint has to suspend sales until they can catch up. Usually the Mint is able to continue making its other silver coins (the proof silver coins and commemorative coins) because the demand for those is usually much lower and they can keep sufficient inventory on hand.

Some day it could well happen that an announcement by the US Mint that they are suspending sales of silver eagles really does mean they cannot acquire actual silver to make the coins. So far that has not been the case, but actual physical silver supplies are fairly tight. Anything that caused a sudden upsurge in demand for silver could eat up the available global inventories of silver pretty quickly so it is worthwhile to keep an eye on demand for US silver eagles (and Canadian silver maples etc). 

If demand were to suddenly explode higher for those coins, it could be an indicator that there is a financial crisis emerging and those in the know are positioning themselves ahead of such a crisis. Of course if such a crisis did really emerge, the demand for both gold and silver coins would go off the charts upwardly, but by that time it would probably be hard to get them at any price. Absent a crisis, most Americans will probably continue on blissfully ignorant that such coins even exist.

No comments:

Post a Comment