If silver rounds aren’t a legal tender, how could they possibly be secure?
November 6, 2010 by
Filed under Silver Investment FAQ
In the event of a depression, I want to buy a bunch of silver, but I was informed by a coin dealer that it’s not a legal tender. People say silver is a good thing to invest in if we are to have a depression, but if it’s not a legal tender, how can it be a secure investment?
Precious metals are not legal tender because it would be a total pain in the ass to have to weigh out the metal and verify its purity every time you bought something. It is a secure investment because in the event of a catastrophic economic collapse, paper money would not be worth anything at all. In fact, a coin like a penny, which is made from copper, would be worth more than a 100 dollar bill. People use metals to create useful and necessary objects like tools and jewelry. Paper is easily made from renewable resources while metal is not. Don’t buy metals from that coin dealer until you do A LOT of research. There are various ways to go about buying metals.
If you want to invest in precious metals, I reccomend using one of the newly established Electronically Traded Funds on the stock market. Basically, the issuing entity buys boat loads of the metal and stores it and all you have to do is buy a share of the quantity. They keep it secure and safe and you don’t have to worry about the thugs down the street stealing a box of gold from your house.
First off, silver has historically done poorly in a Depression: a deflationary Depression like the Great Depression of the 1930s, that is. It’s been treated more like an industrial metal, like copper, than as money, and demand for industrial metals generally falls – and their prices fall as well – as economic activity slows.
If you wanted to buy silver as a hedge against inflation, or hyperinflation, a role in which it has, at least historically, done well, you can review the many options for ways to buy silver in my YA answer here:
http://answers.yahoo.com/question/index;_ylt=Ai4_KWGkXjI0.9sR_lmijejty6IX;_ylv=3?qid=20080705141557AAaeZUX
(See the answer which begins “Silver is a roller-coaster ride on steroids. The price can soar and plummet …”)
Regarding the “legal tender” issue, two thoughts:
1. A US dollar bill is “legal tender.” It has lost 40% of its value against a basket of other world currencies (as measured by the US Dollar Index) since 2001. What does that say about the equation: “legal tender” = secure investment?
2. If there is a comfort factor for you in buying coins that have a dual role – both that contain silver and also are “legal tender” – that is, have a recognized face value as currency, below which face value they cannot drop further, unless the currency itself is depreciated – two of the more attractive options are:
* US Kennedy Half Dollars from 1965-1969, silver-clad coins that contain 40% silver content, which have in the last year or two sold on eBay for around 3-4 times their face value ($1.50-$2 each). These will likely always have a “floor” value of 50 cents each, regardless of the price of silver.
* Canadian $5 and $10 Olympic commemorative coins from 1973-1976, containing Sterling (92.5%) silver, celebrating the 1976 Montreal Olympics. At recent silver prices, these coins generally sell on eBay for slightly over 2 times their face value ($10 for the $5 coins and $20 for the $10 coins), and will likely always have a “floor” value of their respective face values, in Canada.
(You can recognize these coins by the bust of Queen Elizabeth II on the “head’s” side, and a picture of an Olympic sport or theme on the “tail’s” side, plus a $5 or $10 denomination in the coin’s legends.)
Legal tender is somewhat of a legalized scam. For example the dollar bill is defined as legal tender currently. The government could change the law defining it as not legal tender. In the past the government has changed the legal status of silver certificates, gold certificates, and even gold coins. Consequently, I would not get too over enthalled about whether something was legal tender or not. Even though the dollar bill is still legal tender in the U S, it is worth about 40% less relative to the euro than 8 years ago. In other words so much for legal tender.
Now lets talk about depressions. One of the results of a depression in the past is that the value of money increases relative to other types of assets. What I mean by that is that the price of things tend to fall. Home values today are an example of that as are the value of equities. The prices of these in general are falling. During a depression the price of silver most likely would tend to fall. But there is a situation where this might not be the case during the next depresssion. That would be the situation where the government prints dollars like mad to generate inflation to fight a depression as we are currently seeing happen. This causes the relative values of hard assets to become worth more relative to the value of the “legal tender”, especially when people become more and more disallusioned with the “legal tender”. This is what is currently happening in the U S today. People are becoming disallusioned with the “legal tender” and moving out of dollars into oil, gold, corn, silver, euros, and anything else they can find.
They aren’t. Silver or gold coins for that matter. The value is in the raw metal in its self. You would be better off buying silver and gold jewelry. And I wouldn’t worry too much about a depression but more over the convergence to the Amero and the United States union with Canada and Mexico.