The starry-eyed investors bask in the glory of a silver price which penetrated $30 oz. on Friday.
Therefore, it seems like a good time to review what has happened to the premiums attached to silver coins.
I have written several articles about silver coin premiums over the past four years. I will refer to them periodically throughout this article. Most of my analysis and comments pertain to U.S. Silver Eagles and U.S. junk silver coins.
In my article Silver Coin Premiums - Another Collapse? I said the following:
"... there were huge declines in US silver coin premiums in 1980 and, twenty years later in 2000. It has been just over twenty years again since the last collapse in silver coin premiums. Will we see another collapse in premiums?" and
"The premium for junk US silver coins rose and collapsed during a period when silver prices were rising dramatically in the late 1970s. Similarly, the premium exploded to the upside, then imploded, when silver prices were basically unchanged in 2000-01. Possibly, it is time for another collapse in the silver coin premium accompanied by a declining silver price. Whatever the case, there is nothing historical to justify paying 40-50% premiums and more (as much as 100% a couple of years ago)..."
The 100% premium came about in the midst of the Covid pandemic and forced economic shutdown (summer 2020):
"The available supply of silver is not different today from what it was two months ago. Nor has it changed over the years in such a way as to foster or dampen demand for it. What has changed, in an appreciable way, is some people’s insistence on owning it in a specific form, i.e., silver coins/silver eagles; and their willingness to pay ridiculous premiums for that privilege. Given that premiums for US Silver Eagle coins have historically been too high anyway, and that most disruptions in supply channels are temporary and probably due to responses to Covid-19 rather than actual supply-demand fundamentals for silver itself, it would appear that current premiums for silver coins are unjustified." (Silver Coin Premiums - Factual And Farcical)
That 100% premium for U.S. Silver Eagle coins is now 19% ($31.50 plus $6 = $37.50). That is a drop of more than eighty percent and confirms the "unwarranted and excessive" cost that buyers of Silver Eagles have incurred:
"Small retail investors bear the risk and it is a big one. As it stands now, an excessive premium accounts for nearly forty percent of the value of a 1 oz. Silver Eagle coin. History shows that premiums of this kind usually don't hold up." (Silver Investors Have Money To Burn)
SILVER EAGLES VS JUNK SILVER COINS
The 19% premium over the bullion price for Silver Eagles is much more reasonable than at any time in recent history. Currently, though, U.S. junk silver coins are a better buy.
At other times in the past few years, the premium cost for junk silver coins rivaled that of Silver Eagles. Fortunately, U.S. junk silver coin premiums have declined more than Silver Eagle coins, both in absolute and proportionate terms. The current junk silver coin premium is ONLY 8%; less than half that of Silver Eagles at 19%.
HOW WELL HAVE PREVIOUS BUYERS DONE?
OKAY: If someone was able to purchase Silver Eagle coins near the lows for silver in early 2020, let's say $14-15 oz., the total per coin cost, including premium, would have been $30 or more. With silver at $31.50 oz., the net gain based on bullion content is 5%. Not much to brag about. If the sellback price returns a portion of the existing premium, then the total return can be as much 8-9%. Still not a big deal, but at least one has covered their purchase cost. The problem is that silver has more than doubled in price since then, which means that most of that increase paid for the 90-100% premium incurred originally.
Those investors who purchased Silver Eagles in late summer 2022 would have paid $18-20 oz. plus the premium. The premium at that time was down to 70%, but the total per coin cost would have ranged from $30-35 per coin. The potential net profits are similar to those in the previous example, ranging broadly from 5-9%.
Junk silver coin buyers would have fared better with a premium cost of about 45%-50%. Current sellback for junk U.S. silver coins would result in a possible profit of 15-17%.
NOT SO GOOD: For most investors, if you bought Silver Eagle coins anytime within the past few years, you would be lucky to break even should you try to sell back the coins now. It is not unreasonable to suggest that significant numbers of Silver Eagles were purchased at prices close to $40 per coin; in some cases possibly more. That translates to double-digit losses.
CONCLUSION
If you are in the market for some silver coins, they are a relative bargain right now in terms of the premium. If cost is no object for you, buy the Silver Eagles. If you want to maximize your buying power and obtain a piece of history, then buy junk U.S. silver coins. The downside for either is that the premiums could decline further regardless of which way the silver price goes from here. (also see Silver Coin Premiums Are Smaller, But...)
Kelsey Williams
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED!