One of the great trends in tangible asset investing today is stacking silver. Stacking silver is simply the process of regularly buying physical silver in order to hedge your investment portfolio against inflation, financial panic or other economic dislocations. However, there is a something of a controversy in the silver stacking community. Which is better to buy: low premium, bullion-oriented silver or higher premium silver that has some numismatic or collector’s appeal?
This might seem like a contradiction at first. After all, if one is “stacking silver”, isn’t the entire purpose to get as much silver as possible for the lowest possible cost? Well, yes and no. Pursuing a weight only approach to silver buying is certainly a legitimate strategy. And the simplicity of such an approach is quite appealing. But it isn’t the only way to stack silver, or necessarily even the best way.
Like many things in life, there is no clear delineation between silver bullion and silver numismatic coins. Instead, there is a continuum, or range between the two extremes. On the purely bullion side reside most modern struck and extruded silver bars that perhaps trade for only a few percent over the spot price. Generic silver rounds, struck in a variety of different sizes and styles by private mints, also fit into this category.
On the coin collector’s end of the spectrum are old U.S. and foreign silver coins, some of which trade for premiums of many hundreds or even thousands of percent over spot. Of course most silver stackers don’t bother with these pieces because they have far too much numismatic value in relation to the silver they contain. But there are a plethora of semi-numismatic silver coins (and even bars) that derive their value primarily from their bullion value while still retaining some collector’s premium.
90% U.S. silver coins are the poster child for semi-numismatic silver. Struck from the 19th century until 1964, 90% U.S. silver consists of dimes, quarters, half dollars and silver dollars. Silver dollars always command relatively high premiums while half dollars have more modest premiums. Silver dimes and quarters have the lowest premiums of all, although they are usually still significantly higher than no-frills silver bullion. 90% U.S. silver coins are readily available in $100, $500 and $1,000 face value bags.
Another popular category of semi-numismatic silver coins is modern bullion coins struck by government mints. These include well-known coins like American Silver Eagles, Canadian Silver Maple Leafs, Austrian Silver Philharmonics, Chinese Silver Pandas and British Silver Britannias. Although these coins were all originally intended as bullion pieces, a vibrant collecting community has grown up around them over time. Third-party certified, or slabbed, specimens in very high grades (MS69 or MS70 – essentially flawless coins) are particularly coveted in the marketplace.
Even silver bullion bars can, counterintuitively, sometimes garner high premiums. Vintage poured silver bars, in particular, are great examples of this phenomenon. Although initially treated as pure bullion pieces, vintage poured silver bars have evolved into a very hot corner of the market, with premiums sometimes reaching as high as 100% for especially desirable specimens.
All of this interest in poured silver bars has created a renaissance in its production. After having been largely discontinued due to the labor intensive nature of casting compared to struck and extruded bars, poured silver bars have made a comeback as a specialty, “luxury” bullion product. Smaller companies, like Yeager’s Poured Silver, have spearheaded the revival of this exciting form of semi-numismatic silver bullion.
But the real question most people have is “What is a better investment?” – pure bullion pieces or semi-numismatic silver? In one sense, I don’t believe there is any “wrong” way to pursue stacking silver. If you like it, buy it. Any type of silver that you purchase will help you diversify out of overvalued paper assets and give your investment portfolio some much needed tangible asset exposure.
However, I have always been partial to incorporating an element of numismatic value, no matter how small, in my own silver stacking. This is because semi-numismatic pieces grant otherwise ordinary silver the added benefit of optionality. Optionality is any aspect of an investment that you don’t pay much money for, but has the potential to generate outsized returns. Semi-numismatic silver might cost an extra 10% or 20% in premiums over purely non-numismatic silver bullion, but it also has the possibility of eventually selling for premiums of 50% to 100% over spot. That optionality could be very powerful indeed, granting a “multiplier effect” to your silver holdings.
Generally speaking, I like incorporating additional ways of making money on my investments versus fewer ways. In the case of stacking silver, exposure to the spot price of silver is one way of making money. I like that. But the optionality of semi-numismatic premiums is a second, completely distinct way of generating returns. And, provided I don’t pay too much more for the opportunity, I like two ways of making money on an investment better than just one way.
One of the negative aspects of semi-numismatic silver is that it is usually less liquid than straight bullion, meaning it is harder to sell on short notice for its full value. Many silver stackers who pursue a weight-only, non-numismatic approach do so because they believe it will be difficult, if not impossible to realize high premiums on semi-numismatic silver bullion in turbulent conditions. This period of expected future economic crisis is often referred to in the silver stacking community as the “sh*t hits the fan” moment.
However, in my opinion, if you’ve constructed your portfolio properly, you won’t be selling your silver in these circumstances. There is an economic concept known as Gresham’s Law, which famously states that “bad money drives out good”. This dictum is usually applied to circulating coinage when debasement occurs. If there are two different coins with the same face value, and one contains precious metal while the other doesn’t, the baser coin without any precious metal content will circulate while its more intrinsically valuable counterpart will be hoarded.
This exact situation was experienced in the U.S. after it ceased using silver in its circulating coinage in 1964. Within a few years, it was almost impossible to find silver coins in circulation; their copper-nickel replacements freely circulated while the good silver coins were hoarded.
I believe that if there is ever a major financial panic in the future, Gresham’s law will kick in with a vengeance. If you have been stacking silver before such an event occurs, then congratulations. Your stash of silver will be worth much more than it was before. But you probably won’t have to worry about panic liquidating your semi-numismatic silver pieces at low premiums.
Instead, you’re much more likely to use your credit card to spend virtual, rapidly-depreciating fiat dollars (or some other national fiat currency) for necessary goods and services. After all, fiat currencies will be the “bad” money according to Gresham’s Law, while your silver stash will be the “good” money. And the good, silver money will be the very last thing you’ll want to sell in such a situation. Even if the banks are closed because of the panic and credit and debit cards don’t work, you’ll still part with any physical cash you have before you’d consider bargaining away your precious silver.
In the end, I think investing in silver via semi-numismatic coins and poured bars is just as good a way of stacking silver as buying non-numismatic bullion bars, rounds or coins. Even if there is a future financial panic, Gresham’s Law dictates that your silver hoard is one of the very last investments you’ll liquidate. There is a high probability that you will only willingly part with your silver once any financial panic has subsided and premiums for semi-numismatic coins have normalized. But, as always, there is no wrong way of stacking silver. In my opinion, any silver is good silver.
