Silver Coin Commerce™

More Investment vehicles

Certificates

The U.S. dollar has been issued as silver certificates in the past, each one represented one silver dollar payable to the bearer on demand. The notes were issued in denominations of $10, $5, and $1 and can no longer be redeemed for silver.

Accounts

Most Swiss banks offer silver accounts where silver can be instantly bought or sold just like any foreign currency. Unlike physical silver, the customer does not own the actual metal but rather has a claim against the bank for a certain quantity of metal. Many digital gold currency providers, such as GoldMoney, offer silver as an alternative to gold and work on a similar principle. Other electronic silver accounts include the eLibertyDollar and Phoenix Silver. Silver accounts are backed through unallocated or allocated silver storage. (Note: both eLibertyDollar and Phoenix Silver have shut down.)

Derivatives, CFDs and spread betting

Derivatives, such as silver futures and options, currently trade on various exchanges around the world. In the U.S., silver futures are primarily traded on COMEX (Commodity Exchange), which is a subsidiary of the New York Mercantile Exchange. In November 2006, the National Commodity and Derivatives Exchange (NCDEX) in India introduced 5 kg silver futures.

Firms such as Cantor Index, CMC Markets, IG Index and City Index, all from the UK, provide contract for difference (CFD) or spread bets on the price of silver.

Mining companies

These do not represent silver at all, but rather are shares in silver mining companies. Companies rarely mine silver alone, as normally silver is found within, or alongside, ore containing other metals, such as tin, lead, zinc or copper. Therefore shares are also a base metal investment, rather than solely a silver investment. As with all mining shares, there are many other factors to take into account when evaluating the share price, other than simply the commodity price. Instead of personally selecting individual companies, some investors prefer spreading their risk by investing in precious metal mining mutual funds.

Taxation

In many tax regimes, silver does not hold the special position that is often afforded to gold. For example, in the European Union the trading of recognized gold coins and bullion products is VAT exempt, but no such allowance is given to silver. This makes investment in silver coins or bullion less attractive for the private investor, due to the extra premium on purchases represented by the irrecoverable VAT (charged at 17.5% in the United Kingdom and 19% for bars and 7% for bullion products with face value, e.g. US Silver Eagle and Maple Leaf, in Germany).

Other taxes such as capital gains tax may apply for individuals depending on country of residence (tax status) and whether the asset is sold at increased value.

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Types of Investment vehicles

Bars

A traditional way of investing in silver is by buying actual bullion bars. In some countries, like Switzerland and Liechtenstein, bullion bars can be bought or sold over the counter at major banks.

Physical silver, such as bars or coins, may be stored in a home safe, a safe deposit box at a bank, or placed in allocated (also known as non-fungible) or unallocated (fungible or pooled) storage with a bank or dealer.

Various sizes of silver bars:

• 1000 oz troy bars – These bars weigh about 68 pounds avoirdupois (31 kg) and vary about 10% as to weight, as bars range from 900 oz to about 1,100 oz (28 to 34 kg). These are COMEX and LBMA good delivery bars.
• 100 oz bars – These bars weigh 6.8 pounds (3.11 kg) and are among the most popular with retail investors. Popular brands are Engelhard and Johnson Matthey. Those brands cost a bit more, usually about 40 cents to 2.00 dollars per troy ounce above the spot price, but that price may vary with market conditions.
• Odd weight retail bars – These bars cost less and generally have a wider spread, due to the extra work it takes to calculate their value and the extra risk due to the lack of a good brand name.
• 1 kilogram bars (32.15 ozt)
• 10 ozt bars and 1 ozt bars (311 and 31.1 g)

Coins and rounds

Buying silver coins is another popular method of physically holding silver. One example is the 99.99% pure Canadian Silver Maple Leaf. Coins may be minted as either fine silver or junk silver, the latter being older coins with a smaller percentage of silver. U.S. coins 1964 and older (half dollars, dimes, and quarters) are 25 grams per dollar of face value and 90% silver (22½ g silver per dollar). (All 1965-1970 and one half of the 1975-1976 Bicentennial San Francisco proof and mint set Kennedy half dollars are “clad” in a silver alloy and contain just under one half of the silver in the pre-1965 issues.)

Junk-silver coins are also available as sterling silver coins, which were officially minted until 1919 in the United Kingdom and Canada and 1945 in Australia. These coins are 92.5% silver and are in the form of (in decreasing weight) Crowns, Half-crowns, Florins, Shillings, Sixpences, and threepence. The tiny threepence weighs 1.41 grams, and the Crowns are 28.27 grams (1.54 grams heavier than a US $1). Canada produced silver coins with 80% silver content from 1920 to 1967.

Other hard money enthusiasts use .999 fine silver rounds as a store of value. A cross between bars and coins, silver rounds are produced by a huge array of mints, generally contain a troy ounce of silver in the shape of a coin, but have no status as legal tender. Rounds can be ordered with a custom design stamped on the faces or in assorted batches.

Exchange-traded funds

Exchange-traded funds (or ETFs) represent a quick and easy way for an investor to gain exposure to the silver price, without the inconvenience of storing physical bars. The silver ETFs are:

• iShares Silver Trust (NYSE: SLV), launched in April 2006 by iShares.
• ETFS Silver Trust (NYSE: SIVR), launched in July 2009 by ETF Securities.
• Central Fund of Canada (TSX: CEF.NV.A, NYSE: CEF), which has 45% of its reserves held in silver with the remainder invested in gold.
• In September 2006 ETF Securities launched ETFS Silver (LSE: SLVR), which tracks the DJ-UBS Silver Sub-Index, and later in April 2007 ETFS Physical Silver (LSE: PHAG), which is backed by allocated silver bullion.
• PowerShares DB Silver (AMEX: DBS), holds its worth in futures contracts for physical delivery, which are later sold to silver consumers in order to roll over expiring contracts to contracts further from expiration.
• ProShares Ultra Silver (NYSE: AGQ), seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

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Silver, like other precious metals, may be used as an investment. For more than four thousand years, silver has been regarded as a form of money and store of value. However, since the end of the silver standard, silver has lost its role as legal tender in the United States. (It continued to be used in dimes and quarter dollars until 1964, and half dollars until 1970 when the intrinsic value of the silver overtook the coins’ face values.)

Silver price

The price of silver has been notoriously volatile as it can fluctuate between industrial and store of value demands. At times this can cause wide ranging valuations in the market, creating volatility.

Silver often tracks the gold price due to store of value demands, although the ratio can vary. The gold/silver ratio is often analyzed by traders, investors and buyers. In 1792, the gold/silver ratio was fixed by law in the United States at 1:15, which meant that one troy ounce of gold would buy 15 troy ounces of silver; a ratio of 1:15.5 was enacted in France in 1803. The average gold/silver ratio during the 20th century, however, was 1:47. The lower the ratio/number;  the more expensive silver is compared to gold. Conversely,  the higher the ratio/number, the cheaper silver is compared to gold. Currently with spot gold at $1136.80/oz and spot silver at $17.70/oz the gold/silver ratio is at 1:64.3. So according to historical facts, silver is currently a bargain.

From September 2005 onwards, the price of silver has risen fairly steeply, being initially around $7 per troy ounce,  but reaching $14 per oz for the first time by late April 2006. The monthly average price of silver was $12.61 per troy ounce during April 2006, and the spot price was around $15.78 per troy ounce on November 6, 2007. As of March 2008, it hovered around $20 per troy ounce. However, the price of silver plummeted 58% in October 2008, along with other metals and commodities, due to the effects of the credit crunch. It has recovered since then, but has yet to surpass its pre-credit, crunch high of $20.92 per oz.

Factors influencing the silver price

Private and institutional investors

• From 1973 the Hunt brothers began cornering the market in silver, helping to cause a spike in 1980 of $49.45 per troy ounce and a reduction of the gold/silver ratio down to 1:17.0 (gold also peaked in 1980, at $850 per troy ounce). In the last nine months of 1979, the brothers were estimated to be holding over 100 million troy ounces of silver and several large silver futures contracts. However, a combination of changed trading rules on the New York Mercantile Exchange (NYMEX) and the intervention of the Federal Reserve put an end to the game.
• In 1997, Warren Buffett purchased 130 million troy ounces (4,000 metric tons) of silver at approximately $4.50 per troy ounce (total value $585 million). On May 6, 2006, Buffett announced to shareholders that his company no longer held any silver.
• In April 2006 iShares launched a silver exchange-traded fund, called the iShares Silver Trust (NYSE: SLV), which as of April 2008 held 180 million troy ounces of silver as reserves. 

The CFTC publishes a weekly Commitments of Traders Report which shows that the four or fewer largest traders are holding 90% of all short silver contracts. Furthermore, these four or fewer traders were short a total of 245 million troy ounces (as of April 2007), which is equivalent to 140 days of production. According to Ted Butler, one of these banks with large silver shorts, JP Morgan Chase, is also the custodian of the SLV silver ETF. Some silver analysis has pointed to a potential conflict of interest, as close scrutiny of Comex documents reveals that ETF shares may be used to ‘cover’ Comex physical metal deliveries. This leads analysts to speculate that some stores of silver have multiple claims upon them.

The use of silver in items such as electrical appliances and medical products has increased since 2001. New applications for silver are being explored in batteries, superconductors and microcircuits, which may further increase non-investment demand. The expansion of the middle classes in emerging economies aspiring to Western lifestyles and products may also contribute to a long-term rise in industrial usage. Even so, due to the advent of digital cameras the enormous reduction in the use of silver halide-based photographic film has tended to offset this in the short term.

References

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History of Silver Coins & Bullion

People in the older times did not use any form of currency to purchase the things they needed. They just traded their goods at the market place and exchanged things they had for things they wanted or needed. As time passed, people began to learn the value of currency. They started to use money as an instrument to purchase goods and services. Because silver has always been considered a valuable commodity, they minted silver coins as their first currency many hundreds of years ago.

Roman silver coins served as an important means of political propaganda. The Romans also used silver coins as a powerful way of paying their legions. These coins were used for most daily transactions by administrators, traders and for army pay. 

In 1792, silver assumed a key role in the United States monetary system when Congress based the currency on the silver dollar, and its fixed relationship to gold. Silver was used for the nation’s coinage until its use was discontinued in 1965.

Paper Silver

Paper silver or silver futures can be a confusing subject for many people. After all, what does it have to do with how to buy silver? To understand silver futures, one needs to understand what a futures contract is.

What is a Futures Contract?
A futures contract is a contract, traded on a special stock exchange called a futures exchange. The idea is to buy or sell, what is called, a certain underlying instrument, in this case silver, at a certain date in the future, at a specified price. Basically it is a bet that something will be worth something at sometime in the future. This gives new meaning to the word nebulous as no one can predict with accuracy what the value of a commodity will be at some date in the future. You can, of course, find heaps of experts that give advice or guidance but, intimately, no one really knows what the price is going to be.

Obligations of a Futures Contract
A futures contract is different to an option. Whereas with an option the holder simply has an option to buy or sell, the futures contract contains, as part of the contract, an obligation. You are required by law, in other words, to pay.

Both parties of a futures contract must fulfill the contract on the settlement date unless you opt to roll over in to the next months contract. Then cash is transferred from the futures trader who sustained a loss to the one who made a profit. Most futures trading is done on a cash settlement basis these days.

What are Silver Futures?
Silver futures are simply futures contracts where the commodity is silver. This is usually in the form of weight.

Futures contracts, or simply futures, for silver are usually 5000 troy ounces, One would trade in parcels or multiples of 5000 troy ounces, and the exchanges clearinghouse would act as counterparty on all contracts, setting margin requirements, and so forth.

Silver futures and options, currently trade on many exchanges around the world. In the U.S. it is primarily traded on COMEX (Commodity Exchange), a subsidiary of the New York Mercantile Exchange. Other major trading countries all have own futures and options (called derivatives) trading floors.

In short, silver futures are a bet that the price of silver is going to be at a specific price at some time in the future. This could be a high or a low price. If you are wrong you have to cough up the money, if you are right, you get the funds to the value of the current silver price on settlement day from the other trader

How Does a Silver Futures Contract Work
You simply agree to buy, say for example 5000 ounces of silver, in three months to the day at 16 dollars per ounce on that day. That future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. If an ounce of silver on that day is worth 20 dollars, you win as you are only paying 16 dollars for an ounce of silver that is considered to be worth 20 dollars. You would have made 4 dollar an ounce profit, and the seller loses as you are only paying 16 dollars for something that is worth 20 dollars. If the price of silver goes down in the interim to 13 dollars, then you will find yourself paying 16 dollars for something worth only 13 dollars. That is a nasty situation to say the least. You will have lost money! Of course you do not get the silver. It is all a cash transaction so you cannot, if you lose, collect the silver and hold onto it in the hope it will go up again and you can sell it. However you can roll it over into another contract.

The big issue here is the leverage. You don’t have to pay up front all that you are buying, only a percentage of between 1 and 10 percent. Of course if you win you can win a lot of money. Most people lose and that means they do not just lose the percentage of dollars they put down but the entire amount they bet.

You have to have sufficient funds to back up your call so you can ride out the dramatic changes that can occur from one moment to the next.

This is all done on a cash basis in most markets and in practice you would be working with a dealer so there is no “taking the silver and run.”

This explains why silver futures traders are usually professional dealer with large capital bases who are buying and selling for large institutions, and even they can lose big time.

Quite honestly you would probably have a better chance of winning at the casino.

Conclusion

There are pro’s and con’s to each type of silver mentioned above, and as a footnote I have attached a link to a story that explains the recent accusation of JP Morgan’s manipulating the silver futures market.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/30_Andrew_Maguire_%26_Adrian_Douglass.html     What do you think about this?

Reference:

Silver Futures

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 JUNK SILVER:

Junk silver is not junk at all,  it is actually very valuable.

Junk silver is an informal term used for silver coins which are in fair condition and have no numismatic value above the bullion value of the silver that it contains. The word “junk” refers only to the value of the coins as collectibles and not to the actual condition of the coins; junk silver is not necessarily scrap silver.

COINS THAT ARE CONSIDERED JUNK SILVER:

US silver dollars, half dollars, quarters, and dimes minted before 1965 contain 90% silver.

1965-1970 half dollars, and 1971-1976 Eisenhower dollars contain 40% silver. The Eisenhower dollars that contained 40% silver were issued as collectibles only and are generally not found in circulation. The Eisenhower dollars that were circulated were minted in the 1971-1978 timeframe and are composed of copper and nickel; and therefore not considered junk silver.

The only US nickels that contain silver are the ones called War Nickels that were minted 1942-1945 when nickel was in such high demand for use in armor plating that Congress ordered its removal from Nickel coins. The War Nickels are 35% Silver, 56% Copper, and 9% Manganese.

There are a number of forein coins that could be put in the junk silver catagory as well, but will only discuss Canadian coins as others are not likely to be used in the United States as commerce. The coins from our neighbor to the north that would fit into the junk silver catagory would be Canadian half dollars and dollars minted before 1968, they contained 80% silver. Canadian dimes and quarters minted before 1967 are  80% silver. Dimes and quarters in 1967 were isues in both 80% and 50% silver varieties. 1968 Canadian dimes and quarters are 50% silver.

AMOUNT OF SILVER IN COINS:

As a rough guide, there is approximately one troy ounce of silver in any combination of  90% U.S. junk silver coins which have a face value of $1.40. So for example, if you have a mismatch of 90% silver U.S. coins that totaled $15.40 in face value, that would be about 11 ounces of silver. At todays silver spot price of $16.49/oz multiplied by 11 ounces would be a silver value of  $181.39, not bad for a pocketful of change.

Another guide that could be used to determine the value of  junk silver would be its face value. Face value could be figured by multiplying the silver weight of a dollars worth of coins by the current spot price.  90% silver U.S. coins which have a face value of $1.00 contain 0.7234 troy ounces of silver, if uncirculated. So 0.7234 X todays spot price of $16.49 equals 11.93. Therefore take 11.93 times the valu of your junk silver to find out its worth.

Junk silver could easily be converted to use in daily commerece by either using its weight or face value.

Statement of Congressman Ron Paul
United States House of Representatives
Madame Speaker, I rise to introduce the Free Competition in Currency Act of 2009 (HR 4248). Currency, or money, is what allows civilization to flourish. In the absence of money, barter is the name of the game; if the farmer needs shoes, he must trade his eggs and milk to the cobbler and hope that the cobbler needs eggs and milk. Money makes the transaction process far easier. Rather than having to search for someone with reciprocal wants, the farmer can exchange his milk and eggs for an agreed-upon medium of exchange with which he can then purchase shoes.

Statement Introducing the Free Competition in Currency Act

December 9, 2009

This medium of exchange should satisfy certain properties: it should be durable, that is to say, it does not wear out easily; it should be portable, that is, easily carried; it should be divisible into units usable for every-day transactions; it should be recognizable and uniform, so that one unit of money has the same properties as every other unit; it should be scarce, in the economic sense, so that the extant supply does not satisfy the wants of everyone demanding it; it should be stable, so that the value of its purchasing power does not fluctuate wildly; and it should be reproducible, so that enough units of money can be created to satisfy the needs of exchange.

Over millennia of human history, gold and silver have been the two metals that have most often satisfied these conditions, survived the market process, and gained the trust of billions of people. Gold and silver are difficult to counterfeit, a property which ensures they will always be accepted in commerce. It is precisely for this reason that gold and silver are anathema to governments. A supply of gold and silver that is limited in supply by nature cannot be inflated, and thus serves as a check on the growth of government. Without the ability to inflate the currency, governments find themselves constrained in their actions, unable to carry on wars of aggression or to appease their overtaxed citizens with bread and circuses.

At this country’s founding, there was no government controlled national currency. While the Constitution established the Congressional power of minting coins, it was not until 1792 that the US Mint was formally established. In the meantime, Americans made do with foreign silver and gold coins. Even after the Mint’s operations got underway, foreign coins continued to circulate within the United States, and did so for several decades.

On the desk in my office I have a sign that says: “Don’t steal – the government hates competition.” Indeed, any power a government arrogates to itself, it is loathe to give back to the people. Just as we have gone from a constitutionally-instituted national defense consisting of a limited army and navy bolstered by militias and letters of marque and reprisal, we have moved from a system of competing currencies to a government-instituted banking cartel that monopolizes the issuance of currency. In order to reintroduce a system of competing currencies, there are three steps that must be taken to produce a legal climate favorable to competition.

The first step consists of eliminating legal tender laws. Article I Section 10 of the Constitution forbids the States from making anything but gold and silver a legal tender in payment of debts. States are not required to enact legal tender laws, but should they choose to, the only acceptable legal tender is gold and silver, the two precious metals that individuals throughout history and across cultures have used as currency. However, there is nothing in the Constitution that grants the Congress the power to enact legal tender laws. We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender. Yet, there is a section of US Code, 31 USC 5103, that purports to establish US coins and currency, including Federal Reserve notes, as legal tender.

Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency. Gresham’s Law describes this phenomenon, which can be summed up in one phrase: bad money drives out good money. An emperor, a king, or a dictator might mint coins with half an ounce of gold and force merchants, under pain of death, to accept them as though they contained one ounce of gold. Each ounce of the king’s gold could now be minted into two coins instead of one, so the king now had twice as much “money” to spend on building castles and raising armies. As these legally overvalued coins circulated, the coins containing the full ounce of gold would be pulled out of circulation and hoarded. We saw this same phenomenon happen in the mid-1960s when the US government began to mint subsidiary coinage out of copper and nickel rather than silver. The copper and nickel coins were legally overvalued, the silver coins undervalued in relation, and silver coins vanished from circulation.

These actions also give rise to the most pernicious effects of inflation. Most of the merchants and peasants who received this devalued currency felt the full effects of inflation, the rise in prices and the lowered standard of living, before they received any of the new currency. By the time they received the new currency, prices had long since doubled, and the new currency they received would give them no benefit.

In the absence of legal tender laws, Gresham’s Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society. Merchants would have been free to reject the king’s coin and accept only coins containing full metal weight.

The second step to reestablishing competing currencies is to eliminate laws that prohibit the operation of private mints. One private enterprise which attempted to popularize the use of precious metal coins was Liberty Services, the creators of the Liberty Dollar. Evidently the government felt threatened, as Liberty Dollars had all their precious metal coins seized by the FBI and Secret Service in November of 2007. Of course, not all of these coins were owned by Liberty Services, as many were held in trust as backing for silver and gold certificates which Liberty Services issued. None of this matters, of course, to the government, which hates competition. The responsibility to protect contracts is of no interest to the government.

The sections of US Code which Liberty Services is accused of violating are erroneously considered to be anti-counterfeiting statutes, when in fact their purpose was to shut down private mints that had been operating in California. California was awash in gold in the aftermath of the 1849 gold rush, yet had no US Mint to mint coinage. There was not enough foreign coinage circulating in California either, so private mints stepped into the breech to provide their own coins. As was to become the case in other industries during the Progressive era, the private mints were eventually accused of circulating debased (substandard) coinage, and with the supposed aim of providing government-sanctioned regulation and a government guarantee of purity, the 1864 Coinage Act was passed, which banned private mints from producing their own coins for circulation as currency.

The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases, the federal government considers this an increase in wealth, and taxes accordingly. Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.

Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry. Inflation is a pernicious tax on the value of money, but even the official numbers, which are massaged downwards, are only on the order of 4% per year. Sales taxes in many states can take away 8% or more on every single transaction in which consumers wish to convert their Federal Reserve Notes into gold or silver.

In conclusion, Madame Speaker, allowing for competing currencies will allow market participants to choose a currency that suits their needs, rather than the needs of the government. The prospect of American citizens turning away from the dollar towards alternate currencies will provide the necessary impetus to the US government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government’s ability and incentive to inflate the currency, and keep us from launching unconstitutional wars that burden our economy to excess. With a sound currency, everyone is better off, not just those who control the monetary system. I urge my colleagues to consider the redevelopment of a system of competing currencies and cosponsor the Free Competition in Currency Act.