What kind of silver and gold should you buy?

Soon enough everyone is going to be wanting to hold some commodity money.  We are talking months and years, not decades.  There is a good deal of noise in this space and so I want to be the voice of clear reason for my readers. And as usual my argument will be based on logic not emotion.

In order to answer the question we have to understand what the people's goal will be in converting paper currency into monetary metal.  And the answer is clear: to avoid losing buying power as the herd figures out that the paper currency is essentially a con game.  But what is buying power?  Simply, the ability to trade the token to someone else for something of the same value that you traded to obtain the money token in the first place.

The single most important criteria therefore is confidence that there will be a liquid market for the token when time comes to "spend" it which really just means to trade it for something of like value.  I will refer to this as liquid market confidence (LMC).

Precious metals come in several forms:
- silver/gold bars
- silver rounds: a stamped coin made by a private mint, often commemorating something. But not legal tender.
- junk silver: a mixed bag of legal tender dimes and quarters.
- numismatic gold and silver coins - legal tender coins which have some special value associated with them above their metal weight
- legal tender bullion coins

Let's evaluate the LMC for each of the above:

Silver and gold bars are the most counterfeited (meaning in this case debased) of all the forms of precious metals.  And the bigger the bar, the easier it is to drill out bits of the precious metals, fill with cheap metal like lead or tungsten and then re-plate the counterfeit piece with a thin layer of gold or silver to cover the work.  I absolutely avoid bars because they come from so many sources that nobody knows what a real one even looks like, and plastic sleeves are not a guarantee of purity and honesty.  In fact, it's pretty difficult to do the silver "ping" test where you tap two silver coins together and listen for the pure tones they put out.  This unique quality of silver is the reason that silver bells are made of silver.  Once a person knows these things they will avoid bars.  And that reduces the liquidity of the market for anyone trying to spend them.  If they were 1/2 price or something then maybe I would take some risk but they want as much or more than a government minted coin so I see no value in them.  If you buy them you would never be able to sell them to me for what you paid.

Silver "rounds" are discs of metal that can be highly pure and finely inscribed but those selling them dare not call them "coins".  And that is important.  While the legit versions of these rounds contain the same amount of metal as government minted bullion coins, rounds (and bars) are not legal tender.  Now you might immediately think who cares about the legal tender status because silver eagles have a face value of $1 even though they cost about $20 per coin today (I just checked the ask on Monex).  And gold eagles only have $50 face value on a coin that costs $1547 right now on Monex.

But think about it.  If a thief debases a silver/gold bar or round, maybe they can be charged with fraud, and that's if you can get the government interested in pursuing charges.  Remember, a lot of these frauds come from China, etc.  So tracking them down is difficult and even if the culprit is found we do not have an extradition treaty.  So instead of catching and prosecuting the crooks, government is more likely to laugh at you for falling victim to such fraud.  But if someone does the same thing to an Eagle then that's a whole different class of crime: counterfeiting.  And with counterfeiting the government does care and will spend more time and money putting a stop to it.

Consequently, most bullion fraud happens in bars and rounds because if the price is the same then why should the thief incur additional risk and legal charges should they get caught.  And again, it's not like you are being compensated for the risk.  Instead you are being sold the round as a commemorative piece or a political statement or some other emotional marketing ploy.  So again, while you might like the design and while you might think it contains 1 OzT of 999 fine silver, once you have this coin you have to convince the next guy.  And there will be plenty of next guys like me who understand that this form of metal does not come with any threat to counterfeiters by a well armed and sophisticated government.  In fact, this is the primary role of the US secret service.  This is an elite federal law enforcement agency which commands whatever resources it needs from local law enforcement.  It's not some podunk inept local police force.  Why would I pay you the same money for a round that does not come with its own security force as I would for coin that has the special status of being legal government tender?  The answer is, I won't.  Maybe I will give you half the going rate of a real bullion US mint coin.  And the reason is simple: I will be worried that I cannot find a next greater fool to accept it from me at full market value when it comes time to trade out.  Without the protection of the the secret service a round cannot command the same LMC as a coin that is legal government tender.

Junk silver is just a mixed bag of legal tender US silver coins.  And while these have the protection of the secret service against counterfeiting, nobody counterfeits such small denominations.  At least not at today's market prices. In the future I suspect that will change.  The problem with junk silver is that there are 3 grades:90%, 40% and 35%.  In order to know which is which you need to read the date off each coin and see which silver content it has.  And then you have to turn that number of grams into the units that most people use when trading silver, the OzT (Troy Oz.).  While these have the advantage being small denominations which can indeed be useful for buying a sandwich or a gallon of gas in the future, they are difficult to store.  Remember, pure silver weighs about 70 lbs per 1000 OzT of pure silver.  But a 40% coin would obviously need a whopping 175 lbs to yield 1000 OzT of pure silver.  So maybe I would buy a small amount of junk silver but more likely I would just take change in junk silver.  In other words, I give them a 1OzT coin for a tank of gas and they give me my change in junk silver.  I would accept that as a fair trade.

Numismatic coins (gold and silver) are legal tender and so have the armed force of the secret service behind them but they trade for a premium which can be highly volatile and highly subjective.  A major problem with these is that when its time to trade out of them, you have to find a coin expert to estimate its value.  Not only do these coins vary in value by extreme amounts based on things like year, mint mark and other minutiae, they also vary in value by condition.  And there are often widely differing opinions on what grade the coin is.  When I am stacking silver and gold, I'm doing it to hoard money, not because I need a new hobby.  Thus I don't want to have to become an expert in coin grading and thus I have zero understanding of what a numismatic coin might actually commonly and conservatively trade for.  And if I can't value it then I have to worry that market of those who can value it is small.  If it were only this bad it would be bad enough.  But unlike bullion coins, these numismatic coins ARE worth the extra risk of counterfeiting because of the price premium they carry.  And the counterfeiters live elsewhere so they are difficult for the secret service to catch and prosecute.  Also, I suspect that government sees collectible coins as a hobby, with the counterfeiting of them not a real threat to the US money system.  So they will just tell people who got scammed "buyer beware".

Now, some of these metals dealers will bring up the fact that numismatic gold coins were exempted from the government confiscation of gold in 1933 and wave that around as the reason to pay stupid prices for numismatics.  But back then the confiscation was really targeted at banks and corporations holding gold on their balance sheets.  The law even allowed citizens to keep 5 ounces of gold coins.  I suspect today a gold confiscation order to the people of the US would be treated like a semiautomatic gun ban in New Zealand: very low compliance.  Government requires people to be afraid and cower when it speaks so that intimidation can be used to herd the sheeple instead of manpower. After all, human labor and equipment is expensive and talk is cheap.  But people are rapidly losing their fear of government and of authority in general.  Look at how many people are willing to fight on an airplane these days.  It's no longer an electric 3rd rail of societal behavior.  That's a sign that people just don't give shit what government says.  Well, if the people don't comply with confiscation then it will be completely uneconomical to send in troops.  Government will never do it and unenforceable laws end up being ignored.  You can read a similar take on it here if you like.

Of all the types of metal bullion, legal tender bullion coins are the safest from a LMC perspective.  Counterfeiters avoid them because of the additional legal risk they entail and since they carry no numismatic value there is no special knowledge required to identify their value.  Anyone with an internet connection can check the live "ask" market price online.  And while they have different years stamped on them, the basic design for silver and gold eagles has remained unchanged for years.  This limits the amount of info the perspective buyer has to know and thus increases the liquid market confidence of the person buying these coins.  Bullion coins are legal tender that carry the implied protection of the secret service.  Bullion coins are also stored in tubes, not plastic sleeves.  That means you can ping test them (something that is not done with numismatic coins for fear of reducing the grade by putting tiny imperfection in the surface).  Bullion coin owners like shiny coins but will accept a much broader level of condition than numismatics will allow.

So the answer is simple: buy legal tender bullion coins from western society government mints (USA, Canada, Austria and even Australia) and avoid bars, rounds and all forms of numismatics.  If you do this your life will be a lot easier when it comes time to spend them.