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Sunday, July 31, 2011

APMEX Fractional Silver and Shire Silver

Silver prices are rising. Some people are using silver as barter money.

However, 1 oz silver is worth $40+, too much for small transactions. Some people say "Use junk silver for change!" (pre-1964 government silver coins) However, no new junk silver is being minted.

Also, junk silver doesn't exactly divide into 1 ounce. A crude approximation is $0.35 of junk silver per 0.25 ounces. Also, many "junk silver" coins are worn from circulating, giving them a current melt value less than the value when minted.

APMEX has started offering fractional silver rounds for 0.1, 0.25, and 0.5 ounces.

Here is an example:

0.5 oz$23.02
0.25 oz$12.21
0.1 oz$5.30

Notice that a 1 oz round is 9% more than spot. That's due to the labor cost of converting a 1000 oz bar into rounds.

Similarly, two 0.5 oz rounds is worth more than a single 1.0 oz round. That's due to the labor of making the coin.

This is a slight problem when using silver as barter money. There's a loss when you make change.

There is one way to fix this. If the coin weights were 1.0 oz, 0.473 oz, 0.223 oz, and 0.082 oz, then the coin values would match. Then, the 1.0 oz coin would have equal value to 2, 4, or 10 of the smaller coins.

Alternatively, the person making the change could just accept the loss.

Shire silver is experimenting with fractional silver also. They are cutting silver wire and laminating it. However, they're doing it wrong.

"One gram laminated silver" costs $2.10. "Five grams laminated silver" costs $10.25. The 5 gram card should be much cheaper than 5X the 1 gram card, due to the cost of making the card.

Also, they could have picked the weights better. How many 5 gram cards equals an ounce of silver? As I write this, spot silver is $40. Does that mean 5 "five gram silver" cards equals one silver round? However, there are 31.1 grams in a troy ounce. That means the fee for making the shire silver card is 1.2 grams of silver each, or $1.5. That's a pretty hefty transaction fee.

I'd like to see the "shire silver" redo their weights so that it came out to multiples of a silver round, to facilitate making change. (I.e, cards valued at 1/5 and 1/10 of an ounce of silver, but containing less than that amount of silver due to the cost of making the card.)

Also, the transaction fee for "shire silver" is too high.

If I buy 6 "five gram" shire silver cards, that costs $60.30 for about an ounce of silver. If I buy 10 "1/10 oz" APMEX fractional silver coins, I pay $53.00 for an ounce of silver. Clearly, APMEX fractional silver coins are superior to "shire silver".

I briefly looked into possibly using copper rounds for change. There are no 1-10 oz copper rounds available at a reasonable price. I investigated small-denomination copper rounds/bars. They all include ridiculous premiums to spot, making them unusable.

One way to protest State financial corruption is to work off-the-books and use gold and silver as barter money. However, there are minor problems when making change smaller than 1 oz of silver. For small-denomination coins, the cost of making the coin is a substantial percentage of the price. The smaller-denomination coins should have a weight so that they're round fractions of 1 oz silver in value.


Anonymous said...

I don't think the whole system will crash in the next few years.

Things will just get slowly more horrible.

As such exchanging gold and silver back into fiat a bit at a time might be what will happen.

Anonymous said...

steamroller says:
It will only crash when the confidence of people in paper (fiat) has completely failed. There may be some barter with silver in fractions of an ounce, but that will depend on how much silver you want to convert into food or other essentials - - since they won't be sold for dollar-denominated fiat. Nobody will want them - much like Zimbabwe today!

Matt said...

You're overlooking a huge failing of Shire Silver that overwhelms your objections. It's not verifiable. Good money has to be verifiable. That is, it has to be possible for us to tell that it's not counterfeit. There is no way to know whether a Shire Silver card contains the requisite amount of metal (due to the weight of the card) or even that the metal encased in the plastic is actually silver and not, say, aluminum. I'm not saying Ron *would* cheat us, but any system where such deception would be so easy to perpetrate is not viable. It's even possible that we could be cheated entirely by accident if the wires are cut by length and not weighed to verify accuracy under the assumption that all the wire being used has uniform thickness.

FSK said...

You would have to cut the shire silver card and melt the silver. Of course, the melt value of the silver is much less than the shire silver card.

You have that same problem with bullion.

Silver: There's an alloy of cheaper metals that has the same specific gravity as silver.

Gold: gold-plated tungsten

Platinum is the most counterfeit-proof PM. A specific gravity test on platinum is 100% perfect.

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