Quick! How many ounces in a pound? Did you say “16?” Nope, that’s wrong. The correct answer is “It depends …”
This article deals with circulated US 90% silver coins minted before 1965. They are affectionately known as 90% junk silver coins to collectors and investors, and they are excellent vehicles for those seeking to own precious metal.
So, in the context of precious metals like gold and silver, the correct answer to our question is “12,” not “16.” Specifically, there are 12 troy ounces in one troy pound, not 16.
In the kitchen, you measure avoirdupois ounces. There are 16 avoirdupois ounces in one avoirdupois pound. Be careful with this. You can lose a lot of money buying silver if you don’t know the difference between troy ounces and avoirdupois ounces. Troy ounces are used for precious metals. Avoirdupois ounces are used for most everything else. To make matters worse, people do not usually tell you what they mean when they say “ounces.” If the context is precious metal, “ounces” means “troy ounces,” but if you are talking about raw hamburger, “ounces” means “avoirdupois ounces.” The actual weights of troy and avoirdupois ounces (31.1 grams and 28.3 grams, respectively) do not mean very much when trading silver, but knowing what you are talking about means everything!
The 12 vs. 16 question is one area that can trip up novice collectors and investors. There are others. More examples follow.
In this article we lay out the details of junk silver investing. Please read carefully before buying. We present:
The Spot Price of Silver
Sham Detection, Part 1
What is Junk Silver?
What is NOT Junk Silver?
How to Calculate Silver Spot Value
Guarantees, Premiums, and Bid/Ask Prices
Evaluating the Premium
The Answer for Sham Detection
The Spot Price of Silver - Precious metals gold and silver trade on an open market, so the price fluctuates continuously. I like to use kitco.com for finding the current spot price of silver, but there are other places where you can find the same information.
What is spot price? I am oversimplifying here, but you can think of spot price as if you were standing outside a silver mine and caught a troy ounce of raw silver as it slid off the miner’s shovel. Spot price captures the fundamental value of the precious metal; it does not capture the value of steps needed to convert the raw silver into investment-grade commodities such as 90% junk silver coins.
At the moment, silver is trading at a spot price of $19.16 US dollars per troy ounce. But, a few minutes from now, the price will be different. It goes up and down constantly. Macrotrends.net shows this graph of silver spot price over the past 100 years. You can see that it a has swung widely over the years, from a low of $5 per ounces to a high of $120.
We give several examples of junk silver pricing in this article. For those examples we assume the silver price is $25 US dollars per troy ounce. Look up the actual spot price of silver to make your own calculations.
Sham Detection, Part 1 - Let’s say you have decided to buy some 90% junk silver as an investment, and you are browsing through advertisements. You know that the current price of silver is $25 per ounce, and you run across this flashy ad.
The ad is for one troy pound of old US silver coins. The picture looks good, and “before 1965” is exactly what you are looking for. But what about the price? Is $425 the right number? Also, the ad says nothing about 90%. Be careful.
Most people would multiply 16 ounces in a pound by $25 per ounce to get $400 as the value of the silver, so the $425 asking price looks pretty nice. It’s only $25 more than the value of the coins. It looks like the seller will make a profit of only $25 on the transaction. That sounds fair. But is it?
Remember we discussed that there are 12 troy ounces in one troy pound, not 16. Recomputing, the value of the silver is really 12 x $25 = $300, so the $425 asking price gets quite shaky.
But wait. There’s more. Old US silver coins are made of 90% silver, not pure silver. They contain 10% copper and 90% silver. Therefore, 12 ounces of pre-1965 coins contain 0.90 x 12 = 10.8 ounces of pure silver, and, at $25 per ounce, the value of silver represented in the ad comes out to 10.8 x $25 = $270.
In other words, the $425 price is quite a bid higher than the $270 spot value. Is $425 a fair price? We answer that question at the end of this article, after describing the twists and turns associated with pricing 90% junk silver. (Hint: $425 is way too high!)
Don’t be fooled by slick advertising. Read this article, do your homework, and pay fair prices for the silver you buy. Later in this article we describe the best way to compute proper values for 90% junk silver: use face value, don’t use ounces and pounds. Further, be sure to read our section title “What is NOT junk silver.” Some sleeze-ball dealers try to mix unqualified coins into their junk silver sales. Caveat Emptor — Let the Buyer Beware.
What is Junk Silver? - It is certain US coins dated before 1965 in average circulated condition. We use a strict interpretation of 90% junk silver as
Roosevelt dimes, minted between 1946 and 1964
Washington quarters, minted between 1932 and 1964
Franklin halves, minted between 1948 and 1963
Kennedy halves, dated 1964
These coins cannot be found in circulation today, but you can buy them from people who deal in precious metal.
Coin collectors know that only two things give collectible coins their value: (1) the precious metal — gold and silver — they contain, and (2) the rarity and collectability of certain coins. With junk silver, rarity and collectability are not in the picture, so the only source of value is the precious metal they contain.
Some specific dates and mint marks are valuable due to collector demand. For instance, a 1932S Washington quarter catalogs at $100 US dollars even in well-worn condition. Therefore, 1932S Washington quarters do not qualify as junk silver. If you find one, add it to your collection or sell it to a coin dealer. Further, if you have a junk silver coin that is in excellent condition (say EF-45 or above) with great eye appeal, you’d be better off selling it to a coin dealer rather than including it in your stash of junk silver.
The graphic below shows junk silver coins. It also points out special dates and mint marks that make certain coins more valuable than junk silver.
What is NOT Junk Silver? - There are three categories of “NOT junk silver.” The first category includes old US coins that are worth less than junk silver because they contain less than 90% silver, as follows:
Jefferson “war” nickels, 1942 to 1945, which contain only 35% silver
Kennedy halves, 1965 to 1970, which contain only 40% silver
Kennedy halves, 1971 to date, which contain no silver at all
The second category consists of old silver coins that still have collector demand, so they are worth more than junk prices as long as they have dates and mint marks, have decent eye appeal, and are not damaged by nicks, scratches, spots, dents, gouges, or cleanings. These include:
Liberty head “Mercury” dimes, minted between 1916 to 1945
Standing Liberty quarters, minted between 1916 and 1930
Walking Liberty halves, minted between 1916 and 1947
The third category of NOT junk silver is basically everything else, including older US 90% silver coins, and US silver dollars. The older 90% coins generally have strong collector demand, and old US silver dollars have different amounts of silver, so junk pricing does not apply.
How to Calculate Silver Spot Value - Wow. Look at that big pile of junk silver! What’s it worth? The answer is easy to calculate, but shysters may try to fool you, as we discussed at the start of this article. Be sure you know how to do it.
First, calculate silver spot value. Forget about ounces and use this formula instead:
[Silver Spot Value] = FVF x [Face Value]
You know what Face Value is, right? Face Value is what it says on the face of the coin. A Washington quarter says “quarter dollar” and its Face Value is, umm, a quarter dollar, 25 cents. Face Value of a Roosevelt dime is one dime, 10 cents. You get the idea.
So, your first task is to add up the Face Values of your coins to get the total Face Value in your pile of junk silver. Maybe you’ve got a roll of 40 Washington quarters. The Face Value is $10. Or maybe you’ve got 23 Franklin halves. The Face Value is $11.50. Or perhaps you’ve got a whole bunch of different coins. Get to work, add them up, and figure out the total Face Value.
Once you’ve got Face Value, multiply it by the Face Value Factor (FVF), which we will tell you about in a minute.
Suppose you’ve got a $10 roll of quarters and suppose FVF = 12.75. In this case
[Silver Spot Value] = 12.75 x $10 = $127.50
Your $10 roll of quarters contains $127.50 worth of silver. Not bad! You will be happy when you find out how much your junk silver is worth. It’s worth a lot!
BTW, the terminology is confusing. Not only do we have the troy vs. avoirdupois befuddlement, Silver Spot Value, the value of the raw silver in a silver coin, has lots of names. Some people call is Base Value (BV), or Bullion Value (also BV), and some people call it melt value, imagining that the silver has been melted into a puddle by a blow torch.
Finally, you need to know how to compute FVF. No surprise, it depends on the current silver spot price, like this:
FVF = 0.72 x SSP
where SSP is the current silver spot price in US dollars per troy ounce from kitco or a similar source. For example, if the spot price is $25 US dollars per troy ounce, then
FVF = 0.72 x 25 = 18.0
The mysterious 0.72 number comes from the amount of pure silver in one dollar Face Value of 90% junk silver coins. It is not particularly important to know this fact, but, when you hear someone speak of the current silver spot price, multiply it by 0.72 to get FVF, and then use FVF to compute the value of raw silver in any 90% junk silver coin.
With an FVF of 18.0, a single Washington quarter contains $4.50 worth of silver, and a roll of Washington quarters is worth $180. Nice!
Guarantees, Premiums, and Bid/Ask Prices - Can a person buy and sell 90% junk silver at the Silver Spot Price? In a word, no. Generally, you pay more than spot to buy junk silver, and, when you sell, you receive less than spot.
Remember we discussed spot value as the value of raw silver metal, just as it is dug from the ground at the mine? Buying silver at spot would be like buying a cell phone as a bunch of electronic components: the raw material is there, but they must be put together to create a working instrument. The same goes for 90% junk silver. It must be put together before it becomes an investment vehicle. People won’t buy a pile of dirt, but they will buy an old US coin made out of silver extracted from a pile of dirt.
One of the best things about 90% junk silver is that it guarantees metallic composition of 90% pure silver in easily recognized, difficult to counterfeit, forms. The US Mint started producing 90% silver coins in 1794. By the time junk silver coins came around, the Mint was really good at it. The guarantee of purity is important, and it is valuable and worth paying for. There are many steps to move from the miner’s shovel to a US coin, and each step costs money.
The amount over spot that you must pay to buy junk silver is called the premium, and the premium depends on several factors, not the least of which are the ever-present supply and demand factors of a free market.
Look at the graphic below. You see three prices: Spot, Ask, and Bid. All three vary with the prevailing economic and financial conditions.
In the graphic, the small circles represent price points. The Ask price is above the Spot price by an amount equal to the premium.
When you buy junk silver from a dealer, you are paying the Ask price. It is what the dealer is asking for his or her merchandise. Conversely, when you are selling your junk silver to a dealer, he or she will pay the Bid price. The difference between Ask and Bid is called the dealer spread. Dealer spreads generally run between 10 and 30 percent, depending on the size of the transaction and current conditions. Large transactions during calm conditions result in small dealer spreads. Small transactions during turbulent conditions result in large dealer spreads.
Evaluating the Premium - Even though the Silver Spot Price is closely tracked, monitored, and published, the 90% junk silver premium is not as handy. People in the precious metals industry know what it is at any given moment, but they don’t broadcast it to potential buyers and sellers. To find the current 90% junk silver premium, you must dig for it.
The easiest way to find the current premium is to develop a long-term, personal, working relationship with a dealer you trust. When you want to know the current premium, just ask your dealer friend. Trusting relationships must be built over time, usually by starting small and consistently buying and selling with the same dealer.
If you are just starting out and have no dealer friends, you can look at prevailing Ask prices and estimate the premium by comparing them to the current spot price. That’s what we did when building the graph below.
We looked at 50 eBay auctions of 90% junk silver and 5 reputable online dealers. The analysis shows that the current (as of mid-July 2022) premium is about 43 percent. That’s high. Under normal economic and financial conditions, junk silver premiums run between 5 and 15 percent. A glance at worldwide news tells you that conditions are somewhat turbulent now and in the foreseeable future, and the junk silver premium bears that out. There are other silver investment vehicles which carry lower premiums, but their guarantee is not as good as that of 90%% junk silver.
The Answer for Sham Detection - We started the article with a flashy ad. Here it is again:
The question is whether or not the $425 asking price is a good one. Is it a fair price, compatible with today’s junk silver market? Or is it a sham?
Looking closely at the ad, there is no mention of 90% silver, and there is no Face Value quoted. Both of these are bad signs. Will we really get 90% silver? Why is Face Value not mentioned? Hmmm.
To calculate a fair market value for one troy pound of 90% junk silver, first find the Silver Spot Value. We can’t use the Face Value Factor (FVF) method, so we must recall that there are 12 troy ounces in one troy pound and that 90% junk silver is not pure silver. Assuming the ad is offering 90% junk silver — which is a big assumption because there are pre-1965 US coins that contain only 35% silver — the total silver content is 0.9 x 12 = 10.8 ounces. At our working $25 per troy ounce spot value:
[Silver Spot Value] = 10.8 x 25 = $270 US dollars
Then, based on our analysis leading to the 43% premium, the fair market value for the material in the ad would be
[Fair Market Value] = 270 + 0.43 x 270 = $386 US dollars
Arrgh! The seller is trying to rip us off by almost $40. Not going to happen!
Further Reading