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Dear Sir,
Regarding comments made in the letter on which form of precious metals to buy, readers should be aware that numerous Chinese fake silver dollar coins exist in today’s market. I recently became aware of these by an honest seller who identified the fakes as such, and sold me a couple for comparison purposes.

They are available as common Morgan and Peace dollars as well as more numismatically valuable styles such as draped bust and trade dollars. They look surprisingly realistic and appear to have normal aging and wear consistent with what you would expect. Believe me when I tell you that only a practiced eye would distinguish them by sight only! Clues to their identity exist, but more thorough examination is required. Weight is slightly low but might not be noticed by many buyers unless a scale is used. They are also a little thin, but again might not be noticed without a known good coin next to it or a micrometer measurement. Another method which can be used to identify real silver coins is by balancing the coin on a finger tip and tapping it with another coin. A real silver dollar gives off a low clear ring like a bell. The fakes give off a higher pitched ring which is not as clear and does not last as long. (Try this with a few real coins to hear the correct note.) The biggest tip off is that the coins are magnetic, being made in part from steel, and can be readily identified by their attraction to a magnet. No legitimates silver [or gold] coins will be attracted to a magnet

You’s better believe that I am now a much more intelligent buyer, and will be carrying a magnet with me (at least) for all future silver dollar purchases. I would have never thought that it would be worthwhile for someone to counterfeit a relatively inexpensive coin like a Morgan silver dollar. – William L.

Sir,
recently you responded to a young gent about silver purchases. i forwarded your discourse to my sister who brought up a valid point — you never mentioned in your response where you see the use for Silver American Eagles. I responded to her that maybe your advice was to use/purchase silver in this order: 1) junk silver; 2) Silver American Eagles; and lastly 3) silver bars.Ii chose that order due to the purity of the metal and its recognizability. Is this your opinion?

As far as the silver bars are concerned, I think that you have a point. Will Grigg once wrote of how his father had received payment once in silver bars, and when the 1980s [bull market in silver] hit, he was able to use them to keep the family going. Thanks in advance, – Rick B.

JWR Replies: Unless you have the opportunity to buy some Silver Eagles on the secondary market at a price that is close to the spot price of silver, then I do not recommend buying them. In most circumstances, they are over-priced. Why pay as much as 35% over their physical (silver ) value? This just plain bad investing. Some would argue that Silver Eagles are “readily recognizable? My question is, recognizable to whom? I’d guesstimate that 90% of the American population has never seen an American Eagle, and that 95% of the American population has never held one in their hand. In contrast, at least half of the population is familiar with pre-1965 mint date US silver coinage. (Although I wonder how many people know with accuracy that 1964 wa the last year of their minting.) I stand by my advice: Get pre-1965 “junk” silver coins for barter, and a 100-ounce serialized bars for investing.

Just as I envisioned three years ago, derivatives are now in thes spotlight: Treasury Seeks More Financial Regulations in Shadowy Markets. (Thanks to Danny S. and KAF, for the link.)

From the Appenzell Daily Bell: Beginning of the end? Fed cannot account for $9 trillion

KAF sent us this: David Frum: Quick fix today, crisis tomorrow in Obama’s White House

Redaer GG flagged this: Strong appetite for silver boosts coin production “Mints around the world almost doubled their silver coin production in the first quarter in response to a surge of investor interest in the metal.”

Items from The Economatrix:

Chrysler Moves to Eliminate 789 of 3,200 Dealership

Celente: The Bailout Bubble: The Bubble to End All Bubbles

Stock Optmists Need to Read a History of the Great Depression

EU Plans Bank Stress Tests in Europe

Asian Stock Markets Edge Up as Spring Ralley Loses Fizz

Hardship Bites in Toyota City

Luxembourg: Angry Steelworkers Storm ArcelorMittal (World Biggest Steelmaker)

Obama: Credit Card Bill Critical to Fix Ailing Economy

US “Sham” Bank Bailouts Enrich Speculators

GM Plans to Export [Chinese-Built] Cars to the US “General Motors is planning to build cars in China and import them into the United States, a strategy that could trigger further job losses and union anger in the US.”

“Green Shoots” Wither on Poor US Retail Sales Figures

Dear Sir,
During a discussion with a friend today, we chatted about which format of silver would be most viable as a form of a tangible asset. We discussed the recognized value of Silver American Eagle coins versus”silver rounds”, and found ourselves asking more questions than being able to provide reasonable answers. The conversation was based on my recent decision to convert US currency into silver rounds at a price of $0.90 over spot price (at the time $11.91 per ounce). This was a much lower price than the $3.59 over spot price for Silver American Eagles, so it seemed a logical choice for me at the time but my friend pointed out that the silver round may be questioned by others in TEOTWAWKI times.

To that end, I’m turning to your expertise for input. Can you please provide your comments on the following questions (or other matters as you see fit):

1. Best form of silver [for] investments?
2. Silver bullion versus junk silver–why one versus the other?
3. How can a common person test silver (or even gold) for purity/legitimacy?

God Bless, – Craig from Wisconsin

JWR Replies: As I’ve mentioned before in the blog, I recommend using maintaining two distinct hoards of silver, and that your do not co-mingle them:

A.) The first is your designated “barter” silver stockpile. The barter portion of your silver stockpile should be in small divisible units, ideally pre-1965 circulated “junk” 90% U.S. silver dimes. (Or the country specific equivalent, for our foreign readers.) This “barter” silver should be considered a core holding, and never sold for the sheer sake of profit. If you don’t ever have to use it for barter, then count you blessings and just pass it along to your children or grandchildren so that they will will have something to use for the same purpose. As previously mentioned, if you can afford it, I recommend buying one $1,000 face value bag for each member of your family.

B.) The second is your designated “investment” silver stockpile. The best way to buy this–with the lowest dealer premium per ounce–is serial number-stamped 100 ounce bars, from a well-known maker such as Engelhard, A-Mark, or Johnson-Matthey. This stockpile is designed as a time machine to protect your wealth from one side of an currency crisis to the other. You buy it in current day dollars. After a currency collapse has come and gone, when a new stable currency (hopefully backed by something other than hot air) is issued, then you can convert part or all of your investment silver stockpile into the new currency. Odds are that most if not all of your original purchasing power will be preserved by this method.

The chances of a one-ounce silver round being counterfeited are fairly low, but the chances of 100 ounce bar being faked are statistically significant. So…

• Buy only from a reputable dealer.
• Buy only bars minted by a well-known maker such as Engelhard, A-Mark, or Johnson-Matthey
• Buy only serialized bars.
• If in doubt, have an assay conducted. This is the norm for 1000-ounce industrial silver bars, but can also be done with serialized 100 ounce bars if they are being offered by a dubious seller. (A local bonded assay company can be located with a web search.) The traditional method is to drill a small diameter hole into one of the bars to insure that you aren’t buying a lead bar that has been silver plated. Then, those drillings are tested using nitric acid and silver chloride.
• In the unlikely event you don’t have access to an assay company, then at least weigh the bar on a very accurate scale and compare its dimensions (using calipers) with a “known good” bar from the same maker. (There will be minor variations, especially with cast bars, but it is difficult to create a counterfeit bar that will have both the correct weight and dimensions. You can also do an Archimedean water displacement test.

The chance of gold coins being faked is substantially higher than silver coins. Anyone that plans to buy gold coins should get a set of the precision coin calipers made by Fisch Instruments of South Africa. It is also wise to invest in an acid test kit that includes a touchstone.