Arbitrage: Hacking your silver investment.

I've been a precious metals investor since 2002. I'm going to tell you exactly how to juice your returns in the silver market using a technique that I've never seen described by anyone else. 

I'm going to assume you understand what fiat currency is, are familiar with fiat's perfect historical record of falling to valuelessness, are imaginative enough to NOT say things like, "what good is gold? you can't eat it," and are possessed of enough wisdom to want to protect yourself from the knuckleheads in power. 

I'm willing to address some of the above, but those will be other articles for a less-experienced audience. 

Here's the secret- Arbitrage the premiums between two kinds of physical silver. I've used this technique, several times, to make 18-20% returns while maintaining my silver position. 

There are lots of ways to invest in silver: ETFs, individual miners, mining funds, jewelry, COMEX bars, generic coins, or fencing your grandmother's flatware. In the event of a currency collapse, most of these should protect some of your purchasing power. However, pre-1965 US junk silver coins come with a "reliably volatile"  component built in, and this is what makes this form of silver the best one to invest in vs the others.

What we call "junk" silver are dimes, quarters, and half dollars issued by the US government. They are just like the shrapnel you encounter every day, with one important difference- prior to 1965, those coins were 90% silver!

Junk silver coins are sold in bags, half-bags and quarter bags. A bag is $1000 face value containing 715 ounces of silver, a half is $500 and a quarter is $250.

For our example, we're going to assume you have enough scratch to buy a bag. At today's price of $19.75/ounce, a bag of junk where I shop will run $14,264. ($19.95 x 715 = $14,264). The sharp-eyed of you will have noticed that I priced the silver at 19.95 instead of 19.75, and this is where the trick comes in. 

You see, there is a premium associated with junk coins that is unlike anything I've seen elsewhere in the silver market. The premium is the cost differential between the spot price and the street price. I have paid as little as 15 cents UNDER spot for junk coins, and sold them, during panics, for as much as $5 per ounce OVER spot. Understanding the premium differential across two types of physical metal is where you'll make your extra return, all while maintaining your position in silver. 

It works like this-

1. Open a futures account with your local commodities broker. Deposit enough with him to control 700 ounces in silver contracts. Be warned that the COMEX changes their rules on a whim, so you might need to deposit the full value of your contracts.

2. Take another $14,250 down to your coin shop and buy a bag of junk (715 ounces). Put it somewhere safe and don't blab about it. 

3. Wait for the panic. Assuming it's like the last time, people will be scrambling to get their hands on physical silver, and premiums on junk will skyrocket. Then go to your coin dealer and sell your coins at spot plus the premium. 

4. Immediately call your broker and buy an equivalent amount of silver via futures contracts. There are regular and mini contracts. Regular is 1000 ounces, a mini is 100 ounces. Here, you'll need 7 minis to approximate a bag. Once the spot price is locked in, tell your broker that you are taking physical delivery. (Most people never do this, so it might take a bit of goading to get it worked out.) 

Pay for your contracts in full.

5. Wait a month, and be ready to receive 700 ounces in the mail. Yes, they really do ship this stuff via the post office.

6. By now, the mania will have subsided. If it hasn't, wait. You're still in good shape. Put your bars in your safe-storage location. You're still invested in the same amount of physical silver, it's just a different form. Once things have calmed down, call your coin dealer, verify that the premium has evaporated, waltz into the shop and swap the bars for another junk bag. You might get to trade straight across with no paperwork, (I did) or you might pay a small differential, (remember, bars sell at spot and coin premium is variable) but it will be incidental to the windfall you just took off the table. 

7. Store your bags of junk, sit back, and wait for the next mania.

8. Buy yourself something nice with part of your profits. I mean, why else are you in this game?

That's the technique. I've done it at least twice over the last decade. 

Last time, I sold around 10 bags of silver to a southern California coin shop at $5/ounce over the spot price. There was a line out the door of people paying the $7/ounce premium quoted by the coin shop. It was a mania. 

"Spot," or the price on the commodities exchange, was about $22.The coin shop cut me a check for $193,050 ((22 spot + 5 premium) x (715 ounces/bag x 10 bags)) = 193,050. 

My 7, one-thousand-ounce silver contracts cost me $157,300. I paid that, then waited for the post office to deliver. It was a bit awkward to see my mail carrier struggling under nearly 500 lbs of ugly, rough-cast silver bars. COMEX bars aren't beautiful like Canadian maple leafs (another story) or historically cool like 100 ounce Soviet palladium bars (yet another story). 

None of which matters, because I wanted them for their utility and nothing more. 

Some weeks later, I trucked the bars to my dealer and swapped them straight across for silver bags, which I put them..somewhere safe. 

The difference, over $32,000, was all profit. 

So, that's the How. 

As for When: Right now. I just called my metals dealer and he's buying junk silver at 10 cents under spot, and selling it for 20 cents over. The cheapest I ever bought junk was 15 cents under spot, so we're pretty close to that. If you want to employ the technique I described, now is the time. 

You can live free if you want to. There is always a way.

Elsensei

PS. It's always seemed strange to me that pre-'65 coins are called "junk," as they have intrinsic value that far exceeds their face value. As of today's writing, with silver at roughly $20/ounce, a single dime contains about $1.40 in silver. :)