This year for the first time I'm going to give the gift of silver as a Christmas present. Specifically, I'm going to give a couple of silver coins to my godson who is in 8th grade.
As gifts go, I recognize this is not very exciting and I know such a present might not get the reaction of, say, a computer game or a piece of sporting equipment, but I'm going to risk this reaction and perhaps start a tradition here.
This young man has a lot of birthdays, Christmases and graduations coming up and maybe, over time, I can slowly add to his silver collection.
I also know from experience that sometimes you don't appreciate the value of a gift until much later.
I was this way myself. When I was a boy, one grandfather ("Hickey" Chapman) would often buy silver collector sets for his grandchildren. My other grandfather, Bob Rice, did something similar. Instead of buying coins directly from the U.S. Mint, he started hoarding a few silver coins once the U.S. Mint quit making coins with 90 percent silver in 1965.
I recently read President Lyndon Johnson's remarks on the occasion of the passing of the 1965 Coinage Act, which ended the use of silver in half dollars, quarters and dimes. (The U.S. Mint stopped using silver in circulating "silver dollars" in 1935. My grandfather saved some of those
pre-1935 coins too).
Johnson, who could come across as a bombastic bully, specifically instructed Americans not to "hoard" the silver coins that would still be in circulation.
He assured the nation there would be no profit in this and even said the government had ways to control the price of silver and gold (he was right about this).
Well, my grandfather - and tens of millions of other Americans - ignored the advice or warning of our president and kept on hoarding.
Fifteen years later, the price of silver had skyrocketed to $50 an ounce. A half-dollar coin worth 50 cents in 1964 could be sold for approximately $25 just 15 years later.
That's a 50-fold increase in value. Said differently, if over those 15 years you had hoarded (read: saved) pre-1965 coins worth a face value of $1,000, your coins would be worth $50,000 in 1980. And $50,000 in 1980 is probably the equivalent of $150,000 today. Nice profit for saving a few coins and ignoring the president.
I also note that you could have reached this level ($1,000 face value) by saving/collecting just $67 in coins per year. The math on this is $1.28/per week. In other words, if you had saved just five silver quarters a week for
15 years, you would have had the chance to sell them for $50,000 in 1980.
Oh, for a time machine!
Of course, the price of silver quickly plummeted after reaching the $50/ounce level. (I've since discovered that silver prices are famously volatile so it's probably not an investment vehicle for the weak-nerved).
But even at a couple bucks an ounce (instead of $50), silver coins were always worth a lot more than the 10 cents, 25 cents or 50 cents they'd be worth if you foolishly used them to, say, buy a Coke at a convenience store.
With the passing of my parents a couple of years ago, I inherited a nice, little "starter set" of coins from both grandfathers. I almost sold them, but before doing so I checked the price of silver.
At this time in early 2011, silver had sky-rocketed from its "bottom" and was bringing about $44 an ounce. Coins whose "face value" was worth only about $80 could be sold on e-Bay for about $2,000 (25 times "face value.")
Into the safe deposit box they went!
Instead of selling coins, I started thinking about buying coins when I could.
This was also about the time I started following the teachings of Ron Paul (who is really more of a contrarian educator than a traditional political candidate).
Paul talked often about "real money" or "sound currency," by which he means gold or silver (the "poor man's gold"). He also talked all the time about how inflation is destroying the purchasing power of the dollar.
When I present my four coins to my godson, I might share the following anecdote about how silver "holds its value" and how paper "fiat" money (or coins without silver) does not.
I was born in 1965. In that year, if my parents stopped at a Gulf station with a 1964 (90-percent silver) half dollar, they could buy 50 cents worth of gas. In 1965 gas was probably around 25 cents a gallon. They could thus buy two gallons of gasoline with their 50-cent piece.
If their car got 25 miles to the gallon, they purchased 50 miles of driving with that half dollar.
Skip forward to the year 2013. A 2013 half dollar (not made of silver) would still buy a customer 50 cents worth of gasoline.
Gas prices in Montgomery, Alabama have come down recently and gas is "only" $3/ a gallon. Today that 50 cents would buy you .1667 gallon of petrol (a little less than one fifth of a gallon ... or about 10.5 ounces if my algebra is correct. Think a 12-ounce Coke with one sip taken out).
However, if I still had the 1964 silver half dollar my parents and grandparents passed down to me, I could (if I was so inclined) sell the half dollar for some "fiat" money and then buy my gas with the proceeds of the sale. At Monday's silver prices of $19.60/an ounce, I could sell a half dollar on e-Bay for about $9.
(For those who doubt these market prices, if you have a silver half dollar you want to sell for $9, give me a call).
With this $9 in proceeds, I could buy three gallons of gas. Think about this now.
Today one fifty-cent piece doesn't even buy 12 ounces of gasoline. The other
1964 coin (the one made of silver) gets you three gallons.
I can buy more gas (exactly one gallon more to be precise) in 2013 with that
1964 half dollar than I could in 1965.
Today that $9 would buy me 75 miles of driving in a car that gets 25 mpg.
My silver half dollar has appreciated 18 times compared to the value of the half dollar that contains no silver (which is still 50 cents and, no, I don't want to buy any of these).
With (the proceeds of) one coin, I can buy 75 miles of driving (a trip from my house in Montgomery to Birmingham). With the other coin, I could buy 50 cents worth of gas, which at .1667 a gallon at 25 mpg will buy me 4.1 miles of driving. I can (maybe) drive from my house to the local Wal-Mart.
One other point: the price of silver is today at near two-year lows. If silver was selling for, say, $30/ounce instead of $19.50, you'd be able to buy almost five gallons of gas instead of three gallons.
Silver - as we can see from buying gas (or milk or bread or whatever) has not only held its value, its value seems to have gone up. It buys more today than it did 48 years ago.
Conversely, the purchasing power of paper fiat money (that dollar bill in your wallet) or non-silver money (those post-1964 coins in your Piggy Bank) has dramatically decreased.
If gas was $4 a gallon like it was a while back, you might be able to buy only six ounces of gas for those same 50 cents! This might not be enough to get you out of the parking lot!
This then is my simplistic lesson on "sound money"vs. "fiat" money and my illustration of the "cruelest tax of them all," inflation.
The lesson is that all money is NOT created equal. Some forms lose their value. Other types of money hold their value or even increase in value.
For Christmas, I plan on giving my godson a Morgan Silver Dollar, an American Silver Eagle dollar and a Chinese Panda (for symbolic reasons and because the Pandas depicted on the coin are so cute), as well as one of the
1964 half dollars I referenced above (the last year coins were made of silver). The "face value" of these coins is $2.50 plus whatever the Chinese yuan equivalent is.
The E-bay value of these coins (what you'd get if you wanted to liquidate your little collection) is maybe $85 as of Monday's silver prices.
This silver price could - and probably will - go down even more. (I'd really bore my godson to tears if I expounded on why I think this is the case).
The point, however, is that silver is not a gift for today. It's a gift for tomorrow. And, at some point in the future - probably when Americans and the rest of the world finally realize the Fed and Treasury can no longer "kick the can down the road" by printing more dollars - precious metal prices will rise.
"Put these coins in a box and forget about them," I'm going to tell him.
If you want, check the fiat dollar price of these same coins in about 10 years, about the time you might be interviewing for your first job.
Unless I'm completely wrong, in 2023, these four coins "on sale" in 2013 will buy you some nice duds or, at worst, several fill-ups of gas. They will be worth a lot more than $85 and certainly a lot more than their $3.50 face value.
Maybe, like I did, you'll start getting interested in collecting silver coins as a hobby, as an investment, or as insurance for a rainy day.
If this ends up being the case - who knows? - you might end up acquiring a collection that could provide the down payment for your first home or buy a very nice engagement ring for your future wife. This way you'd be trading one asset (silver coins) for another important asset (a home or diamond ring for someone you love).
I'll add that one of these coins was passed down to me by my grandfather.
This was a gift. The other three I bought for myself, having belatedly learned a lesson about the value of "real money."
This lesson, I believe, was a gift of far greater value than the coins and, for what it's worth, I'm throwing it in with the coins via this column.
So there you go. No gift card or X-box this year, young man. Still, I sincerely hope you grow to appreciate this "old-fashioned" Christmas present.
Remember. These coins are not only money, they are "real" money, which history assures us is the very best kind. Hold on to them if you can.
Merry Christmas, Austin.
Bill Rice, Jr. is managing editor of The Montgomery (AL) Independent. He can be reached at: bill@montgomeryindependent.com
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