We are often asked by some of our readers how they can determine the authenticity of the silver they come across in their precious metal endeavors. While there are many methods of making this determination, for this post we list what we think are the three quickest and easiest.

1) The Ring Test

Silver has a nice ringing sound when it is tapped. If it is a coin, you can flick it into the air. Alternatively, you can gently tap it with another coin. In both instances, you should hear a high-pitched bell-type ring that lasts about 1-2 seconds. A fun way to try this is with a U.S. quarter from the years 1932-1964, which is 90% silver, and with a modern U.S. quarter (post 1965), which is 91.67% copper and 8.33% nickel. The silver quarter ring will be much higher-pitched compared to the dull ring of the copper quarter. Be careful when doing this with whatever coin you are testing so as not to ding or damage it.

2) The Ice Test

In addition to having the highest electrical conductivity of any element, silver also has the highest thermal conductivity of any metal. If you place an ice cube on a silver coin or bar, the ice will begin to melt immediately. Obviously, ice will melt if placed on anything at room temperature, for example, but if placed on silver it will melt much more quickly and impressively. Try it!

3) The Magnet Test

Silver is not magnetic. If you place a strong, rare-earth magnet called a Neodymium magnet on a silver coin or bar, it should not easily stick to it. If you are testing bars, you can angle one at 45 degrees and let the magnet slide down. It should slide down very slowly. If it sticks or it slides very quickly, it is not silver. However, keep in mind that just because the magnet does not stick does not necessarily mean that it is silver.

These three tests are not absolutely determinative, but they are quick ways to help you gauge the purity of your “silver” if you do not have a digital scale readily available or do not want use silver acid testing. Of course, they are especially useful if you have a piece of silver you know is pure and you are using it against a not sure pure “silver” coin or bar that has a highly imitative look and feel of silver.

(1) The legislature finds that to secure property rights sound money is essential. Gold and silver currency retains earned wealth in the hands of the people and has provided civil societies with a fair, honest, and reliable medium of exchange for over six thousand years. Competitive currencies of gold and silver provide greater security to the people of Washington state in protecting their property and other assets from paper currency inflation. The absence of gold and silver coin wrongly exposes the citizens, businesses, and other residents of Washington state to the chronic depreciation of the legal tender fiat paper federal reserve note currency and significant losses in purchasing power which amount to the incremental confiscation of private property without just compensation. The due process clause of the fifth Amendment to the United States Constitution, and Article I, section 3 of the Washington state Constitution, both ensure the protection of life, liberty, and property. Only gold and silver may be recognized as government legal tender under Article I, section 10 of the United States Constitution, which gives the states the power to enact gold and silver based legal
4 tender laws, “no state shall . . .; make any Thing but gold and silver Coin a Tender in Payment of Debts.” Private contracts are not limited to legal tender as furthermore provided in Article I, section 10, “No State shall . . .; pass any bill . . ., or Law impairing the Obligation of Contracts.”

(2) It is the intent of the legislature that gold and silver used as legal tender are treated in the same manner as United States currency for taxation purposes. The legislature intends to provide a choice of United States constitutional currency of gold and silver and does not intend to compel a person to tender or accept gold or silver. In addition to the United States constitutional authority giving the state’s authority to make gold and silver legal tender, the United States supreme court has held that congress lacks any constitutional power to specify what the states must use as “legal tender” or media of exchange in the exercise of their reserve sovereign function in the following cases: Lane County v. Oregon, 74 U.S. (7 Wall.) 71 (1869); Hagar v. Reclamation District No. 198, 111 U.S. 701 (1884).

(You can read the entire text of the original bill by clicking the link embedded in the quoted text above.)

The bill was referred to the House Ways & Means Committee on Friday as well.

Washington state joins a growing number of states addressing the current economic crisis by revisiting their Constitutional obligations to support gold and silver as legal tender.

We applaud their efforts and and the people of Washington state for employing responsible representatives.

Understanding the Discussion

Every currency has three values, and knowing them is an important prerequisite to joining the penny discussion.

Value #1 – Currency’s Intrinsic Value – a currency’s most basic value, what it is worth intrinsically, or the value of currency as determined by the weight, composition and prices of its material.

Value #2 – Currency’s Value in the Marketplace – the definition of fiat money illustrates its real currency value: marketplace. This value is typically labeled on the unity of currency itself and is also the value at which merchants and business owners accept it (although not necessarily and absolutely by fiat). Simply stated, this value is directly related to what goods and services it gets you in any particular marketplace.

Value #3 – Currency’s Value as a Collectible – this value is determined by things such as the year a particular note or specie was produced and the total number of units issued. A standard $10 Federal Reserve Note would be a good example of the third value if it were much older: take a look at this $10 bill from 1928⁽²⁾, priced at $1,175.00.

As illustrated, the collectible value can be substantially higher than the intrinsic and market values. In the case of the paper money, such as the $10 bill from 1928, this value is 11,750% of its market value. On the other end of the spectrum, a currency’s intrinsic value is usually substantially lower than the the market value.

Paper money is a good example of why some people think fiat currency is otherwise essentially worthless. A $10 Federal Reserve Note, after all, is nothing but a thin sheet of cotton, silk and linen, right? While many people are quick to suggest that paper money is worthless, it does have some value: you could use it as toilet paper (personal hygiene value) or as a paper airplane (entertainment value) or even to burn as heat (utility value)! As you can see, fiat money is not worthless, but there is a very big gap between the marketplace value ($10 for a $10 Federal Reserve Note) and the intrinsic value of the paper (a fraction of a penny when compared to conventional paper sold by the ream). In fact, if the paper and ink on the federal reserve note is valued at $0.02, the marketplace value is 50,000% greater than the intrinsic value. Though certainly a huge gap, it does mean that paper money is not worthless.

In earlier times, when gold, silver and copper were actually used as currency, there was no gap between the intrinsic and marketplace values. Goods and services were priced by weight of metal. Today, however, the difference between these values is much more significant and in all national fiat currencies, the market value far exceeds the intrinsic value.

The pre-1982 U.S. Penny, however, is a rare exception to the typical relationship between the intrinsic and market values.

What People are Doing

Today’s pennies contain 97.5% zinc and only 2.5% copper, rendering them not much more intrinsically valuable than paper money. But pennies produced in the US between 1907 and 1982 fall in to a different category: at 95% copper and 5% zinc, the metal “melt” value (at current prices) is 247% of its denominational marketplace value of one-cent. For the copper alone, at $3.72 per pound, the intrinsic value is about 2.5-cents. So if you had 100 pre-1982 pennies in a bag with a face value of $1.00, your bag would contain about $2.50 worth of copper. On a larger scale, a $100 face value worth of pre-1982 pennies would net about $250 worth of copper.  Copper is what the penny hoarders really seek.

Criminals are cashing in⁽³⁾ on spiking copper prices. At the AOCS, we hear stories again and again about how people are stealing copper from air conditioning units and out of pipes in housing and construction sites.  Some are even cutting into live electrical wires⁽⁴⁾! Others are taking a less unlawful position and developing methods of acquiring, sorting and collecting the copper pennies.

Some of these activities are illegal, but all of them are, in our perspective, insane. Let’s take a look at the economics for hoarding pennies.

The Economics of Penny Hoarding

Let’s assume for a moment that collecting and melting pre-82 pennies or treating them in some way for their copper was legal. Would trips to the bank actually yield a high enough number of pre-82’s to make it worth the effort? To answer that question, we went to our local bank and bought a $25.00 box of pennies to see for ourselves. Here are the results:

The $25.00 box of pennies, strangely enough, contained 2,500 coins. Of those, three were Canadian one-cent pieces and one was a five-cent piece from Latvia. 21 pieces were unreadable (covered in unknown growths and substances). Curiously, 42 were from 1982, the year the changeover occurred (some were produced with 95% copper and some were only 2.5%).  So out of our box of 2,500, we could only count 2,433 (97%) of them. Of this 97%, only 438 were pre-1982. That’s 18%. So out of the 2,500 pennies we got from our trip to bank, only about 17.5% were the pre-1982 pennies. Was it worth the effort?

So let’s assume we liked sorting pennies enough to do it for a while…say…the next 10 years.

Each week, for a period of ten years, we make two trips to the bank in the course of our normal lives (no special visits). In each visit, we can reasonably carry two boxes of pennies, each costing $25 (while returning the post-82 from the previous visit). At 2,500 pennies per box, that’s 5,000 pennies per trip. Over 10 years, we’ll make 1,040 trips to the bank yielding 910,000 pre-82 pennies (out of 5,200,000 pennies; 17.5% based on our experiment). We’ve invested $9,100 for these pennies, plus the time, effort and space to hoard them and now we’re ready to melt!

(Editor’s Note: as time goes on, we did not consider that the actual % of pre-82 pennies would decrease as they continue to be removed from circulation by people like you and the banks, which can do it much more efficiently)

Continuing the fairytale, let’s assume for a moment that the laws have changed in our favor and melting pennies is now okay. Let’s also assume that the value of copper, the price of which is largely hinged upon [decreasing] industrial demand, holds its current price of $3.72 per pound. We call around to local scrap yards, since it will be expensive to transport nearly three tons of copper across the country, and find that scrap buyers are paying around 75%-80% of spot for copper. At 2.95 grams of copper per penny, we have a total of 5,919 pounds, which a scrap dealer might be willing to buy for $17,757 ($3.00 per pound).

After 10 years of time, effort, and a few lucky breaks in your favor, our gross profit is $8,657. In the meantime, you tied up $9,100 in capital and barely kept up with inflation.

So what is a penny really worth?

Hoarding pennies is time consuming: the sorting, investment, upkeep, and bulkiness make penny hoarding more labor-intensive and less financially rewarding than what most entrepreneurs seek in a business venture. But to really test the value of a penny, take it to a store and ask the cashier to give you $0.025 or even $0.02 and see if you are successful. You will discover what a penny is really worth…exactly one penny.

If you’re unconvinced and still want to hoard pennies, keep an eye out for a copper penny from 1943⁽⁵⁾; you could sell it for as much as $82,500, if not more.  And if you are lazy and one of those people that doesn’t trust banks and refuses to get in to gold or silver (which over the past ten years have produced ‘returns’ far superior to what the penny may be able to do), you just might be better offer collecting U.S. nickels.

Citations:

⁽¹⁾  http://abcnews.go.com/Business/laws-change-penny-hoarders-cash-thousands-dollars/story?id=15076522#.TxhQw9RSQsI
⁽²⁾  https://www.executivecoin.com/p-19567-fr-2003-d-10-1928-c-federal-reserve-ote.aspxgclid=CI7JrfTR5q0CFUFN4AodXmr6tA
⁽³⁾  http://gma.yahoo.com/video/news-26797925/copper-prices-soar-thefts-on-the-rise-27718424.html
⁽⁴⁾  http://abcnews.go.com/WNT/video?id=4691811
⁽⁵⁾  http://www.usmint.gov/about_the_mint/fun_facts/?action=fun_facts2a

“India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, DEBKAfile’s intelligence and Iranian sources report exclusively.  Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran’s total exports of 2.5 million bpd. Both are superpowers in terms of gold assets.

By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank’s assets and the oil embargo which the European Union’s foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran’s oil exports.”

Other news outlets report that potential sources were not willing to confirm or discuss the rumors thus calling the veracity of the story into question.

Securing confirmation of the rumors from Indian officials may prove difficult as such declarations could negatively impact India’s standing in the international community as sanctions continue to mount against Iran. Most recently foreign ministers from the EU agreed to impose an embargo on Iranian oil exports by calling for an immediate end to new contracts by its members and an eventual phase out of existing contracts by mid summer.

These sanctions come after EU member nations, already struggling through economic turmoil, have been forced to compensate for the loss of Libyan oil supplies. India joins China and Turkey in refusing to recognize sanctions by groups other than the United Nations Security Council.

Other stories have gained in recent popularity which speculate that recent attacks on Libya and Iraq were related to the efforts by the former leaders of those nations to move away from the US dollar and preferring gold in trade for their oil production.

The original scale was published in 1949 (revised in 1958) by Dr. William Sheldon to aid in evaluating the condition of early American copper large cents. Although Sheldon’s book Penny Whimsy: A Revision of Early American Cents, 1793-1814; An Exercise in Descriptive Classification with tables of rarity and value included the scale intended to grade copper pieces as they related to the 1794 large cent, the Sheldon Scale has since been adopted across the industry for use in evaluating almost all minted medallions.
Among those who collect AOCS Approved medallions for their historic or artistic significance, the score provided by professional grading firms is important. Being focused, as we are, primarily on the functionality of our tokens, it is pleasantly surprising for us to hear about the grades given when a new design is evaluated. Thanks to those who share the scores they receive on their rounds.

Recently we were pleased to be informed that random selections of the new half ounce silver Sitting Bulls were being consistently scored at MS-68 (Mint State – 68).Thanks to Al in New York for sharing the results.

Our friend, Doug Tjaden, at the Utah Sound Money Center, posted the following today:

Last week, the Missouri Sound Money Committee produced model legislation which was handed off to House Bill sponsor Rep. Paul Curtman. He and several other co-sponsors will introduce this legislation, likely within the next 30 days. Because of the favorable structure of important house committees, Rep. Curtman is confident that the bill will receive a vote on the House floor. The Senate too will have strong sponsors for the bill, thus there may be an opportunity to put the legislation on the governor’s desk this year. (link to source embedded)

Congratulations to the elected employees of Missouri for moving forward with this critical and long overdue legislation.

Congratulations to the people of Missouri for demanding the job get done and electing the right employees to do it.

Here’s a sample of the dirt as reported by Barron’s just days ago…

It’s one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It’s something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.

That, in essence, is what’s happening to investors whose bars of silver and gold were held through accounts with MF Global.

The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold “warehouse receipts” to prove it—they’ll have to forfeit 28% of the value.

Read more from the source at the link embedded in the quote above.

You’ll also have a chance to see, for the first time in writing, our product line grading overview, including our definitions of bullion, brilliant-uncirculated and proof-like. We also take an objective look at the common objections to using metals as money.

For years, folks have questioned the need for a free-market complementary currency to feature a “Face Value”.

The AOCS Face Value provides both an incentive to trade and a stable value for AOCS Approved Currencies.

I invite you to take a moment and read our latest AOCS article update for an in-depth overview of the AOCS Face Value, why it exists, and the formulas we developed to set the suggested exchange rate between AOCS Approved Currencies and fiat currencies.