90% junk silver coins are a marvelous way to invest in physical silver bullion, but they do have a few major drawbacks that silver stackers and investors should know about.
1) Bags of 90% junk silver contain an unsettling percentage of slicks, culls, and dateless coins
One of the downsides of buying bags or rolls of constitutional junk silver is that you are dealing with circulated coins. Not only are the coins circulated, but they are old as well. In fact, it is common to find Mercury dimes, Standing Liberty quarters and Walking Liberty half dollars in junk silver bags. These coins were all struck in the 1940s or earlier, making them as much as 100 years old.
And the longer a coin has circulated, the greater the chance it will be impaired in some way. Now, junk silver is not sold as a numismatic investment, so we're not looking for perfection here. But there is a limit to what is acceptable at the same time.
Slick (excessively worn), dateless, holed or otherwise damaged coins often find their way into bags of junk silver sold by the major bullion dealers. Indeed, these dealers have every incentive not to remove these culls from their bags. Attempting to do so would not only increase labor costs, but also incur a replacement cost.
So it shouldn't come as a surprise that a non-trivial percentage of junk silver bags are composed of these impaired silver coins. I estimate that the typical bag of junk silver contains anywhere from 2% culls all the way up to 10% on the high end. 5% culls is a pretty reasonable average estimate, in my experience.
Now an argument can be made that this doesn't matter in the grand scheme of things. After all, circulated junk silver is the absolute cheapest way to buy fractional silver bullion.
In addition, these coins are spotted a wear allowance in the bullion industry. Although every $1 face value of uncirculated 90% silver should theoretically contain 0.7234 troy ounces, circulated junk silver is assumed to contain just 0.7150 troy ounces - around a 1.2% wear allowance.
A lot of stackers who buy constitutional silver do so because they want to have purchasing power after a destabilizing geopolitical event, such as a natural disaster or economic crash. In these situations it is assumed that U.S. junk silver will be widely accepted due to its convenient sizes and widespread recognition among the general public.
But how do you think it is going to look when you pull out your junk silver to buy food from a stranger and some of the coins are slicks? If the other party to the transaction is smart enough to know the value of 90% silver coins, they are also smart enough to know that slick coins will come up light on a scale.
In other words, if you intend to use junk silver as a barter tool, any cull coins you receive in a bag of 90% silver are honestly pretty useless. You won't be able to easily pass them in a survival situation, which is the primary reason for buying them in the first place.
Now I do think this disadvantage can be mitigated, albeit with a little bit of extra work and money. Simply put, you can screen and remove any cull coins from a roll or bag of junk silver you buy.
If you do purchase constitutional silver, I would recommend that you pull out anything holed, badly scratched, excessively dirty, dateless, or in a condition below Good-4 (when you start to lose full rims due to wear). This will ensure that all the remaining coins retain good weight and eye appeal, which I feel will be imperative in a doomsday scenario. The coins that you pull will be the junkiest of junk silver, and they can go straight into the smelter's pot without a single pang of regret (once you check them for rare dates, of course).
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2) Constitutional silver is bulkier than .999 fine bullion
Many stackers might find this to be an almost laughably minor drawback. But it might not be so funny once your stack reaches a certain size.
Because junk silver is only 90% fine, you end up owning extra weight compared to an equal amount of .999 fine bars or coins. In fact, you have to stack an extra 11% gross weight of constitutional silver to achieve the same number of ounces as .999 fine silver.
Your troubles don't end there, though. 90% silver coins also have a slightly lower density (10.34 gm/cm3) than .999 fine silver (10.49 gm/cm3). This means that 100 troy ounces of silver will theoretically occupy 296.8 cm3 if purchased in .999 fine form, compared to 334.3 cm3 if bought as junk silver. So in the final analysis, constitutional silver will take up an additional 12.6% storage volume in your stack.
Now, depending on how you stack, this might be a non-issue. If you intend to purchase less than 250 troy ounces of junk silver, or about $350 face value, then I don't think you have anything to worry about. But if you propose to accumulate many hundreds or even thousands of ounces of constitutional silver, it may contribute to long-term storage issues.
Secure storage space for silver enthusiasts is often at a premium, regardless of whether we are talking about a trusted bank safety deposit box, a stout residential safe or an ingenious home hiding spot. Although it might not seem like a deal-breaker at first, the extra 12.6% volume required for constitutional silver could eventually prove to be a significant disadvantage versus .999 fine silver coins or bars.
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3) Junk silver is slowly losing its benchmark status to the American Silver Eagle
From the late 1960s until the early 2000s, $100, $500 and $1,000 face value bags of junk silver were the preferred form of physical silver in the marketplace. They were universally recognized by the public, completely trusted and readily available in almost any volume you might want or need.
Constitutional silver's "king of the mountain" status reached its apogee in 1999 during the Y2K Crisis. During this hysteria, many pundits believed a prevalent date bug in old computer code had the potential to crash our global civilization when the calendar flipped over to January 1, 2000.
Of course, it didn't happen. But many panicked investors stockpiled junk silver in anticipation of a possible Mad Max scenario, driving up premiums to more than 50% over spot.
Notice that they (mostly) didn't buy Canadian Maple Leafs or American Silver Eagles or Sunshine Mint silver bars. They bought U.S. junk silver. And they bought it because it was the benchmark by which all other physical silver investments were measured.
But that benchmark status has steadily eroded over the last two decades. At this point, I think there is equal, perhaps even better, recognizability of government issued silver bullion coins - particularly American Silver Eagles.
This inevitable passing of the torch isn't really junk silver's fault. Every time the price of silver spiked in the past, tens of thousands of bags of 90% silver coins were shipped off to the refiners, never to be seen again. This happened most notably during the Hunt Brother's 1980 silver bubble (also referred to as the Great Melt) and more recently with the frothy precious metal market of 2011. The melting of junk silver happened at other times too, just in smaller quantities.
The effect of all this melting is that there is simply less and less of the constitutional stuff around as time goes by. The last circulating U.S. 90% silver coinage was minted over 50 years ago at this point. They simply aren't making anymore. As a result, it is slowly getting harder and harder to find the huge numbers of bags that are required to drive institutional-scale liquidity.
The United States Mint has also done its part to accelerate this changing of the guard. From the inception of the American Silver Eagle program in 1986 until the year 2000, the U.S. Mint struck a grand total of 81 million of the bullion pieces. But since that time, 424 million of the perennially popular silver coins have been minted. This, more than anything else, has helped to displace junk silver from its traditional role of silver bullion of first resort.
The next time a major financial crisis unfolds, I think it is a good bet that American Silver Eagles (and possibly other government-issued silver bullion coins) will be the must-have investments for those desperate to own physical silver. This isn't to say that junk silver won't command a healthy premium, but I suspect it will be lower than the new king of the physical silver market.
Government-Issued Silver Bullion Coins for Sale on eBay
Before you send me hate mail, I want to make it clear that despite the drawbacks I've listed above, I don't dislike junk silver as an investment. I've owned it in the past. I own a bit now. And I've seriously considered buying more as silver spot has lingered in the $15 to $16 an ounce range.
I feel that silver is a tremendously undervalued asset at the moment. And in my opinion, anything that convinces you to protect your financial health by purchasing physical silver is a positive. If that physical silver happens to come in the form of 90% constitutional silver, then I have no complaints.
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