Saturday, January 8, 2011

Nickel Arbitrage

According to coinflation.com, two types of coin, in general circulation today, have intrinsic value in excess of their face value.

Previous to 1982, Lincoln Cents were made of 95% copper and 5% zinc. In 1982, this was changed to the current mix of 97.5% zinc and 2.5% copper. Accordingly, older pre-1982 pennies have a copper/zinc 'melt value' of about 3 cents, whereas the newer post-1982 pennies are worth only about 0.6 cents.

While it may be tempting to pick through large quantities of pennies, looking for the older dates, to hoard for the anticipated upcoming economic collapse, there is an easier, more convenient coin worth saving:

The Jefferson Nickel, since 1946 (and before), is made of 75% copper and 25% nickel. The combined melt-values of these two metals have, for some time now, exceeded the 5-cent face value of this common coin.

At the time of this writing, the market value of the 3.75 grams of copper in each Jefferson Nickel is about 3.5 cents, whereas the value of the 1.25 grams of nickel in each is about 3 cents. At current, the intrinsic value of the Jefferson Nickel is over 6.5 cents, a figure that will only increase as the dollar continues its downward trend into hyperinflation.

What makes the Jefferson Nickel especially convenient for hoarding is that they are still being minted, and are available for purchase, at a ~25% discount from their metal value, at banks around the country. Unlike the pre-1982 Lincoln Cents, there is no need to spend the time checking dates and sorting them out: You only need visit your local bank and ask the teller, 'nickels please!'

Each $2 roll of nickels contains 40 coins, which combined are worth over $2.60, solely in their copper and nickel contents. This simple arbitrage is in play right now.

After 1964, the US Mint discontinued the use of silver in most commonly circulated coins, because of a then-similar deviation in the value of the dollar. Today, a quarter from 1964 (or before) has a metal value of over five dollars. If the value of the US dollar continues to drop, as inflation has always caused (ever since the gold standard was abolished), these Jefferson Nickels will continue to increase in value, and the US Mint will likely change their metal composition, in a similar fashion to what was done to quarters and dimes after 1964.

Because Jefferson Nickels have a face value of 5 cents and an intrinsic value of (currently) over 6.5 cents, they are an excellent store of wealth, hedging against either a drop in the value of the dollar, or a drop in the values of copper and nickel, two heavily utilized metals in industry. -- In the event of hyperinflation, or other economic crisis, these coins can be bartered with, as they are made of physical metals that have actual worth. In the event of a crash of the metals market, these coins are genuine US currency, and are commonly recognized and accepted by everyone. Physical ownership of Jefferson Nickels hedges you against either extreme, doing so with little effort and little risk of loss.


I think that acquiring Jefferson Nickels is a smart move right now.

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