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Are silver coins a good investment?

Posted by Amit Bhandari on

 

A numismatist collects coins out of interest, not out of a desire to profit. However, if you are spending large sums on buying coins, it is worth considering whether these may be worth something in time of need. The value of a coin (precious metal) can be divided into two parts – the value of the underlying metal and the numismatic value of the coin. The numismatic value of a coin will also depend on factors such as rarity, antiquity and condition, which are subjective.


The first question – the value of the underlying metal, is relatively easy to answer.
Gold and silver have held on to their value for thousands of years – even as paper currency loses value over a few years, or decades at best. The 20 th and 21 st centuries have seen over 2-dozen phases of hyperinflation – where prices go up by 50% or more EVERY MONTH. The worst example in the current millennium is Zimbabwe – which came out with a 100 Trillion dollar banknote in 2008.


While hard currencies such as the dollar and the pound are nowhere near as volatile, they do tend to lose value over years/decades. In 1969, the price of gold in US Dollar – the hardest of hard currencies, was $41.28/oz

The current price of gold is over $1,320/oz – meaning the Dollar has lost a whopping 97% of its value against gold in the last 50-years. The ratio is much worse for other currencies such as the Indian Rupee. One downside of paper-money/fiat-currency is that governments can create as much of it as they wish – causing inflation, and a loss to all savers.


Indian coinage offers a good example. In 1835, the East India Company issued the first uniform coinage across the country – a 1 Rupee coin featuring William IIII (see picture), weighing 11.67 grams and composed of 0.917 silver. Over the next century – through the reigns of Queen Victoria, Edward VII, George V and Edward VIII, the weight and silver composition of the rupee coin remained unchanged.


The only change was the ‘Head’ of the monarch that the coin featured. Then in 1939, under financial pressure due to the World War II, the silver content of the rupee coin was cut to 50%. Later on, in 1947 – after independence, the Indian government entirely did away with silver and the result they say, is
history.


A 1 Rupee coin of 1938 had 10.70 grams of silver – which at today’s market price will be worth Rs 422.  The silver in a 1 rupee coin of 1940-45 – which was used up to 1947, will be worth Rs 230 at today’s prices. Meaning, the Indian rupee has lost over 99% of its value from the time of independence to now.That’s 7.85% annualized return.


Moreover, a pre-independence coin is no longer in circulation and has a certain antique/rarity value as well. Some coins, such as 1939 silver rupee can be worth lakhs of rupees, while others – less rare coins such as the silver rupees of 1938, 1922, 1897 etc. can be worth over ten thousand rupees. Even the regular (aka common) coins are worth some premium over their silver value. Thus, over a 75-year period, silver coins have actually given a return in excess of 8% per annum. No asset – other than land and precious metals survives this long. Taking this into account, the answer seems evident.

 REFERENCES

https://nma.org/wp-content/uploads/2016/09/historic_gold_prices_1833_pres.pdf


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