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Saturday, March 13, 2010

Buying American Eagle Silver Coins

Dear TOR:
Can you give me some specific pointers on the easiest and most cost efficient way to buy American Eagles? I have tried the ebay route and (a) the auctions are very time consuming, and (b) the prices end up being 'way over spot once you calculate the shipping.
I have also contacted a couple of online sellers and they are quoting prices that are even higher over spot. And higher shipping.
Is there a way for a person to buy a coin or two at a time (or 4 or so a month) at relatively uninflated prices or am I being ridiculously naive?
Alternatively, is junk silver a better way to go? I would like to spend about $100 a month and get the most bang for the bucks.
Thanks for you advice and for your great blog.
TOR here: In order to best answer that question I will do it in 3 parts: first American Eagles, second cheap silver and third buying in small quantities.

First I will talk about American Eagles in general. They are just more expensive than normal silver. Right now they are a couple bucks an ounce more. That difference can ebb and flow but a couple bucks is fairly typical. This is partially because they are government minted and there is a sort of collectors premium. Also some folks who have a vested interest in selling them like to talk about how they are certified by the US government and such. Go figure how businesses will talk about the benefits of more expensive products. So American Eagles (and to a lesser degree Canadian Maples, Koalas, etc) pretty much always cost more than other various types of silver. As for Ebay in general unless you are bidding on large lots (say a dozen ounces or more) the cost of shipping usually negates any small savings you may get.

The cheapest small silver (as opposed huge 100 or 1,000 ounce bars) is generally one ounce bars and rounds. Unlike American Eagles lots and lots of them are made by private companies. Unlike junk 90% silver they are still in production and thus supply and demand are not working to drive up the price. Some folks really like 90% silver because it is very divisible and easy to identify. While there are some benefits to 90% junk silver IMO they are largely negated  by its far higher cost. Remember that at the end of the day you are buying silver so get it at the cheapest price per ounce you can.
Now onto buying relatively small quantities of silver.  This is the situation most of us are in. Folks who are cashing out some savings or just have a lot of money or whatever can make one time purchases of thousands of dollars and get huge bags of 90% silver at good  prices.  Right now a thousand dollars face value (about 715 ounces) of 90% silver costs about 30 cents over spot. However most folks don't have 12k lying around at one time to buy silver with, I know we don't. You can get $100 face in 90% (71.5 ounces) for sane prices also but anything smaller has a huge premium. Rolls of $10 face from APMEX a very competitive online dealer cost more like $145 for quarters and even worse $172 for dimes (that is $24 per ounce!) before delivery. Unless there is a cool local coin shop small quantities of 90% silver can not be found at a price in any relation to spot.
As you noted any decent prices found on Ebay or what not are quickly negated by shipping costs. The same can be said by making purchases of two- four ounces by various online or mail order stores. If you are paying $18.5 an ounce each for 3 silver one ounce rounds and then $15 to ship them the real cost is $23.5 each which is a bad deal. You've got to factor shipping costs into the equation.

I learned all this for myself the hard way. I have found two solutions for this problem. 
The first is to find a local coin dealer with decent prices and buy from them. From most of my experiences and observations established coin dealers are a pretty honest bunch. they make their living based on people trusting that what they sell is what it is supposed to be and the precious metals world is not very big. Not saying that a bad apple can't exist or that a bad coin might not slip through an honest dealers shop unnoticed now, just that it is probably reasonable to consider established coin/ bullion dealers as honest. That being said there is a big difference between a dealer cheating people and their prices being great. The best thing that I can say is to be an informed buyer. Know right about what spot price is (knowing to to the cent isn't necessary but have a decent idea whereabouts it is at least to 50 cents or so) and what the price of a certain item like a 90% silver dime, one ounce round, etc in order to get a decent deal. If you can find a local coin dealer with reasonable prices then picking up an ounce or two of silver every pay day is simple enough.
The second option is that unless there is a place within reasonable driving distance which has decent prices you are either going to have to take a longer drive to a good coin shop (I would call ahead to make sure they will have what you want first, learned that the hard way too) or purchase via an online dealer. [FWIW I have had real positive experiences with APMEX and their prices are always competitive especially since their shipping is quite reasonable. The only affiliation I have with them is as a satisfied customer.] For these purchases in order to make your drive or shipping costs average you will want to save up and make larger less frequent purchases. 

What we do is put aside a certain amount every month for precious metals. You could put money aside every week or payday or whatever, it is the same principle. Save that money up and make less frequent larger purchases. We typically make 4 or so purchases a year and generally shipping is $15 or so. This lets us greatly lower the added cost of shipping. This way instead of it adding 20-30% to the cost of a purchase it adds less than 10%.

Hope this helps some. 

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