TIP OF THE WEEK - Why you should purchase rolls of nickels from your bank.

Why you should purchase rolls of nickels from your bank.

Jason Brizic

February 17^th, 2012

Gresham’s law states that “When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.”  This is what happened to the 90% pre-1963 silver dimes and quarters in the US.  It has happened to copper pennies.  And it is about to happen nickels.

http://en.wikipedia.org/wiki/Gresham%27s_law

Americans had the opportunity to buy and hold 90% silver coins before 1963 cheaply.  Those that did so were smart.  Gresham’s law took effect.  You will almost never happen upon a 90% silver dime or quarter anymore.  Most of them have been picked out of circulation.  Today, the 90% silver coins are valued for their metal content and not their face value anymore.  You have an opportunity to buy nickel at less than spot market price.  You can resell them later at a profit. 

The composition of the US nickel has been unchanged since the end of WWII.  The nickel is 75% copper and 25% nickel.  It costs the US government 11.2 cents to produce the 5 cent nickel.  They are broke and they need to cut government costs wherever it is easiest.  The voters don’t care about the composition of the coinage.  So, the US government is proposing changes to the composition of the nickel.

http://money.cnn.com/2012/02/15/news/economy/pennies_nickels/

The website www.coinflation.com calculates the daily metal value of all US coins.  The metal inside a nickel is worth 5.6 cents.  Nickel is selling for $9.07 per pound and copper is selling for $3.78 per pound in commodity markets today.  Buy low at 5 cents and sell high at 5.6 cents.  That is a 12.68% return on invested capital at today’s prices.  However, there is no market for coinage nickels right now because there is only one type of nickel.  You will have to wait to make any money off Gresham’s law.

The potential return on investment (ROI) is much higher.  About a year ago when nickel was selling for over $10.00 per pound and copper was over $4.00 per pound the metal in a single nickel was worth 6.2 cents.  That is a ROI of 24%.

The long term prospects for the price of copper and nickel are up.  Central bank monetary inflation will continue to erode the purchasing power of the dollar.  The price of nickel and copper expressed in dollars will continue to increase with monetary inflation.  A relapse of the world economy into recession will have the opposite effect on the price on copper and nickel.  So, in the short term the price of nickel and copper will go down, but long term the price will go up.

Buy nickels in two dollar rolls from you local bank.  You don’t have to sort nickels since there is only one composition of nickels in circulation.  The pre-1982 copper pennies are worth 2.5 cents (150% ROI), but you have to find them and separate them from all the zinc pennies.  That is a very labor intensive process.  I performed a test.  It took me one hour to sort through $10.00 of pennies.  Only about 15% were copper pennies (Gresham’s law again).  1 hour of labor yielded $1.50 in copper pennies worth $3.75 in metal.  Time is money.  I could have bought $100 in nickels in five minutes at a bank and been done with it.  No sorting necessary.  The best part is that your nickels are always worth their face value.  It is a guaranteed investment so long as you are patient.

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