The Coinage Act of 1965 eliminated silver from the composition of U.S quarters and dimes and reduced the amount of silver in the half dollar to 40%. Until that point, half dollars, quarters, and dimes were all 90% silver. When the U.S Mint decreed that U.S. coins would be comprised of less valuable metals, they effectually lowered the real value of future coins printed by the Mint. Pre-1965 dimes and quarters quickly disappeared from circulation as citizens stockpiled the now historic coins for their metal value. This caused a coin shortage in years to follow, Gresham's law at work once again.
What happened to the composition of the U.S nickel? It remains the same, 75% copper / 25% nickel. Comprised of common industrial metals, the U.S nickel has a measurable underlying raw metal value that fluctuates with the market prices of nickel and copper. We believe current political and market trends make the U.S nickel an interesting investment consideration for all U.S. citizens. In February 2011, with high commodity prices, the raw metal in a nickel was worth 7.38 cents, 148% of its value. This meant the U.S. Mint was losing money on the production of each nickel, even before considering overhead costs. The U.S Mint quickly became aware of this situation and began considering solutions to ensure the underlying value of the U.S nickel remained below 5 cents. See this 2012 report released on their analysis of possible alternatives. With the current extended bear market in commodities, the raw metal in a nickel is now worth 2.77 cents. This has taken pressure off of the U.S Mint, however if the prices of copper and nickel were to rise, the rising underlying value of the U.S nickel will likely quicken the U.S. Mint's efforts to change the composition of the coin. We believe that similar to pre-1965 dimes and quarters, U.S. nickels would drain from circulation if the composition was altered to a less valuable alloy. An investor who holds stores of U.S. nickels may someday see the underlying value of these coins skyrocket as they gain intrinsic value years down the road, similar to pre-1965 dimes and quarters today. In addition U.S nickels provide indirect exposure to both the copper and nickel markets, as it is currently illegal to smelt legal U.S tender.
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AuthorTyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry. Categories
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October 2018
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