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Thursday, September 02, 2010

Nickels, the poor man's inflation hedge

It astounds me how people who read the financial headlines (versus people who confine themselves to arts and entertainment, Washington politics, sports, or whatever else) can see the looming clouds of financial disaster, and simply remain paralyzed. I don't know how many people I have talked with who have looked at some of the stuff I reference and simply said "I don't know what I can do about it," or worse "I can't do anything about it." This is foolish and silly. There is one VERY good and very easy hedge against inflation, one that the US Mint has already acknowledged WORKS NOW (they got a law passed against it). Moderate to lower income people can easily do this right now.

I am talking about saving nickels for melt value. On the front end, I AM NOT ADVOCATING YOU MELT THESE DOWN RIGHT NOW. Number one, you are saving these for appreciation. Number two, you will get a knock at your door if you try it and they find out about it! You will have to wait until the treasury begins issuing (2011) their cheapie zinc crap nickels and those chase all the ones we now have out of circulation (always happens). Then the recently passed law against melting down coinage will probably be repealed, or openly ignored, as it will no longer represent a threat. They passed the law, by the way, a short time back when the price of the nickel and copper in a 5 cent piece hit 7.5 cents. You could get a 50% return (minus the price of melting) simply by melting down and selling blocks of "cupronickel" to any number of industrial users. So, Congress in its typical arrogant stupidity decided to outlaw basic economic laws. Sigh. I expect them to try and outlaw gravity some day, the morons. Anyway, it is now officially illegal to melt down US coinage. So what happened? well SHAZAAM, Sgt. Carter! Who'd a thunk it? Amazingly enough, there popped up any number of smelters just across the border in Canada and Mexico. People were taking thousands and thousands of nickels and melting them THERE. So, Congress passed a law forbidding taking over a small amount of coins outside the US (I think it is about 200 dollars or so). This is, by the way, the first official currency control law in the history of the USA. You can expect more of this stuff if the economy really tanks and people are desperate to get out.

Anyway, the pressure here went away with the economic collapse of 2008 and the price of the metal content fell back to under 5 cents per coin. There was no economic incentive to melt them down. Now though, the combination of a tidal wave of money (we doubled our money supply in a week in 2008 and have been continuing to do so, and we are about to have more "quantitative easing" by the fed), and a lessening of the global terror has kick started the rise of nickel and copper prices again. (You could say this is the beginning of the collapse of the value of fiat currencies, rather than a rise in metal costs, but that is another debate). Anyway, if you go to coinflation.com (url below), you see that a nickel is now worth about 5.5 cents if you melt it down. That is pretty significant, as it represents (not counting the fuel costs to melt) a ten per cent return on investment IMMEDIATELY. Take half of that away for fuel and you have an IMMEDIATE 5% ROI. Checked yields on CDs lately? Returns on the Dow?

The really great thing about these is that if inflation roars in ("IF?"), you will be able to hedge yourself with small, inexpensive units of currency, that ANYONE can put away. I try to put away about 26 dollars of nickels per month (13 rolls). Pretty simple, really. Put your change in a jar, trade it for rolls of nickels at the bank (don't try to do a bunch at once, you will only annoy your bankers), and salt them away somewhere. The only drawback to this is that they are bulky.

I like to use 30 caliber ammo cans, which you can buy at flea markets for about 2 dollars, if you don't mind surface rust. Each one stores almost 200 dollars of nickels (face value) and they already have a watertight seal. You can use any number of containers, though, including recycled plastic or glass jars, or other small plastic containers.

If severe inflation is NOT coming, this is, of course, utter crap and howling at the moon paranoid lunacy. Make your own choice.


Current Melt Value Of Coins - How Much Is Your Coin Worth?

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