Hi-Yo Silver!

Let’s talk about the latest mailing from James R. Cook’s Investment Rarities. Maybe you got it, too.

Investment Rarities sells silver, basically (and buys it), and 22 years ago I actually, sheepishly, bought some bags of silver dimes — what was I thinking? — and then, to my astonishment, Bunker Hunt tried to corner the silver market, the price went from $5 an ounce to $40, and, in a rare moment of lucidity, I sold.

(The larger point here is what I found when I showed up at Deak Pererra in Rockefeller Center to sell. As I have written at greater length elsewhere, the place was mobbed. A huge crowd waiting for the doors to open at 10am. Everyone else, I realized, had had the same idea. I would never get in to sell my silver, or, if I did, they would have run out of cash. And yet, as it turned out, three of us were there to sell. Everyone else was there to buy. A classic top. Astonishing.)

Silver came crashing back down from $40 and has been around $5 ever since. Now comes Investment Rarities to say that a new explosion is imminent. Sure, people may be taking a lot of digital pictures, but Kodak still needs silver for the rest. And sure, people have replaced silver fillings with porcelain, but . . . well, I don’t know what silver is used for industrially, but Cook is convinced we’re using it a lot faster than we’re mining it, and that stockpiles have been trimmed way, way back. What’s more, mining companies, he says, have been selling silver short in huge quantities. And silver tends to be a byproduct of copper and gold, and “higher prices for silver wouldn’t cause copper miners to produce more copper to get more silver.” He thinks that for supply to meet demand, silver would have to sell for $20-$30 an ounce, but that because of all the short interest, the price action will be much more violent than that — silver could spike to $50 or $100 an ounce.

I have no clue whether he’ll be right . . . but I did note that the focus of the mailing was to sell bags of silver coins. Not clearly noted in the long letter where it talked about “bright and shiny almost uncirculated silver dollars” was the price you’d be paying per ounce of silver. But it was easy enough to figure out. Investment Rarities was offering bags of a thousand 1921 Morgan dollars, containing 773 ounces of silver, for $17,000. I know enough about silver to know that works out to $22 an ounce. (Brilliant uncirculated 1964 Kennedy half dollars, 720 ounces to the bag, were being offered at $14.58 an ounce.) Silver itself, meanwhile, closed Friday at $4.91 an ounce.

Of course, people have always paid a premium for old coins in good condition. I have no reason to think Investment Rarities is asking more than the going rate for its coins; just that, if silver ever really does spike sharply because of industrial demand, rare silver coins won’t spike as sharply — and you certainly won’t want to melt yours down to meet that demand. (If you did that, silver would have to more than quadruple before you even broke even paying $22 an ounce for your 1921 Morgan silver dollars.)

So the way to buy silver — if you buy the premise — is perhaps to buy silver. Or maybe an option on silver. Or conceivably stock in a silver mining company — except that if Cook is right, high silver prices could bankrupt mining companies that have sold short too much of their future production.

Incidentally, Cook’s website is gloomdoom.com. His demand-driven silver scenario doesn’t require an economic apocalypse . . . although he more or less expects one of those, too.

I don’t think buying silver today is totally stupid. After all, you’d be paying about the same price Warren Buffett paid for 4000 tons of the stuff more than two years ago. (Click here for the story.) You thought you were too late? Not hardly!

Still, my recommendation for most people: Do nothing. But don’t give away that silverware you got for your wedding, either, even if it no longer matches the style of your home. In a year or two, you just might want to sell it to Investment Rarities to be melted down.