The Nitty Gritty on Nickels

Wednesday, Feb 9, 2011

As I've mentioned before in SurvivalBlog, U.S. Five cent pieces ("Nickels") should be considered a long-term hedge on inflation. I recently had a gent e-mail me, asking how he could eventually “cash in” on his cache of Nickels. He asked: "Are we to melt them down, or sell them to a collector? How does one obtain their true 7.4 cents [base metal content] value?" My response: Don't expect to cash in for several years. I anticipate that there won't be a large scale speculative market in Nickels until their base metal value ("melt value") exceeds twice their face value ("2X Face"), or perhaps 3X face.

Once the price of Nickels hits 4X face value, speculators will probably be willing to pay for shipping. By the way, I also predict that it will be then that the ubiquitous Priority Mail Flat Rate Box will come into play, with dealers mailing Nickels in $300 face value increments. The U.S. Postal Service may someday regret their decision to transition to "Flat Rate" boxes for Priority Mail with a 70 pound limit.

Once the price of Nickels hits 5X face there will surely be published "bid/ask" quotations for $100, $300, and $500 face value quantities, just as has been the norm for pre-1965 U.S. 90% silver coinage since the early 1970s. (Those coins are typically sold in a $1,000 face value Bag (weighing about $55 pounds), or a "Half bag" (containing $500 face value.) Soon after the current Nickels are dropped from circulation, we will see $300 face value boxes of Nickels put up for competitive bidding, on eBay.

An Aside: Nickel Logistics

Nickels are heavy! Storing and transporting them can be a challenge.

I've done some tests:

$300 face value (150 rolls @$2 face value per roll) fit easily fit in a standard U.S. Postal Service Medium Flat Rate Box, and that weighs about 68 pounds.) They can be mailed from coast to coast for less than $25. Doing so will take a bit of reinforcement. Given enough wraps of strapping tape, a corrugated box will securely transport $300 worth of Nickels.

The standard USGI .30 caliber ammo can works perfectly for storing rolls of Nickels at home. Each can will hold $180 face value (90 rolls of $2 each) of Nickels. The larger .50 caliber cans also work, but when full of coins they are too heavy to carry easily.

Legalities

Since late 2006 it has been illegal in the U.S. to melt or to export Pennies or Nickels. But it is reasonable to assume that this restriction will be dropped after these coins have been purged from circulation. They will soon be replaced with either silver-flashed zinc slugs, or tokens stamped out of stainless steel. (The planned composition has not yet been announced.)

By 2015, when the new pseudo-Nickels are in full circulation, we will look back fondly on the days when we could walk up to our local bank teller and ask for "$20 in Nickels in Rolls", and have genuine Nickels cheerfully handed to us, at their face value.

Death, Taxes, and Inflation

It has been said that "the only two things that are certain in life are death and taxes." I'd like to nominate "inflation" as an addition to that phrase. For the past 100 years, we've been gradually robbed of our purchasing power through the hidden form of taxation called inflation. Currency inflation explains why gold coins and silver coins had to be dropped by the U.S. Mint in the 1930s and 1960s, respectively. Ditto for 100% copper Pennies, back in 1981. (The ones that have been produced since then are copper-flashed zinc slugs, but even the base metal value of those is now slightly greater than their face value.)

Inflation marches on and on. Inflation will inevitably be the impetus for a change in the composition of the lowly Nickel. Each Nickel presently has about 7.3 cents in base metal ("melt") value, and they cost the Mint more than 9 cents each to make. You don't need a doctorate in Economics to conclude that the U.S. Mint cannot continue minting Nickels that are 75% copper and 25% nickel--at least not much longer.

Without Later Regrets

Don't miss out on the opportunity to hedge on inflation with Nickels. Just like the folks who failed to acquire silver dimes and quarters in the early 1960s, you will kick yourself if you fail to stock up on Nickels. Do so before they are debased and the older issue is quickly snatched out of circulation. The handwriting is on the wall, folks. Stop dawdling, and go to the bank and trade some of your paper FRNs for something tangible.


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