Buying Silver at $100 and the Rebirth of Counterfeiting

Buying Silver

The debate about buying silver rounds, “junk silver” or silver Eagles goes on and on.

Although better prices may be available on silver rounds, investors continue to worry about the “China scare” and rumors of counterfeit silver coins.

Also, the confiscation* of fiat money purchasing power via inflation will happen long before counterfeit makes an impact, so getting more metal for the money makes the most sense at this time.

*(Confiscation of actual metal is separate issue we cover elsewhere).

Silver Eagles Gain Popularity

As a result, more investors seem to leaning towards buying silver Eagles and old, pre 1965, circulated or “junk” silver coins.

While nothing is wrong with silver Eagles, it does take longer and longer to realize the intended return on investment. Furthermore, you do not necessarily get the premium back if and when you decided to trade or sell your coin(s).

Sadly, one of the more bullish reasons for increased investment demand is the growing lack of confidence in the U.S. Dollar, which could actually taint the image of U.S. Dollar denominated silver Eagles.

When it comes to money and wealth, people tend to figure it out, especially when scarcity becomes an issue.

The Recognition Factor

Fears of counterfeit coins are not completely unfounded, but fakes are not that common.

It is also very difficult and expensive to pull fakes off with 0.999 percent silver, and even harder with old circulated silver coins. Even with gold, it is very rare to discover good fake coins, and both of these metals are rare to begin with.

While it may not be that big a threat in the silver market now, when silver tops $100 per ounce, many investors are concerned that generic rounds may become less accepted due to the higher counterfeit risk.

The Counterfeit Trigger

So, what price could trigger a wave of counterfeit coins?  The $100 level will probably not be enough of a tipping point to make sufficient money from counterfeiting to justify the expense and risk.

Although based on the way silver has moved in this bull market, the $100 level could be a test and the market could easily see a deep, 50 percent correction from that point before retesting it.

Maybe double or triple that price would prompt further silver coin counterfeiting, but even then, it is not an easy process. Besides, insufficient time to ramp up production would be a limiting factor, whether the silver is melt, mined or counterfeit.

This scenario is like a big earthquake that could hit at any minute. The situation where you have one commercial trader holding a massive percentage of the net short position in a commodity is so bizarre.

It will probably depend on who shows up on the short side as the market moves higher — even beyond the $50 level.  If the large silver shorts eventually cover in a panic, the price could easily overshoot considerably.

At least the debate is not about the silver ETF.

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