Copper: The New Silver

by: Ed Zimmer

When one discusses the value of coins, or rounds, or bars the first suspect that always seems to get mentioned is the king of metals: gold. Regardless of what form it takes, gold is generally recognized around the world as having value, especially in relationship to the local currency. With few exceptions, gold is involate, In fact, it has been said that all the gold mined in the history of this world is still in existence and much of it is in a form that can be used for transactions between persons, cities, or countries.

Silver on the other hand, has had a much rockier existence. It is both a precious metal and an industrial metal, and a metal that is useful in the healthcare field. This multiple personality has led to silver being used in minute amounts in an ever growing number of industries which find it more effective, both in terms of cost and in terms of performance. Even so, the sheer amount of silver compared to gold has kept it from being valued as highly, as is the tendency of silver to succumb to the elements.

But copper is one of those metals that one used to think of in terms of coinage, but only in the smallest amounts. Copper pennies have played a roll in providing the supporting bedrock of currency in the western world until fairly recently, when the demand for copper sent the price well over 4 dollar a pound. Even today, copper commands $4.38 cents per pound and even more once it has been worked into wire for use by the power, telecommunications and entertainment industries. Two hundred feet of 4 ga grounding wire will cost you $197.

But when it comes to a relatively new expression of copper, one has to consider that metal mania may have reached a peak. Recently, 1 troy ounce copper rounds have been placed for sale with a variety of obverse designs. Some indicate that they are barter rounds, while others take the precious metal route and simply display purity and weight on the reverse. Even quarter ounce rounds are being offer for sale. In either case, the listed price is between $2 and $4 per round, whether it is the one ounce or the quarter ounce round.

Considering that silver is currently selling for nearly $50 per ounce, is copper the new silver?

It wasn't all that long ago that you could pick up the 1 ounce copper rounds for about $1.25 each, so they have gone up in price by nearly 70%. That is a better appreciation that silver or gold, so perhaps these new copper rounds are the way to get on the ground floor of the next big thing.

But the fundamentals don't appear to be there. Oh, there appears to be demand for the coins, otherwise the price would not be going up. But is there value or is this a case where demand for any coin is going through the roof, warranted or no?

The spot price of silver is running close to $50 per troy ounce. Whether it is in a bubble or not is for each person to determine for themselves. The premium for silver eagles runs between 5 and 10%. Gold is over $1,500 per ounce and premiums are in the same range. Non-governmental rounds tend to pull down premiums that are about 5% or less over spot.

Remember that the copper rounds are currently trading about $2-$4 per troy ounce. Copper prices however are quoted in pounds, not troy ounce. Since there are about 14.5 troy ounces per pound, the mints that produce these rounds are getting between $29 and $58 dollar per pound for their copper rounds. When it comes to the quarter ounce rounds, the return is $116 to $232 dollars per pound for copper.

At last check, copper was selling for $4.38 per pound.

Considering that the metal value of these coins is slightly more than 30 cents per coin for the one ounce variety, people are paying 10 to 20 times the metal value of the coin, or premiums of 1,000-2,000 percent. You can do your own calculations on the quarter ounce coin.

I won't fault the companies for selling a product at whatever price they can get for it, after all, isn't that what the silver and gold folks are doing, including governments? But it looks like a lot of people are paying a lot of fiat for a product that doesn't have the value that it is selling for.

Or to look at it another way, gold is valued because of its rarity. There are about 15-17 ounces of silver for every ounce of gold in the earth's crust. Using that same ratio, there are 13,750 ounces of copper in the ground for every ounce of gold. Given the value of gold at $1500 per ounce, that would make an ounce of copper worth 11 cents or about $1.58 cents per pound.

If there is a talk of bubbles, then copper ought to be headlining it. Or perhaps the Treasury should consider changing the value of the eagles it issues and begin printing a 1 ounce copper eagle with a value of 1 dollar, changing the silver eagle to 10 dollar face value. The "Copper Eagle" would provide the mint with a seniorage of somewhere between $1.70 and $3.70 per coin based on the current price of the copper rounds being sold. The mint has got to make money somewhere.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.