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Cupro-Nickel Harvest Glean and Military Sheen

 

“Up rose each warrior bold and brave, glistening in filed steel and armor sheen”. --Fairfax.

 

Your friend mercury had an epiphany once many harvest moons ago.  Namely, should you value that which others do not, you may arrive at the valuables backed by those values-– though perhaps not currying favor from the crowds - with much less effort than would take to acquire those trendy items du jour that the masses desire.

 

Ever see somebody drop a penny and refuse to pick it up?

 

The United States Mint produces a one-cent coin, variously (and erroneously) called a penny (in nomenclature previous a penny referred to any coin of copper construction regardless of denomination).

 

The same US Mint via their Certificate of Authenticity provided with ‘retail’ proof and mint specimens states that the one-cent coin has a composition of 2.5% copper (Cu) and the balance in Zinc (Zn.)  However, there are various accounts that state simple chemistry experiments have determined that the penny actually in circulation only holds approximately 0.8% Cu.  The discrepancy has variously been reported as the difference in the jacket used on Mint proof vs. circulation coins, wear in the penny specimen, and simply another fraud on the merry-go-round.

 

Nevertheless, should the copper concentration be close to either one or two percent, the remainder is still zinc and therefore the modern circulating coin is not by rights a penny, merely a one-cent coin. 

 

In the days of yore - previous to 1982 in the US (1997 in Canada, 1996[?] in Australia) the penny had a different construct; actually of @ 95% copper. 

 

The price of copper varies like all other metals. As the price of copper rises, the coins become more expensive for the mint to produce. This is the reason often given why copper was removed from the US one-cent coin in 1982 and the American Penny ceased to exist. Right? Shouldn’t this reason be accepted on (ahem) face value? 

 

 mercury happens to value metals more so than the average Joe, who may just as likely not pick up a penny fallen from his hand. 

 

Q1: Practicing hardcore gleaning, how many pre-1982 pennies would mercury have to find with his metal detector to make up one pound of pennies?

 

[Lets do some ‘dementional massnalysis’: (translation: analysis for the masses where numbers are rounded off arbitrarily for mostly my amusement although also for those demented enough to care about the unmentionable state of the state – reality in another dimension did I mention?)]

 

A. Penny

(All units avoirdupois)

1 pound = 454 grams

1 ounce = 28.35 grams

Where:

Pre 1982= 3.11 gram @ 95% Cu = 2.95 gram Cu/penny

1 pound = 454 grams

454 grams x penny/3.11g =146 pennies per av. pound.

 

So, mercury would have to find 146 pennies to have one av. pound.

 

Q2: How high must the price of copper go until those pre-1982 pennies found in the ground but now stored in a jar are worth more than their one-cent denomination?

 

A2: 146 pennies x 1/.949 = 153.8 pennies per pound of copper.

Or, one penny = 2.95g x 1lb/454 = 0.00649 lb Cu per penny x $1.0/lb Cu = $0.0065/penny

So, a penny is ‘worth’ 0.65 cents fiat per coin. The intrinsic value is 2/3 or the fiat value (and rising).

 

Hence, price of copper/av.lb. must exceed $1.54 per pound for intrinsic value of copper in penny to exceed nominal value. However, should you desire to convert copper value into fiat you would need to calculate at ‘melt’ value that a smelter would provide you for your pennies minus opportunity costs, storage fees, and transport fees; all of which vary on an individual case. 

 

Therefore, the price of copper must rise about 50% before the pre-1982 penny has a higher intrinsic than nominal value. 

 

Now, looking at the one cent coin minted after 1982; it has a weight of  2.50 gram @ 0.8 % Cu.

Lesson: Spend these as fast as you can.

 

NICKEL

 

The USMint reports the Nickel as constructed of 25% nickel with the balance in copper.

 

12/18/03 PONi at 3.90/lb.

 

Jefferson Nickel = five-cent coin

Five-cent coin = 5.00gram

5.0 g. x .25 = 1.25 g. Ni  per 5-cent coin

5.0g x .75 = 3.75 g. Cu per 5-cent coin

 

1.25 g. Ni x 1lb/454 g  =  0.00275 lb Ni per 5-cent coin x $3.90/lb = 0.01073 $ Ni per 5 cent coin

0.75g Cu x 1lb/454g = 0.00165 lb Cu per %-cent coin x $1.0/lb = 0.00165$ Cu per 5-cent coin

 

Therefore, one 5-cent coin = $0.0123 or 1.23 cents

 

Now, let us compare the 5-cent coin vs. the pre-1982 one-cent coin (the ‘penny’)

One penny = 0.65 cent

One nickel = 1.23 cent

 

Hence, the pre-1982 penny is now worth, on both an intrinsic and relative value, more than half the 1982 (and 2004) 5-cent piece; yet, the penny has only one-fifth the nominal (marked) value. Gata luv it!

 

Is it worth storing pre-1982 pennies or 2004 ‘nickels’?

It is if:

A) you expect price of Cu to rise by %50 in your days (less opportunity/smelt costs which are different by individual)

B) you expect price of Ni to rise by %400 in your days.

 

The conundrum is that I DO expect both to happen, yet only consider storing the pennies to be ‘worth it’.

 

Why would nickel go up? Well lets examine uses:

Nickel uses

http://minerals.er.usgs.gov/minerals/pubs/commodity/nickel/500497.pdf

 

Why would copper go up? Skip the uses provided by your government; look at the consumption rates to really find the uses: war materiel!

 

Fabulous graph:

http://www-1.gsb.columbia.edu/faculty/gheal/B7006-001/intro/sld026.htm

 

Notice the slump with depressions and jump commensurate with war material build ups in 1910’s (WWI) 1930’s (Military buildup in Germany and Japan) and 1940 (Military buildup in US)

.

Focusing on the 1980’s and 1990’s, the USMint removed the copper from the penny during a slump in BOTH copper use AND price during the nadir of the 1982 recession!  So, the removal of copper was not due to either lack of supply nor escalating price.

 

Here are the price of 1982 copper in the currencies of the major producers and users:

http://ksghome.harvard.edu/~.jfrankel.academic.ksg/counterfactual/Copper_Graph.pdf

 

So, the USM removed copper just before a bottom (of the channel) in the price/usage ration in 1982. In other words, the metal wasn’t removed because the Price/use ratio of Cu was rising, just the opposite, it had bottomed. Very interesting. 

 

The normative (all currency producer vs. user) copper price bottom was a broad and general double bottom in 1986/1988 and 1999. As late 1989 the price of copper ranged between 1.30 and 1.50 per pound. Falling as low as @.70-60/lb in the 97 and  99- 01 bottom, the price of Copper has now reached in late December 2004 @ 1US$/lb once more on a six-year high:

 

http://www.metalprices.com/#Tables

http://www.amm.com/ref/copper.htm

http://www.bized.ac.uk/virtual/dc/resource/data/coppr.htm

 

If we look back at consumption, we see another channel bottom in 1991 and a consumption spike following that including a breakout of the 40-yr channel.  Was the 90’s telecom boom and deflationary bottom of POC the reason for the channel breakout? If so, would not consumption and price again turn off this new top/test of the 100-year channel? Or, is the breakout not due to industrial increase, but rather and more ominously (and more in tune with 100-yr consumption graph), military increase?  If so, who is responsible for this increase? Who, if fact, is stashing AND using the pennies of the world?

 

That is, seen any booming factories in YOUR neighborhood?

~ mercury

 

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