Where's the Silver?
July 15, 2011
When I was in school, we students were asked how plots of land could be divided into squares, or rectangles even though the world was a globe. The answer, of course, is these plots are ever so slightly adjusted along longitudinal lines that notionally converge at the top of the world.
In other words, land owners lose a breathtakingly small amount of what they think they own.
This issue arose yesterday in another form when a caller wondered how the U.S. Mint could have gotten away with its scam relating to silver American Eagles since 1986.
What scam is that you might well ask?
His issue was the purity of the silver and the weight. The certificate of authencity for the proof Eagle tells buyers they have a coin that weighs precisely one troy ounce of .999 fine silver. But the Mint breaks it down even further. The coin is 31.103 grams, troy weight converted to the metric scale, and the pure silver content at .999 fine is 31.072 grams. This means instead of one troy ounce of silver, the buyer is getting 0.031 grams less than he thinks he is paying for. This prompted the caller to contact me.
How can the Mint get away with this? When spread over 30 million or 40 million coins, he said, this adds up.
To prevent more mind numbing calculations, let’s assume for a moment that silver is precisely $40 a troy ounce. That means that one one-thousandth part equals 4 cents’ worth of silver.
Over 40 million coins, there is a discrepancy worth $1.6 million on total sales of $1.6 billion. Again all presuming an even $40 an ounce price. This amount is not somehow accumulated in a secret stash, it is lost in the refining process.
How could this happen? The Assay Commission if it still existed would not let the Mint get away with this, he insisted.
I did not choose to mention what the Assay Commission might or might not have done. I know that weight tolerances for silver coins were wider than one one-thousandth part. Rather I chose to point out that the coin is what the authorizing legislation specified and when it was authorized the .999 fineness was the market standard. It was, in other words, what was technologically possible.
With advances since, Canada can offer .9999 fineness. I suggested the caller could buy Maple Leaves instead, but he was not interested in what Canada has available, he wondered how the U.S. Mint could still be getting away with it.
I gave up.
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