How to Collect Pre-1982 Pennies and Nickels

I have previously mentioned that I am collecting nickel coins and pre-1982 pennies because their intrinsic melt values (i.e., the commodity value of the metals comprising the coins) exceed their respective face value. According to coinflation.com, as of the market close on August 10, 2007, a U.S. nickel coin has a melt value of 6.34 cents (i.e., 26.88% above face value) and a pre-1982 penny has a melt value of about 2.42 cents (i.e., 142% above face value).

I am saving nickels and pre-1982 for their commodity value and because I passively enjoy coin collecting. The odds are that I'll never make that much money off collecting coins for their commodity value. To be perfectly honest, if I didn't enjoy collecting coins, this would probably be a waste of time.

I have seen people attempting to sell pre-1982 pennies for prices well above face value (and even above the melt value). This seems like a total rip-off to me, given the fact that pre-1982 pennies (and nickels) are still widely abundant in circulation. I know that many people are hoarding these coins, but don't forget that the U.S. Mint produced many billions of these coins that are still being used in commerce.

I personally save all of the nickels and pre-1982 pennies I receive in change, except for the ones that have gum on them or are extremely dirty. I also occasionally purchase rolls of pennies and nickels from bank branch offices. There is a bank branch office right across the street from where I live, so these rolls are easy to get.

I have purchase rolls of coins at face value from different bank branches and have never been hassled or charged a fee for doing so. I stopped purchasing rolls of pennies a long time ago because it was too much of a hassle to search through 50-penny rolls for pre-1982 pennies. However, every once in awhile I still purchase a few rolls of nickels. Once of the reasons why I like purchasing rolls of nickels is because I rarely receive and of the 2004 and 2005 "Westward Journey" commemorative nickels in circulation anymore. Luckily, however, I can usually find a few of the Westward Journey nickels in $2 rolls of nickels available at bank branches.

The Melt Value of U.S. Nickel Coins Is Still Increasing

I have mentioned several times that I am collecting U.S. nickel coins and copper pre-1982 pennies because the value of the physical base metals from which they are formed (i.e., the "melt value") exceeds their respective face values. Back on December 14, 2006, I mentioned that the metal value of pre-1982 pennies was 2.0752 cents (207.52% of face value), post-1982 zinc pennies had a metal value of 1.1257 cents (112.57% of face value), and nickels had a metal value of 6.9879 cents (139.75% of face value).

The value of zinc (the primary component of post-1982 pennies) has decreased about 13% since then. However, the values of raw copper and nickel metal have risen substantially since mid-December, with copper increasing about 22% and nickel increasing almost 49%. These metals have been soaring during the U.S. commodities boom that has been going on during the past several years. The cause of this boom is most likely due to a continuing weak U.S. dollar and rising demand for raw materials from fast-growing emerging markets such as China and India.

As shown in the chart below (taken from Coinflation.com - click on the image for a larger view), the metal value of pre-1982 pennies is now 2.5237 cents (252.37% of face value), post-1982 zinc pennies have a metal value of 0.9953 cents (99.53% of face value), and nickels have a metal value of 9.7226 cents (194.45% of face value).

With the melt values of these metal substantially exceeding the face value for nickels and at about parity with face value for post-1982 pennies, the U.S. Mint is losing many millions of dollars each year by making these coins with their current compositions. As such, it is practically a guarantee that the U.S. Mint will change the base metals of these coins within the next couple years, at which point the current pennies and nickels in circulation will become collectors' items hoarded just like old silver coins were hoarded when the U.S. Mint abandoned the use of silver in its coins.

The U.S. Mint Is Implementing A New Rule Abolishing the Melting of Pennies and Nickels

I have mentioned several times over the past year that I am hording pennies and nickels. We are currently in the midst of a commodities boom and the value of precious metals and non-precious metals (such as those used in current U.S. coins) has soared for the past 2 or 3 years. There are several reasons for the soaring prices that I will not discuss in detail here in this post (although I may discuss it in a future post), but among the chief reasons for this boom is the strong global demand for metals due to strong worldwide economic growth, as well as a devaluation of the U.S. dollar by the Federal Reserve that has increase the U.S. dollar value of commodities.

The value of the metals within several U.S. coins, including pennies and nickels, now exceeds the face value of the coins, as shown in the picture below that I acquired from coinflation.com, the best website I've seen for determining the intrinsic metal of various coins (click on the picture for a larger view). As one can see, the metal value of pre-1982 pennies is now 2.0752 cents (207.52% of face value), post-1982 zinc pennies have a metal value of 1.1257 cents (112.57% of face value), and nickels have a metal value of 6.9879 cents (139.75% of face value).

To realize the intrinsic metal value of these coins, one would need to melt them down to separate out the respective valuable metals. Up until yesterday, my understanding was that this practice was not illegal. I've never done so myself or heard of anyone actually doing so, but I read somewhere that this practice would not be prohibited.

The U.S. Mint has apparently been losing money by making pennies and nickels over the past year as it pays more for the metals used to make the coins that it receives in return when it sells the coins at face value to banks, etc. As of today, the U.S. Mint has made it illegal to melt down pennies and nickels. It is also illegal to transport more than $100 worth of pennies and/or nickels out of the country unless it is for legitimate coinage purposes. The penalty for violation of this new rule is a penalty of up to five years in prison and a fine of up to $10,000 for people convicted of violating the rule.

In case anyone had any doubts about whether collecting pennies and nickels is worthwhile, the U.S. Mint's implementation of the new rule should quell such doubts. It's only a matter of time until the U.S. Mint changes the metal composition of pennies and nickels to include less expensive metals, a move that would likely increase the collectible value of current pennies and nickels.

I'm Still Saving U.S. Nickel Coins

Back on April 6, 2006 I wrote that I was saving all of the U.S. nickels I acquire in change because the melt value of nickels was about 4.24936 cents, or 84.98% of the 5-cent face value ofthe U.S. nickel coin. Almost all U.S. nickel coins made between 1938 and 2006 contain 75% copper and 25% nickel (the exception was during 1942-1945 when almost all nickels contained silver and manganese instead of nickel). At the time of my previous post, nickel was trading at $7.7564 per pound and copper was trading at $2.6112 per pound.

It's a good thing that I've been saving nickels because the value of nickel and copper has soared since April. One pound of nickel is now worth $15.4909, nearly twice what it was a mere 6 months ago. Copper has risen a slightly less impressive 31%, with one pound of copper now trading for $3.4302 per pound. The melt value of U.S. nickel coins is now about 7.10471 cents, or 142.09% of its 5 cent face value. The melt value of U.S. nickel coins has therefore risen about 67% since April.

If the value of copper and nickel remains strong, it's only a matter of time until everyone starts hoarding U.S. nickel coins, just like the U.S. population did in the 1960 when quarters used to be made of silver and the price of silver rose so much that the value of the silver in quarters exceeded the 25-cent face value of the quarters. Accordingly, I continue to recommend that people saved their nickels.

FYI, numismatic news has a great article about hording coins.

Since Commodities Are Soaring, I am Saving Nickels and Pre-1982 Pennies

The price of copper has continued to soar. As of the commodity market close today, one pound of copper was trading for $2.6112. The price of nickel and zinc has also been soaring - as of today's market close, one pound of zinc was trading for $1.2909 and one pound of nickel was trading for $7.7564.

As I mentioned in a previous post, I have been saving my pre-1982 pennies for several months now because pre-1982 pennies contained 95% copper and copper has risen so much in value. A pre-1982 penny now contains about 1.745 cents worth of copper in it. That is, the copper in a pre-1982 penny is worth 74.5% more than the face value of a penny.

Nickels also contain a large percentage of copper. Almost all nickels made between 1938 and 2006 contain 75% copper and 25% nickel (the exception was during 1942-1945 when almost all nickels contained silver and manganese instead of nickel). The current commodity value of the metals in a nickel is about 4.24936 cents, or 84.98% of the 5-cent face value of a nickel. Given how well commodities have been performing, it seems likely that the prices of copper and nickel will continue to rise to the point at which the metal in the nickel are worth more than the face value of the nickel. I have therefore been hording the nickels I get in change. Also, because the design on all nickels made from 2006 on into the future is different than the design on older nickels, I believe that nickels from 2005 and earlier will also eventually have a numismatic value exceeding five cents, regardless of the metal value contained within them.

Here is an image captured from coinflation.com showing the current intrinsic values of various coins in circulation based on the value of the metals contained within those coins:

Save Your Pre-1982 Pennies

This post has nothing to do with the stock market, but I think it is interesting nonetheless. Prior to 1982 almost all pennies minted by the U.S. mint contained about 95% copper and 5% tin and zinc.* During mid-1982 the U.S. mint changed the metallic compisition of the pennies to about 99.2% zinc and 0.8% copper. All pennies minted since 1982 have less than 1% copper.

The reason why the composition was changed is because during the early 1980s the price of copper kept rising and the total value of the copper metal in each penny was apporoaching the one cent face value of the penny. Accordingly, if the value of copper had kept rising, the U.S. Mint would have been losing money by producing more of the 95% copper pennies.

As you are probably aware, the prices of commodities have been soaring over the past few years. The price per pound of copper was recently about $2.33. At $2.33 per pound, the value of the copper in most pre-1982 pennies is about 1.45 cents, 45% more than the face value of those pennies, as discussed in this article.

For those who can afford to do so, it might be a good idea to start hoarding any pennies you receive in change that are from before 1982. At some point in the future those pennies might be worth several cents apiece to metal refiners willing to melt them down for the copper contained within them.

At Coinflation.com, you can determine the instrinsic value of various coins in circulation over the past 100 years or so.

*1943 was the exception when steel pennies were minted to conserve copper necessary for in America's WWII efforts.