Over the past few years, I’ve seen the idea of storing nickels as an inflation hedge touted more and more. On the surface, it makes a lot of sense. Let’s briefly review the case for nickels:
The value of the metal in a nickel is currently 5.09 cents according to coinflation.com. When you get a nickel, you already have a built-in profit of 0.09 cents (a 1.8% return). That’s not bad.
Even if the value of the metal goes down, you can always use the nickel as a nickel. That means there is no down-side to holding nickels.
If the value of the metal goes up, then you will be able to sell or trade the nickels just like you can do today with old silver quarters.
All of the above is true. No doubt about it. In fact, I just read an article that goes over how to buy nickels, store them in PVC tubes, and bury them in your back yard.
This gets to the heart of why hoarding nickels really isn’t the greatest use of your time and money:
1. Nickels Are Heavy
1 nickel has a mass of 5 grams. A dollar of nickels (20), has a mass of 100 grams (3.5 ounces). $100 of nickels has a mass of 10 kg (22 pounds)!
Sure, 5 grams doesn’t seem like a lot, but a single nickel isn’t going to go very far. You have to think in terms of the total value that you want to store.
When you want to spend your nickels at some point in the future, it’s unlikely you are going to be using just one at a time.
2. Nickels Take Up a Lot of Space
So you’ve decided to stock up on nickels. You are convinced by the fact that they will never be worth less than 5 cents. Over time, you build up your supply of $500 worth of nickels. That’s 10,000 nickels. Where exactly are you going to put all of those? You can do the ammo can thing. You can store them in PVC tubes. You can build a wishing well in your back yard and cover the bottom with nickels to look authentic. Whatever method, or combination of methods, you choose you are going to be spending a lot of time and labor in doing it.
3. There Are Much Better Alternatives!
Nickel and copper are not precious metals for a reason. They simply are not very high in value density. They cost very little compared to their size and weight. Precious metals on the other hand, have a very high value compared to their size and weight. That makes them portable, an essential feature of money.
Basically the only reason people stockpile nickels instead of silver is that nickels have that guaranteed downside protection. It’s the fear of loss that drives people away from silver, gold, platinum, and palladium. But let’s step back a minute and remember why you are stockpiling metal in the first place.
The monetary authorities of the world have gone mad.
In the US, the Federal Reserve has increased the quantity of base money at an exponential rate over the last 100 years. And the fractional reserve banking system has multiplied that base money into trillions of dollars. In other words, massive inflation. And real goods like metals (and lots of other things too) go up in dollar terms.
Eventually, society’s trust in the currency as a store of value will evaporate and the whole currency system collapses. In most cases of recent history, people do not learn their lessons and the government just creates a new currency.
So the purpose behind stockpiling nickels or silver or anything else is to maintain purchasing power. You will not be making a profit this way. It is a form of savings.
It is technically possible that the monetary powers of the world will abruptly see the light, give up their power, and return to a sound monetary system. In that case, the metallic value of your nickels will plummet, but you will have your 5 cent insurance to protect you. But I give this outcome a likelihood of 0%. And that’s not a rounding error. It will not happen.
So if you are hedging against inflation, do it in a form that won’t break your back and have you working for $5 an hour. Use precious metals, bullets that you might want to have anyways, or other value-dense materials. You can go to any coin shop in the country and buy a bag of junk silver.
The Bottom Line
Nickels will do the job of maintaining your purchasing power in an inflationary environment. But so will lots of other things. The so-called protection of always being able to use the nickel as a nickel is a meaningless guarantee. There will continue to be more and more inflation into the future, all around the world. Don’t sacrifice your time and energy for the illusion of security!