An Interesting, Easy Way to Invest in Foreign Currency

Image: Canadian Silver. Photo by P Lo
P Lo/Flickr

What’s shiny, comes from Canada and is worth $20?

Each of the three collectible silver coins I just bought from the Royal Canadian Mint. Buying hard currency from another country might sound strange, but it’s actually an interesting investment. With a buy-in of less than $25, I’m speculating on the price of silver rising and the value of the U.S. dollar dropping.

Want to learn more? Here’s my strategy.

How Does the Deal Work?

The Royal Canadian Mint is owned by the government of Canada, and in addition to producing regular coins for circulation, they make commemorative and other collectible coins sometimes referred to as “NCLT” (non-circulating legal tender). Each collectible coin comes in a plastic protector and features a bobcat, wolf, whale or goose. While stores might not accept the coins (just like stores in the U.S. often refuse $100 bills), they are legal tender, and you can turn them in at banks in exchange for a $20 bill or use them to pay a $20 debt. In other words, they will always be worth at least face value in Canada.

Mints create and sell NCLT coins in two ways. The U.S. Mint, for example, makes the American Eagle Silver coin, which has an ounce of silver and a face value of $1. At the moment you’ll pay about $24 for the most recent issue dates, and the price of silver is around $20 as I write this. These coins have been a decent investment for those who bought when the price of silver was much lower. But with a $1 coin you could see your investment drop in value quite a bit if the price of silver falls. In other words, you buy these coins primarily as a bet on silver going up.

The NCLT coins that the Royal Canadian Mint produces are different. They’re sold at face value because they contain silver worth less than that. Some see this as a bad thing. For example, I bought three $20 silver coins for $60 CAD plus $2.99 CAD for shipping, or about $56 U.S. total at the time my credit card was run. Because they only contain 1/4 ounce of silver, the bullion value is just $5 each. So what makes them an interesting investment? The several ways to profit, combined with the limit to what you risk.

The Risk and Potential Rewards

The value of an American Silver Eagle coin could be halved if silver prices plummet. The price of silver was down to $4.37 per ounce in 2003, and has been as high as $48.70 and as low as $18.61 in the last three years or so. Silver is a volatile investment! But if you have a silver coin with a face value of $20 (CAD) for which you paid about $21, the most you can lose is $1 if you spend the coin or trade it in to a bank. Meanwhile, here are the three possible ways to make a profit on your investment.

1. Cash in on Higher Silver Prices

It is true that silver has to go up quite a bit for you to make money from the bullion value of your coin. In fact, it has to rise to almost $80 per ounce to be ahead, at least if you buy the coins with 1/4-ounce of silver in them, as I did. But some people speculate that the world is running out of silver, which would mean much higher prices at some point. While you wait to see what happens, you always have the protection of that face value.

2. Cash in by Selling to Collectors

The Royal Canadian Mint limits how many of each coin they produce in order to help boost the eventual value as a collectible, and each buyer is limited to three coins. Some of their coins are worth more than face value already. Even recent issues of the $20 Canadian silver coins are offered for $23 to $30 on eBay as of early 2014. You might be able to sell them for a profit to a local coin shop after a few years if the ones you buy become popular.

3. Cash in on a Falling Dollar

The Canadian Dollar used to be worth a lot less than the U.S. Dollar, but exchange rates go up and down over the years. It is worth 91 cents U.S. as I write this, but as recently as four years ago one Canadian Dollar was worth $1.26 U.S. I bought my $20 coins for a total of about $19 each, including shipping. If the exchange rate goes back to where it was in 2009 they would be worth more than $25 just based on face value. Of course, you can lose on the exchange too, if the U.S. dollar climbs in value.

Making Your Investment

Overall, there isn’t a huge risk here, and you can buy one coin at a time if you want (but you pay the same $2.99 shipping for one or three). You also can set up a subscription to buy new issues as they come out. The Royal Canadian Mint also offers silver coins in other denominations, and some might be a better investment. One tip: watch for special shipping prices. When I purchased my coins, the $2.99 shipping offer was for phone orders only.

Please note that I don’t work for the Royal Canadian Mint. I just think this is an interesting investment experiment. How else can you invest in a foreign currency, a collectible and silver, and get started for as little as $23?

Your Turn: Would you think about investing in Canadian silver coins?