What Is Melt Value?
Melt value represents the intrinsic worth of a coin's metal content if it were melted down and sold as raw silver. For 90% silver coins, melt value is calculated by multiplying the coin's actual silver content by the current spot price of silver.
The term "melt value" comes from the theoretical exercise of melting the coin to extract its precious metal. While investors rarely melt coins (and it may be illegal for certain currency), the melt value establishes a baseline floor for the coin's worth. For more on how intrinsic value applies to commodities, general finance resources provide helpful context.
For 90% silver bags, each $1 of face value contains approximately 0.715 troy ounces of pure silver. So if the silver spot price is $30 per ounce, the melt value of $1 face is roughly $21.45 (0.715 x $30). A $1000 face value bag would have a melt value of approximately $21,450 at that spot price.
Calculating Melt Value: A Simple Formula
The formula is straightforward: Melt Value = Face Value x 0.715 x Spot Price. For a $1000 face bag at any given spot price, multiply $1000 x 0.715 x (spot price per ounce) to get the melt value.
This calculation applies uniformly across dimes, quarters, and half dollars because their silver content per dollar of face value is identical. The NGC coin specifications database confirms the standardized silver content of these denominations.
What Is Premium and Why Does It Exist?
Premium is the amount you pay above melt value when purchasing silver. If the melt value of a bag is $21,450 and you pay $22,500, you're paying a premium of $1,050 (roughly 4.9% over melt).
Premiums exist because dealers incur real costs: acquiring inventory, verifying authenticity, sorting coins, maintaining storage, processing transactions, and running a business. The premium compensates for these costs while providing a profit margin.
Think of premium as the cost of convenience and assurance. You're paying for the service of having coins sorted, verified, and ready to purchase rather than finding, verifying, and assembling them yourself.
Factors That Influence Premium Levels
Several factors affect how high or low premiums run. Supply and demand is primary: when more buyers want silver than sellers have available, premiums rise. Manufacturing and sourcing costs matter for dealers. Market volatility increases risk, which dealers offset with wider premiums.
Product type also influences premiums. 90% silver bags typically carry lower premiums than freshly minted bullion coins because there are no ongoing production costs. The Silver Institute's industry data provides context on supply factors affecting the broader silver market.
How Premiums Behave in Fast-Moving Markets
During periods of rapid silver price movement or heightened uncertainty, premiums can expand dramatically. When spot silver spiked during the 2020 pandemic, premiums on physical silver products, including 90% bags, jumped from normal levels of 2-5% to 15-25% or higher in some cases.
This happens because dealer inventory gets depleted faster than it can be replenished, creating temporary scarcity. Additionally, rapid price swings increase dealer risk, which they offset with wider spreads. For historical perspective, the LBMA historical silver price data shows periods of significant volatility.
Premium compression also occurs. When silver prices fall rapidly or demand weakens, dealers may compete more aggressively on price, shrinking premiums. Understanding these dynamics helps you time purchases more effectively.
Patience Can Save Money
Savvy investors recognize that crisis-driven premium spikes are temporary. If you can wait for markets to normalize, premiums typically return to historical ranges. Buying during panics means paying inflated premiums; buying during calm periods secures better economics.
Track premium levels over time to develop a sense of what's "normal" versus elevated. Monitoring spot prices through sources like the Silver Institute price data helps identify when premiums deviate from historical norms.
Worked Example: Calculating Your Total Cost
Let's walk through a practical example using variables. Suppose the silver spot price is S dollars per ounce, and you're purchasing a $1000 face value bag at a premium of P percent over melt.
Step 1: Calculate melt value. Melt = $1000 x 0.715 x S. If S = $28, then Melt = $1000 x 0.715 x $28 = $20,020.
Step 2: Calculate premium amount. Premium Amount = Melt x (P / 100). If P = 4%, then Premium Amount = $20,020 x 0.04 = $800.80.
Step 3: Calculate total cost. Total Cost = Melt + Premium Amount = $20,020 + $800.80 = $20,820.80. This is what you would pay the dealer.
Using This Framework to Evaluate Quotes
When a dealer quotes you a price, reverse the calculation to determine the implied premium. If a dealer quotes $21,000 for a $1000 bag when spot is $28, the melt value is $20,020. The premium is $21,000 - $20,020 = $980, or about 4.9% over melt.
Comparing implied premiums across dealers gives you an apples-to-apples basis for evaluation. A lower total price might seem better, but always verify by calculating the actual premium percentage. Resources like PCGS price guides can help benchmark coin values.
Why This Distinction Matters for Investors
Understanding melt value versus premium clarifies your true cost basis and helps set realistic expectations. Your investment must appreciate by at least the premium percentage (plus the selling spread) before you break even.
It also helps you avoid overpaying during market stress. When premiums spike, you're not paying for more silver; you're paying more for the same amount of silver. If you can delay purchases until premiums normalize, you acquire more silver per dollar. For current pricing data, see 90% silver coin bag price charts.
Finally, tracking premiums helps you identify favorable buying opportunities. When premiums are unusually low, either due to weak demand or dealer competition, you get more value for your purchase. The NGC melt value calculator helps establish baseline values against which to compare dealer quotes.