Silver Cloud

While U.S. gold is leaving Fort Knox in uncomfortable quantities -- and dominating the economic news -- another precious metal is rapidly draining out of the federal vaults at West Point, N.Y.

The national silver hoard declined by 23% last year, and a conspicuous symptom that the trouble is continuing is the nagging shortage of U.S. coins. Last week the U.S. Treasury told a congressional subcommittee, which is brooding over ways to ease the shortage, that the Government may well have to alter the 90% silver content of dimes, quarters and halves. This has led powerful business groups into the greatest debate over silver since William Jennings Bryan cried out for the silver interests in his 1896 "Cross of Gold" peroration.

Pinch & Price. The shortage is acute simply because silver has become an increasingly important commodity. It is in rising demand in industry for use in making silverware, jewelry, missile parts and, most important, silver halide camera film. At the same time, the fast growth of retail trade, notably in the $3.5 billion-a-year vending machine industry, has brought an unprecedented demand for coins. U.S. mints have tripled their output since 1962, but they cannot meet demand. Everybody feels the pinch: Las Vegas gambling operators have reluctantly substituted plastic chips for shining stacks of silver dollars; bankers in several cities swap dollar bills for 980 in coins, and the Federal Reserve reported last week that retailers are buying coins from big-time hoarders at black-market prices.

The value of silver has a lot to do with the shortage. The U.S. has fixed silver at $1.29 an ounce--the same price that Alexander Hamilton set for it in 1792--but miners complain that the sum is too low to pay for the slow, costly process of digging and refining it. Because of this economic disparity, the U.S. has only four important silver mines in operation, gets most of its supply as a byproduct of other metals. Last year the U.S. mined only one-ninth as much as the 323 million ounces of silver that it consumed, made up the difference by dipping into the Treasury's huge but rapidly dwindling hoard, which now stands at 1.2 billion ounces.

Miners v. Users. The American Mining Congress, backed by the potent Western "mining bloc" in the U.S. Congress, is lobbying hard to retain silver coinage. But to ease the shortage, it recommends a reduction in the silver content from 90% to about 33%; that would keep the Government in the market as a big buyer and at least prevent the price from going any lower. On the other side are the silver users, backed by Congressmen from the industrial East. They are urging the U.S. to eliminate silver completely from new coins and melt down its old coins; they figure that such a move would not only end the shortage but reduce prices by putting the Government out of the silver market.

In the middle of this argument stands the vending machine industry, which announced last week that it favors any coins that could duplicate the electrical and magnetic qualities of silver. Vending machines and juke boxes have tiny devices that use magnetism and electricity to separate legitimate U.S. coins from clever metal slugs or foreign coins--and re-engineering those devices would cost $100 million or more. A decision is due to be made by the Treasury in April. What will it be? Said Assistant to the Treasury Secretary Robert A. Wallace last week: "We'll have to lower the silver content of all coins, or go to some other alloy."

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