Should you melt down your pennies?

My much-beloved Financial Times gets one wrong:

It could soon be worth Americans melting down their pennies for scrap, if zinc and copper prices continue their current rate of increase.

Copper prices have risen 30 per cent so far this year, and zinc is up 55 per cent – a rise of about $550 a tonne in a little more than three weeks.

A rise by the same magnitude would make the metal content in the US one cent coin worth more than its face value.

The weight of 160 pennies – also known as a one cent coin – comes to a pound, worth a face value of $1.60. But – with each penny made of 97.5 per cent zinc and 2.5 per cent copper – based on current prices, the metal value is worth about $1.36. Therefore another 25 cents-a-pound rise in zinc, or about $551 a tonne, would see the metal value of the US penny worth more than the monetary value.

We all know, of course, that you should not exercise an option before its expiration.  The longer time runs, the greater the chance for price to bounce around.  Once you are "out of the money," further drops in price don’t hurt you any.  But "in the money," you gain from price movements in your favor.  So hold onto those pennies and wait.  Yes there are complications (what is the stochastic process governing these prices?) but most likely the standard result holds up.


Comments for this post are closed