When it’s worth 6.8 cents – that’s when.

The metal nickels are made of currently (copper and nickel) has, over the course of the past year or so, often surpassed the actual face value of the $.05 piece. One investor has jumped on this incredible oddity – spending $1 million of his own money to purchase 20 million nickels. You read that right – 20 million. That’s a lot of nickel rolls (500,000 rolls in case you were wondering).

Now you may be asking who would do that.

Kyle Bass, investor and hedge fund manager, that’s who. Never heard of him? He’s an incredibly wealthy man who’s built that wealth banking on the failures of others. He made a killing in the subprime industry collapse with his own hedge fund, Hayman Capital, and correctly predicted the near collapse of several European nations. He’s not a god, just a regular Joe with an ability to see the incomprehensible.

His latest fascination is with nickels – lots of them. He predicts that the U.S. government will change the metal content of nickels within the next year or so, which means buying the existing nickels could be a windfall just waiting to happen. Because when the use value (the metal value) exceeds the exchange value (what a nickel will buy), it becomes a commodity product and the U.S. Mint begins the process of taking as many coins out of circulation as possible.

But there’s a catch. In 2007, the Mint passed a rule making the melting of U.S. coins illegal. This prescient step from a government agency was well thought out and actually logical. They saw the intrinsic value of nickels and pennies increasing, making them attractive to speculators like Bass. The Mint sought to avoid a run on U.S. small change preventing those same speculators from pilfering the coffers and selling them for profitable scrap metal. This includes selling nickels in substantial quantities overseas to foreign investors.

The bad news currently for speculators like Bass is that the metal value of nickels today is $.048 – less than the face value of a 1946-2012 minted nickel. But as often happens in metal markets, what goes down eventually goes back up. Time will definitely tell if Bass has made a wise calculation.

Want to read more on Kyle Bass? Check out this download of Michael Lewis’ book “Boomerang” in which he writes about his first and subsequent visits with Kyle Bass in Dallas.

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