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- How is the Price of Gold Today Determined (5.00 out of 5)
- How to Buy Gold Coins (5.00 out of 5)
- Still a Good Time to Invest in Gold? (5.00 out of 5)
- IRS Invades Privacy of American Investors (5.00 out of 5)
- Selling Price of Gold Coins (5.00 out of 5)
- India to Buy More Gold from IMF (5.00 out of 5)
- Is this Gold Bull Market Over? (5.00 out of 5)
- When to Buy $20 Liberties and $20 Saint Gaudens? (5.00 out of 5)
Archive for October, 2009
Where Can You Buy Gold?
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There are many places to buy gold, both brick and mortar and online. Most gold purchases are done via telephone from broker/dealers around the country. However you can also purchase from a local gold coin shop. You should be very careful when making a purchase in gold as the industry for physical gold is unregulated. Therefore choosing the right company to buy from is the most important decision you will make.
Searching for the right company can be easy if you are armed with the right questions.
How long have you been in business? There are a lot of gold companies popping up in order to take advantage of the growing demand. You want to deal with a company that has been in business for at least 10 years. You want the company you buy from to be around when you are ready to sell because they will most likely be the ones to buy your gold back from you at a good price (especially when dealing in numismatics/rare gold coins). 90% of companies will fail within the first 10 years of doing business.
What are your spreads (not commissions)? This is how you compare companies. The price of a coin is usually less important than how much they will buy it back from you. Spreads on numismatic coins can range greatly, the average spread being 28-35%. Spreads are based on a company’s retail price; if you buy a coin today for $1,000 at a spread of 35% and nothing changes in the market you will get back $650. If you buy a coin today for $1,000 at a spread of 28% and nothing changes in the market you will get back $720. This is why the price of the coin is less important than the spread at which they will buy it back.
Do you deal in sight-seen coins when you sell and when you buy them back? Some companies will sell you coins at what the industry call sight-seen prices but then buy them back at sight-unseen prices. This could mean hundreds to thousands of dollars based on the particular coin. You want to deal with companies that deal in sight-seen coins going in and out of the market.
What service do you provide after I receive my gold coins? Some companies, especially local shops offer nothing to the buyer after the sale is complete. Or they only call you to sell you more. You need to work with a company that is going to help you track values over time and that can give you input over the course of your coin ownership.
Here are my goals and objectives, what do you recommend and why? This is a very important question. Different types of gold do different things for your portfolio. Some companies only sell what they have on hand or what will make them the most money. It is more important for your consultant to get to know you and your goals in order to really help you meet your objectives.
Being armed with these questions should help you to narrow your search to a company that has integrity and that will help you meet your goals objectives.
How To Determine The Value of Your Gold Coins
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Gold has been mankind’s most desirable asset for more than 5,000 years. It freely circulated as everyday money – except during times of great economic turmoil – from the time of the Ancient Greeks and Romans right up to 1933. Until that year, the value of the great majority of gold coins was the same as their face value. That meant a $20 gold coin could be freely exchanged for 20 one-dollar bills. And 20 one-dollar bills could be exchanged for one $20 gold coin. It was a two-way system that promoted a stable value for our money.
That era ended in 1933. As part of his effort to re-inflate our economy from the depths of the depression, President Roosevelt recalled all circulating gold coins in the well known gold confiscation under executive order 6102. He had his Treasury Department melt them and send the newly formed ingots to Fort Knox for storage. Then Roosevelt revalued gold, in a series of steps, from its pre-1933 value of $20 to $35 per ounce.
Literally overnight, a $20 gold coin contained more than $20 worth of gold. Owners of the limited number of coins that survived the federal recall order, primarily collectors and overseas banks, wondered how to determine the value of their gold coins. Were they only worth their gold value, or would the government’s efforts turn once-common issues into scarce and rare dates?
Today we know the answer to that question. The government’s massive melting of our circulating $1, $2.50, $5, $10, and $20 gold coins created hundreds of rarities out of coins with original mintages that suggest easy availability. Here’s one example: the Philadelphia Mint struck 2.9 million $20 gold coins in 1931, one of the higher mintages of the 1907-1933 series. Based strictly on its original mintage, the 1931-P should be easily available and not too expensive. Thanks to the government’s melting, all 1931-P $20 gold coins are rare and extremely valuable.
Speed forward to 2009. All U.S. gold coins minted before 1933 are worth FAR more than their face value, and many are worth FAR more than their bullion (metallic) value. That’s true because the number of collectors of U.S. gold coins of the pre-1933 era has expanded tremendously. At the same time, the available supply of these coins has remained relatively unchanged. Because rare coin market values are set by the interaction of supply and demand, the long-term value of pre-1933 U.S. gold coins has shown a distinctly rising trend.
So how can you determine the value of your pre-1933 U.S. gold coins?
We live in an age of tremendous availability of information. Early in the last century, collectors and investors were content to determine their gold coins’ value by following (and interpreting) auction results. In the late 1940s, publishers began offering a once per year guide book that listed values for every U.S. coin. Then monthly publications were introduced, providing ads and estimated market values. Then weekly coin newspapers, filled with articles, auction results, and market commentaries, were established. Today we have all of these sources, plus the information on the Internet.
All of these sources, when you know how to use and interpret them, are extremely valuable. All of these sources can help you determine the value of each gold coin you own. But none is perfect. Each has its own quirks and its own idiosyncrasies.
When buying your coins you are paying retail and when you sell you are receiving whole sale. Therefore, the single best way to determine the retail or wholesale value of your pre-1933 U.S. rare gold coins is to have your trusted advisor perform a portfolio review. Retail values can vary significantly and your broker/dealer should have a buyback policy that will help you determine the value of your gold portfolio.
Is Gold a Good Investment?
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Gold is a great investment! Gold is a tool that needs to be used in your portfolio for its intended purpose, which would be different for every person. You need the right tool for the right job. Sure gold can be used in anyone’s portfolio as an inflation hedge, but gold can do much more for you than that.
Gold is firstly financial insurance; to hedge your portfolio during times of financial setbacks suffered by paper assets i.e. a falling dollar or a collapsing stock market. However gold can also be added to any portfolio for the following reasons:
1. High inflation, or the fear of high inflation
2. A decline in the U.S. dollar or other key world currencies
3. Turmoil in stock markets
4. Spiking interest rates
5. Oil and other commodity price shocks
6. Banking crises
7. International loan defaults and other debt crises
8. Geopolitical crisis
Gold in your portfolio can offset losses during down times or can even grow during prosperous times. Gold has gone from $252 per ounce in July of 1999 to $1,050 per ounce where it currently is today. That is over a 300% gain in 10 years! Some of this thriving came during the dot com bust, but some of it came while the Dow was climbing from 7,286 in October of 2002 to 14,164 in October of 2007 where it topped out.
There are a couple different ways that you can own physical gold; there is gold bullion and U.S. rare coins also called numismatics. These two types will provide different tools for you portfolio. You can acquire for strictly asset protection, or you can acquire for growth. You should consult a professional gold consultant to help you determine what will work best for your goals and budgetary parameters. Like I said earlier each person is different so working with a professional is highly recommended. As for the question is gold a good investment, I think the performance over the last 10 years speaks for itself. Many experts agree that gold will continue to rise in the future.
Does Buying Bullion Mean the Same Thing as Buying Gold Coins?
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This is a very common question that gets asked everyday, and it is a tricky one to answer, because the answer is yes and no.
Bullion is gold that tracks along with the spot price of gold. It can come in coin form like American Eagles, South African Krugerands or Chinese Pandas to name a few. So the answer here is yes, bullion can be bought in coin form. Bullion can also come in bars or ingots in various sizes.
Here is where it gets tricky, because buying bullion isn’t necessarily the same as buying gold coins. Buying gold coins would most commonly be buying numismatic gold, also called U.S. rare coins. This type of gold has different benefits and should be used as a different part of your gold portfolio strategy. Numismatic gold can be bought in bars (very rare) but it mainly comes in coin form, therefore buying gold coins would be associated mainly with buying numismatics.
So you can see if you were going to buy gold you would need to be very specific with what you want to acquire. You can buy bullion coins or you can buy numismatic coins. Do your research first to determine which is going to be the best fit for you. Bullion is considered to be confiscatable, and reportable in some instances. Whereas numismatic coins are considered to be non-confiscatable and non-reportable but will cost you more as they are more valuable. However, the cost can be well worth it as time has shown that numismatics tend to outperform bullion gold.
How to Trade Gold in Today’s Market
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There are many ways to trade gold in today’s market. There are paper gold investments and the actual physical gold itself. Physical gold offers the most safety because he who controls the asset has the power. Examples of paper gold would be ETF’s (electronically traded funds) like GLD which is owning one share of the spot price of gold per ounce. One could also purchase gold mining stocks which participate with the gold market tangentially.
There are two ways to trade in the Physical gold market. These are bullion gold and numismatic gold, which is also called U.S. rare coins or growth gold.
Bullion in the U.S. is anything minted after 1933. It can come in coin form or bar and ingot form. Examples of coins would be American Eagles or Canadian Maple Leafs, most countries have their own bullion coins that they mint. Bars or ingots would be what you would see at Fort Knox for example. Bullion can be stock piled in an IRA or can be acquired for storage in one’s home. It is reportable with a 1099B form in certain instances and is considered to be confiscatable.
U.S. rare gold coins were minted from 1795 to 1933. These coins are a completely private position in gold. They are non-reportable, meaning there are no 1099B forms filed by the broker/dealer upon the sale of them. They are also considered to be non-confiscatable due to the exemption during the last gold confiscation in 1933. These coins also tend to outperform bullion. In fact if we study PCGS charts we can derive that mint state rare coins have outperformed bullion close to 4 times to 1.
As you can see there are quite a few ways to trade gold in today’s market. One should always consider their goals and apply a strategy to meet those goals. Even when acquiring gold. In addition one should think of gold as a long-term strategy of conserving and building wealth.
Factors Affecting the Gold Spot Price
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Gold, mankind’s universal and timeless money and store of value, is traded in many ways. The easiest and most direct way, and the way that governs millions of transactions every day, is cash payment followed by immediate delivery. In these transactions, the agreed upon benchmark price is called the “spot” price. Another term frequently used term for this type of transaction is the “cash” price. Many major gold brokers set a minimum number of ounces for a transaction at the spot price.
New investors sometimes mistake a futures price for the spot price. They are not the same. A futures price is a market-generated quote for delivery of a fixed amount of gold (frequently 100 ounces) at a specific time in the future. This price will be higher than that moment’s spot (cash) price because 1) it must include fees for storage and delivery of the gold, and 2) finance charges because payment will not be made until the delivery date.
Another spot-related factor gold investors frequently neglect: transaction size. Ten transactions of 10 ounces require a lot more time, expense, and effort on the part of a broker than one transaction of 100 ounces. In the international world of gold trading, size matters.
Here are some factors that influence the spot price of gold:
· US Dollar- The US Dollar exchange rate is allegedly the most significant factor influencing the price of gold. US current account deficit is financed through foreign investments. Any contraction in the volume of inflows reduces the demand of US Dollar, causing erosion in its value. In such conditions, the mass sentiments tilt towards safer investments in the form of precious metals, which are not similarly affected by economic distress. Therefore, there is a negative correlation between the price of precious metals and the Dollar value.
· Industrial Demand-One other major demand driver for gold is the level of industrial production. It bears a positive correlation with the price of gold.
· Central Banks-The Central Banks, apart from maintaining foreign exchange reserves, also maintain gold reserves as a safety net against inflationary conditions, to boost public confidence, income on lending, and so on. Often these banks control the supply of gold in the market and affect its domestic prices.
· Economic and Socio-Political Uncertainty-In the case of strong inflationary trends in the economy, wars, economic depression, and other socio-political disturbances, the paper currency loses its value. This enhances the demand of precious metals and consequently, sets an upward spiral in their prices.
Click here to view a spot price indicator tool. It is located at the top right of the page (colored in grey).
A Brief Overview of the $20 Liberty and $20 Saint Gaudens Rare Coins
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These two types of coins are some the most readily available and most sought after of the U.S. gold coins minted. The United States minted gold coins for circulation from 1795 to 1933. The $20 Liberty coin was minted between 1849 and 1907 and is available in 3 types. The $20 Saint Gaudens coin was minted between 1907 and 1933 and is available in 3 styles.
The $20 Liberty coin was designed by James B. Longacre with the head of lady liberty on the face with the word “Liberty” inscribed on the coronet. The Type I was minted between 1849 and 1866 and was minted without the motto “IN GOD WE TRUST,” and “TWENTY DOLLARS” was expressed as “TWENTY D” on the reverse side of this coin. The Type II was minted between 1867 and 1876 and included the motto “IN GOD WE TRUST.” Another Type II design change involved modifying the shield device on the reverse side from straight into the curved “rococo” style of that time. Again, “TWENTY DOLLARS” was expressed as “TWENTY D” on the reverse side of the coin. The Type III was minted between 1877 and 1907 and the only real difference with this coin than the Type II is the Type III was minted with “TWENTY DOLLARS.”
The $20 Saint Gaudens was designed by Augustus Saint-Gaudens with a striding lady liberty on the face. It is said that the reason for the design change from the Liberty coin is because Theodore Roosevelt thought that the Liberty coin was ugly compared with other gold coins from around the world, and therefore commissioned the world renowned sculptor Augustus to create something beautiful. The first style was the High-Relief coin minted only in 1907. Due to its raised characteristics bankers complained that they wouldn’t stack properly and thus in 1908 the U.S. went to a flat style. The 1907 also was minted without “IN GOD WE TRUST.” This was balked at by U.S. citizens so therefore half-way through 1908 the motto was put back on the coin. To be more clear, there are the 1907 High-Relief without motto, the 1908 no motto (now in a flatter style) and the 1908 with motto. All coins minted after 1908 contained the motto.
Both the $20 Liberty and the $20 St. Gaudens contain .9675 troy ounces of gold and are 90% gold and 10% copper. They are both considered to be U.S. rare gold coins. The relative rarity of each coin minted depends on where they were minted (Carson City, New Orleans, Denver, Philadelphia and San Francisco), the year they were minted and the quality grade assigned to them. Generally speaking the rarer a coin is the more valuable it is.
Values of Gold Coins Depend on Rarity - Key Date Rarity Coins
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Key Date Rarity Coins are those coins that are hard to locate or find due to low surviving populations from the original mintages. The survival rate is what is important here. The age and original mintage will not impact the value of the coin as much as the survival rate or number of coins known to exist (population).
U.S. coins from 1795-1933 are no longer being minted, in fact the original die is destroyed once a particular coin is done being minted. This prevented replication. Current populations are what determine if a particular coin is a key date rarity. In 1986, the advent of PCGS (Professional Coin Grading Service) and NGC (Numismatic Guarantee Corporation), which are independent third party grading companies, track these populations. They examine each coin through a system of standards recognized internationally to determine the quality and authenticity. This grade is then recognized internationally. PCGS and NGC publish population reports which can be tracked by individuals at any time. In fact when these companies started publishing population reports, some coins that were thought to be rare were discovered to be quite common.
Two official government gold confiscations in 1834 and 1933 helped eliminate most of the coins minted from 1795-1933, thus making them more appealing to investors and collectors alike.
When determining if a coin is a key date rarity, one must compare populations of a particular coin to populations of more common coins. Populations in a specific grade of 1-10 or even 10-100 would be considered very rare when compared to the most common coin in the St. Gaudens type. Over 126,000 are known to exist in just the mint state 64 grade.
One of the most well known cases of building a portfolio of rare gold coins that we know of is that of Harold S. Bareford an attorney from New York. Mr. Barford accumulated his collection between 1945 and 1955 reportedly for $13,832. He later sold his collection in 1978 for $1,287,215.
Reasons to Own Rare Gold Coins
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Acquiring rare gold coins offers its owners many benefits that make it very appealing for any portfolio. U.S. rare coins were minted from 1795 to 1933, with your most typical coins being the $20 Liberty (minted 1849-1907) and the $20 St. Gaudens (1907-1933). They are beautiful, and sure they do contain an ounce of gold, but why would you want to own them. There are 9 reasons to own U.S. rare gold coins:
Outstanding performance: Rare gold coins are just that, rare, no one is minting any U.S. coins prior to 1933 anymore. Whereas new bullion is being added to the world supply everyday. As more demand comes to the market, supply is limited thus increasing value. PCGS maintains indices that track performance and have shown that over the past 38 years rare coins have outperformed bullion by a nice margin.
Privacy & Confiscation: Many who acquire rare coins do so for their status as a collectable which makes them non-reportable (confidential) as well as non-confiscatable by the government. Numismatic coins (another name for rare coins) were excluded from the last gold confiscation in 1933.
Diversification: Rare coins can play a useful role in any portfolio as a diversifier, since they tend to move in the opposite direction of typical paper assets. However we have seen them move together in the past. In fact, we saw the Dow rise from 2002-2007 while gold rose as well over the same period. A lot of people use rare coins in their portfolio as a hedge against inflation.
Liquidity: Rare coins are some of the most liquid collectable assets available. They trade on markets around the world on a daily basis.
Intrinsic value: Rare gold coins contain gold. So therefore they can never go to zero value. In a worst case scenario they will always be worth at least the amount of gold contained in them.
Portability: Rare coins are a perfect place to concentrate a large amount of wealth into a small number of tangible items. These coins can then be transported very easily, making it easy to move wealth without unwanted attention.
Affordable: Rare coins can be afforded by most budgets. As opposed to other tangible assets like real estate which can be expensive, many portfolios of rare coins are started with less than $5,000.
Historical beauty: Rare coins are apart of our American history. They are appreciated by many for their artistic beauty as well as their rarity. Because they are coveted by collectors, which add demand to the market, it helps add value for those who do not wish to become collectors.
Will Gold be Confiscated Again?
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The last time gold was confiscated was in 1933 under Franklin Delano Roosevelt. This occurred during the Great Depression while the U.S. was dealing with a monetary and banking crisis. The confiscation occurred under executive order 6102, which gave citizens a small window of time to turn in their gold or suffer a $10,000 fine, a 10 year prison sentence or both.
The real question is can this happen again? Many experts agree that it is very possible. The main concern is that we are facing similar circumstances that we were dealing with during the Great Depression. Gold was confiscated in order to stabilize the monetary system. The gold was confiscated at $20.67 per ounce and the government revalued it at $35 per ounce shortly there after, thus giving the government a 69% gain. After the government had all of this extra gold from private citizens it enabled them to print more dollars and put liquidity into the economy.
There has been a lot of talk about the dollars weakness lately. If the U.S. losses its status as the worlds reserve currency, we may need to return to a gold standard in order to give the dollar strength again. It is likely then that the government would confiscate gold and revalue it at a level that would be commensurate with our level of debt.
The U.S. in 1950 used to own around 68% of the worlds gold reserves. Now it owns less than 28%. This is not enough to bolster the dollar in any meaningful way. So the question remains. If the dollar collapses, will the government again confiscate gold like they did in 1933?
This is why owning rare gold coins are crucial to any gold portfolio. They were excluded from the last gold confiscation and experts feel they would be again due to their status as a collectable.
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