Posts Tagged ‘bullion’
New Gold-Backed Currency Could be in Use Next Month
It looks as though a northern state in Malaysia called Kelantan will be using a new gold-backed currency as early as mid-August. They won’t be the first state/country to be using a gold-backed currency; Indonesia has already minted a minimal number of pieces (25,000) to be used in Australia, Malaysia, and Singapore.
According to the Guardian, the states Islamist government is kick starting the currency by paying its government employees 25% of their paychecks with the gold dinar and silver dirham. To further strengthen the cause all state companies will be accepting the currency and over 600 businesses will be doing the same.
Gold-backed currencies are touted as the only way to thwart the central bankers around the world, stop inflation and stabilize the world’s economies. Many well respected financial analysts here in the US are calling for a gold backed dollar in order to do just that. A gold-backed US dollar could work if gold bullion was confiscated and the price was again locked in at a much higher price to be equal with the money supply. Some experts say that price would be anywhere between $3,000 and $11,000 per ounce, though I have heard some pretty extreme predictions as high as $47,000 per ounce.
The US was on the gold standard for many years until the Federal Reserve was allowed into our system in 1913. They have systematically eroded the purchasing power of the dollar through a series of events. First they removed us from the gold standard domestically in 1933 by confiscating all gold bullion and making it illegal to own gold. Then under President Nixon they removed us from the gold standard internationally in 1971 by closing the gold window, making it impossible for foreign countries to convert their excess US dollars to gold.
A new gold standard in the US would thwart the ability of the government to print money at will, thus impeding inflation and the erosion of private wealth. Inflation is merely a tax. The more something costs you the less money you have to spend on other things. Inflation shifts wealth from your pocket to the government’s pocket. Physical gold and silver bullion have proven to keep up with inflation over the years. Therefore everyone should have some in their portfolio.
Which Gold Numismatic Coins are the Best to Invest In?
First read the getting started blog posted on July 2, 2010, and if you follow the steps your account rep should be able to help you decide what are going to be the best coins to acquire for your portfolio. The reason you want help with this process is because every coin will perform differently in your portfolio. So you want to make sure that you are applying the right tool for the right job.
For example, if your investment horizon is short-term that should rule out any form of numismatic coins. In that case you will want gold bullion, which is a pure asset inflation hedge. Gold bullion provides the most amount of liquidity, because it is real money and it is accepted anywhere in the world. Gold bullion is used more as a safety net than it is as a growth mechanism in any portfolio. It is first and foremost a hedge against fiat currencies.
If you are interested in a long-term play then you can begin to focus on numismatics. In my opinion the $20 Liberties and $20 Saint Gaudens are the best option in this arena. They are the most affordable, liquid, popular and readily available option at this point in the trend cycle. Some issues have tens of thousands known to exist in a particular grade and some have only a few known to exist. The rarer the issue the more expensive the coin, but it will also have the most opportunity for growth. This is where strategy comes into play. If you are looking for asset protection you will want to focus more on common issue coins and lower grades, if you are looking for more growth you will want to focus more on rarer issues in higher grades (generally speaking).
A general disclaimer, I typically will only acquire coins in the mint state range, and always graded by PCGS or NGC. Grading by these two companies will add a layer of confidence knowing that you have coins that are guaranteed for their authenticity and level of preservation. As far as acquiring mint state range coins is concerned, if you look at performance charts on PCGS.com you will find that the mint state range has performed the best over time. If you have never purchased rare gold coins before I would not try to do it on your own, you need someone you can trust to lead you down the right path. Good luck!
How to get Started Investing in Gold Bullion and Numismatic Coins
Choose a Broker Dealer:
Once you know that you want to own gold getting started is a very simple process. The first step is to pick a broker/dealer that you feel comfortable with. Typically this is done via radio and television talk show hosts that endorse various gold companies, or through an internet search. Check out how long they have been in business and how strong their track record is. Once you feel comfortable, call them and get assigned to an account representative.
Education:
The next step is to get educated. Have your account rep explain to you the different gold and silver options and how they can be applied to a portfolio. There are different tools for every job, understanding how to match them up is important. There are two primary types of gold and silver, which are bullion and numismatic/rare gold coins. To learn more click on the two types.
Goal and Objectives:
Once you are educated and you are starting to feel comfortable about your options, the next step is covering your goals and objectives with your account rep. This entails going over your holding periods, your concerns with the economy, whether asset protection or growth is more important to you, etc. Once the account rep has a good understanding of what your goals are then a strategy can be laid out. This will help you to determine what mix of precious metals is right for your portfolio.
Taking Possession:
The next step in the process is taking possession of your gold and silver. Most companies will ship through USPS, UPS or Fed Ex so that your package will have a tracking number, it will be insured and you will need to sign for it. This provides another layer of protection. Once you have taken delivery you will need to decide where to store your gold, whether that is in a safe deposit box, home safe or hidden somewhere. That decision will be based on what you feel most comfortable with.
Portfolio Reviews:
After you have owned your gold for a while you will want to get updates on its performance and educate yourself with market intelligence. This will help you determine when the best time to buy, sell and trade is. Physical precious metals are a long-term hold and therefore you should not concern yourself with the day-to-day action, but you should be concerned with the trends.
Does the Gold Price affect the Value of Rare Coins?
The spot price of gold that is reported everyday on the Comex does affect the value of rare gold coins-because they are made of gold. But each coin is affected differently depending on its rarity and quality. Generally speaking, the lower the quality or lower the rarity of a particular coin, the closer it will be to the spot price of gold. Vice versa the higher the quality or rarer the particular coin the further away it will be from the spot price.
Rare coins are graded on a scale from 1-70. This is called the Sheldon scale (quality scale). Each level in grade represents a higher level of quality. Investors and collectors alike generally try to achieve high levels of quality for their purchases. If a coin is a low grade and is a common issue its value will be more affected by the price of gold rising and falling. If a coin is a high grade and is a rarer issue its value will be less affected by the price of gold. There are many combinations of quality and rarity, so you can see there are many variables in how the value of a coin can be affected by the spot price of gold.
The most valuable US rare gold coin is the 1933 $20 Saint Gaudens. It sold for over $7.5 million in 2002. This gold coin contains one ounce of gold, and at the time of its sale at auction the value of the gold content was around $400. This specimen at the time was thought to be the only 1933 $20 Saint Gaudens in existence, thus it was extremely rare. Because of this coins rarity, the value of the gold content is negligible. On the other hand a very fine graded 1924P $20 Saint Gaudens with a population in the tens of thousands, sells for around $1,600 which is only a few hundred dollars more than an American Eagle gold bullion coin. You can see that the value of its gold content dominates the value of this coin.
Typically, individuals looking for a combination of growth and affordably look to acquire coins in the mint state range with rarity numbers between 1,000 and 15,000 specimens known to exist in a particular grade. Again, quality levels mixed with rarity will determine value, as well as how fluctuations in the spot price of gold will affect a coins value. To understand more on how this works speak with a reputable dealer.
Gold as Alternative to U.S. Dollar
There is a lot of concern worldwide that the U.S. Dollar is weak and facing tumultuous times ahead. This concern is justified, as we have printed 2.5 times the money supply in just 18 months, and anytime in history when a government has turned on the printing presses to pump liquidity into the markets, eventually that currency inflates dramatically. There have been times in history where printing lead to hyperinflation and eventual collapse. The most famous example is Germany from 1919 to 1923 when gold went from 170 Deutsche Marks to 87 trillion Deutsche Marks. The most recent example would be Zimbabwe whose currency was inflating over 1 million percent a year until the currency died in April of 2009.
What is most interesting about the case of Zimbabwe is that we actually got to see what happened when the currency collapsed. Citizens of Zimbabwe began panning and digging for gold in rivers and mountains in the hopes of obtaining mere grains. They would then take this into the city and buy products with it. Gold as an alternative currency to the dollar is very viable option, and some would say the only viable option to fiat paper currencies. Gold and silver are both considered to be monetary metals and are a good option for bartering.
On this site we frequently talk about rare gold coins. But in the instance of bartering rare gold coins are not the way to go. Rare gold coins are typically used for growth in a portfolio which can later be converted to quantity if so desired. But under the circumstances of a currency collapse gold and silver bullion in small denominations is what will be most desired. The smaller the denomination the easier it will be to barter with. For example, if you have a 1 ounce American Eagle gold coin and gold has shot up to $50,000 per ounce because the dollar is worthless, it will be harder to barter with than 1/10 of an ounce worth $5,000. Now prices will have inflated along with gold going up, but I wanted to draw a picture in your mind.
Silver will be even easier to use as an alternative currency due to its low value. Bartering with 1 ounce of silver today with a spot price at $17.41 makes buying anything with that easy. It is prudent to have some barterable gold and silver in your portfolio.
Richard Russell Says Get Out of Stocks and Buy Gold
Richard Russell has been writing the Dow Theory Letters and daily market commentary for 52 years. He is well respected around the world for his knowledge of the markets. He uses technical analysis to forecast action in the stock market. He recently wrote this to his subscribers:
“Yes, everybody is searching for the ultimate safe haven. I pick gold. The ironic problem with gold is that it is quoted every minute against currencies. If you have a safe haven item like a Picasso, do you quote its “Possible” price every hour? No, you relax knowing that it will always represent wealth. The same can be said of a great diamond. But because it is quoted hourly, investors worry about gold. I’ve said, and I’ll repeat it, figure your gold in number of ounces, not dollar value. When the dollar is history, gold will still be here, and it will still be an eternal item representing WEALTH.”
This is such a great statement. Gold has always held its value. People get nervous with the day-to-day price action in the market, but gold needs to be thought of in terms of the big picture. If you are a day trader then you need to be concerned with the day-to-day, but a typical investor needs to use gold as a safe haven first and foremost, and a safe haven is a long-term investment.
Rare gold coins are even more so a long-term acquisition. Rare gold coins/numismatics do not typically fluctuate every day, therefore they are less volatile in their price action. They tend to lag behind bullion in terms of timing. If the price of gold rises dramatically, rare gold coins typically take a few days to respond. It should be noted that the more common a coin, the more it will fluctuate with the spot price of gold. The rarer issues will not be affected as much by the spot price of gold’s rising and falling.
Rare gold coins, are like a Picasso, “you can relax knowing that it will always represent wealth.” So stop watching the day-to-day action and relax with the peace of mind that you own something that will always represent wealth.
Gold down big this Morning
Gold is down nearly $31 per ounce this morning and silver is down around $.91 as I am writing this. This correction in gold came right after Germany said they would no longer tolerate naked short selling in Euro denominated assets like bonds and bank shares. This proclamation from Germany has set stocks and commodities in a sell-off. Gold initially rallied after the news but so many investors had to cover trading losses and margin calls that gold bullion soon succumbed to selling pressure.
This is a healthy trend in the market. Those of us that are invested in the gold market want to see gold prices rise and fall. If gold prices shoot up dramatically they will fall dramatically as there would be no support underneath the price action. We want to see healthy support and resistance levels being built as the upward trend continues. The nine year trend is up and we are in uncharted waters in terms of price action above $1,240 an ounce. So look for the price to be somewhat volatile. Support is probably somewhere between $1,180 and $1,200, and resistance is probably somewhere between $1,230 and $1,240.
Eric King of King World News had it right when he said this on his site on Monday, “Stop looking at the daily fluctuations in the price of gold; they are completely meaningless. Keep your eye on the big picture, and that is the secular structure of this bull market in gold. Do not give up your core position in gold. Learn to look at significant corrections in the gold market as opportunities to accumulate.”
Simply put, gold is up 9 years in a row; therefore look for corrections as opportunities to accumulate more gold and silver. The great thing about numismatic/rare gold coins is they tend to lag behind bullion in terms of price action. Gold is down $31 per ounce but numismatic gold has not moved even $1. If the downward trend continues there will ultimately be a correction in numismatics as well, but the rarer the issue the less likely short-term corrections in gold prices will affect them. Rare gold coins do not fluctuate nearly as often as gold bullion, therefore they tend to be somewhat more stable.
When looking for opportunities look at the fact that bullion is at an all-time high, but rare gold coins have not even come close to the levels they experienced in 1989 (their last major bull market).
Gold Breaks old record close of $1,218.30
On December 3, 2009 gold set a new record close of $1,218.30. Since then gold came down to the $1,050 range then ran all the way back up to break the record on May 11th, 2010. Gold’s last price that day was $1,227.40. Since then gold has hovered around that price never going higher than $1,240 and not lower than $1,225.
We are now in uncharted territory. There is no resistance on the top of gold so technically speaking we don’t really know how high it will go from here. Some experts are calling for $2,000 per ounce by the end of this year. Some more conservative estimates are between $1,300 and $1,500.
There are a few factors that are playing a role in gold breaking records. These are timing in the bull market, inflation and supply and demand.
We are only in the second phase of a three phase bull market so look to see higher and higher highs. New records will continue to come. However to compare the current record price to the $850 per ounce high in January of 1980, one must adjust for inflation. If we do that gold would need to break $2,300 per ounce to really be considered a new all-time high.
The dollar has lost much of its purchasing power since 1980 and look for that trend to continue. Some say that it is planned because it is the only way that our country can afford its debts. It only takes 4% inflation for 17 years to cut the debt (and the dollars value) in half. We all know that 4% inflation is pretty easy to achieve. As inflation picks up expect to see gold follow.
Only a small percentage of Americans own gold. As fears continue to mount amongst concern for the dollar and other fiat currencies, more and more Americans will acquire gold. This new demand will also contribute to higher gold prices.
Gold will be much higher than it is today before this bull cycle is over. Rob McEwen of U.S. Gold believes gold will hit $5,000 per ounce sometime between 2012 and 2015, and he is known for his timely predictions.
Is Gold Bullion a Good Investment?
Gold bullion is a great investment. It has averaged a rate of return of 17.1% over the last 9 years. It has fulfilled its role as a financial insurance for those that have owned it during the 9/11 crisis, banking failures and stock market correction during that same time frame. So not only did gold bullion appreciate dramatically (over 340%) but it also kept people safer. But where is gold headed?
Ask yourself the following questions: Is the U.S. economy is on its way to recovery? Is the dollar going to continue to be the world’s reserve currency for the next 20 years? Is our national debt here in the U.S. repayable? Is the government going to continue to print money? If you answered yes to any of these questions then gold is a good fit for your portfolio. Gold is first and foremost a financial insurance. It should be used to protect the paper assets you have accumulated throughout the years. If you don’t have any, you are vulnerable.
But where is gold headed. Many experts would say it is going much higher from here. Spot price predictions are all over the board. From $1,300 to $47,000 per ounce before this bull market is all over. No one has a crystal ball, so take predictions with a grain of salt. Look at underlying trends and understand how bull markets work. We are currently experiencing a full fledged second phase. Very few people in the U.S. actually own gold and this will change. We will eventually reach the third and final phase where gold will reach higher and higher highs. This run up will typically be dramatic because everyone will want to own gold at any price. In my opinion gold bullion is a great investment.
What are better than gold bullion are numismatic/rare gold coins. They have consistently proven over the years to offer better protection and performance for their owners. The most common $20 Liberties and $20 Saint Gaudens have achieved an average rate of return over the past 9 years of 31.79%. Nearly double gold bullion. These coins are private and confidential and offer protection from gold confiscation. They have a higher cost of doing business so you need to be able to hold them long enough to allow them to do what they need to do. Most companies will recommend 3 to 7 years, but this will depend on the trend cycle. If gold takes off watch for rare gold coins to do the same.
Performance of Bullion and Numismatic Coins
No one can deny that we are currently experiencing a gold bull market. The spot price of gold has been increasing for the past nine years. It came off a low of $272 per ounce in 2001 to where it sits today at $1,158 per ounce. The following graph depicts the percentage increases per year for the last nine years and gives an average. The average gain for the last nine years is 17.1%. Not bad at all. Anyone would be happy to get 17.1% per year for nine years straight. Since this blog is about owning rare gold coins let’s look at what numismatic/U.S. rare gold coins have done in that same time frame.
|
|
USD |
|
2001 |
2.5% |
|
2002 |
24.7% |
|
2003 |
19.6% |
|
2004 |
5.2% |
|
2005 |
18.2% |
|
2006 |
22.8% |
|
2007 |
31.4% |
|
2008 |
5.8% |
|
2009 |
23.9% |
|
Average |
17.1% |
I took the most common mint state 64 grade $20 Saint Gaudens to achieve a very easy to understand baseline figure. Over the past nine years that coin has achieved an average appreciation of 31.8% per year. This is almost twice what bullion did over the same time frame. Who wouldn’t love to get 31.8% per year return on their money? In addition, most better dated coins have performed even better.
For a better dated coin I randomly chose a 1903P $20 Liberty in mint state 64 condition, and found that over the same time frame it had appreciated an average of 39.8%. That is 8% better per year on average for the last nine years. That is great.
What this has shown is that during this bull market thus far, it is better to own numismatic gold coins than it is to own bullion based strictly on performance. It is even better to own rarer issues as displayed by performance. It is commonly known in the industry that the rarer the issue the more potential for growth there is. It should be noted that past performance is no indication of future performance and that you should do your own due diligence when investing in anything.