Coin News Daily March 31, 2009

Seeing Spots Is Not Necessarily a Bad Thing

Posted on 3/21/2009

The experts at NGC share their thoughts about copper spots on gold coins, including how these spots can affect a coin’s grade and what can be done about them. This article originally appeared in the Professional Numismatists Guild’s quarterly newsletter. Buyers of gold coins, unless they are seasoned numismatists, are frequently puzzled by the appearance of reddish spots or streaks on vintage gold pieces. Known in the coin business as “copper spots,” this term pretty much sums up their nature. These spots and streaks are caused by concentrations of copper amid the overall gold composition. United States gold coins minted for general circulation until 1933 are actually just 90 percent gold. The balance of their mass is made up of lesser metals that served to make the coins harder and thus more resistant to wear. After all, these coins were made to be used as money, not as collectibles, and frequent contact with one another during transport or while being exchanged in commerce caused them to become abraded and lose some of their mass. To slow this process, a blend of copper (mostly) and silver (in small amounts) was added to the gold to create the standard alloy typical of these older coins. Ideally, this alloy blended completely, so that every area of the coin was uniformly 90 percent gold and 10 percent copper-silver. For the most part the US Mint was able to maintain this ideal mix, but in some instances the copper formed concentrated areas at a coin’s surface. Being more reactive to the atmosphere than gold, these concentrations of copper slowly toned to a deeper red, which, when set against the overall gold color, results in various shades of orange to the eye. If the concentrations are small, the result will be a tiny spot ranging in color from pale orange to vivid red. If, however, the coppery area was rolled out into the metal strip from which blanks for coining were punched, the result is more likely to be a streak of similar color range. Understanding how copper spots form helps the knowledgeable collector appreciate that such spotting is a natural consequence of the coin-making process and not something to be alarmed about. Indeed, veteran numismatists appreciate the “originality” that such features impart to an old coin. Copper spots and streaks imply that a coin still has its “original skin,” a term that is used widely within the coin business to describe pieces that have not been improperly cleaned and are thus natural in appearance. Typically, gold coins having original skin will show a fine layer of gentle haze in addition to whatever spotting is present. It may be that originality is an acquired taste that does not come quickly to the novice, but it is something that every buyer of gold coins should strive to understand and appreciate. This 1927-S Saint-Gaudens $20 shows a few small scattered copper spots on its obverse at about 6:30 and on the R in LIBERTY. A large spot has formed on the central reverse. Click on the image to enlarge. The new collector of vintage gold coins, whose introduction to the coin field was through more modern pieces, such as the American Eagle and Canadian Maple Leaf bullion coins, is initially inclined to see copper spots in a negative light, simply because they are rarely seen on gold coins made more recently. While the American Eagle coins do have copper and silver as part of their composition and may develop copper spots in time, the American Buffalo coins and most foreign bullion pieces are of nearly pure gold and will not spot under normal circumstances. This unfamiliarity with copper spots and streaks should not be a reason to condemn them, as such coppery coloring is as natural to vintage gold coins as their mint luster. The professional graders at NGC understand this relationship between a gold coin’s alloy and copper spots, and they address spotting as they would any other phenomenon that occurs naturally to coins over the passing of decades. With their appreciation of an old coin’s antique quality, they are not put off by spotting that has occurred as a natural consequence of age. In extreme cases of spotting, however, NGC’s graders may lower a coin’s grade downward if they believe that the spotting diminishes a coin’s fitness for a higher grade. Therefore, the buyer of NGC-certified coins may be confident that any such decision has already been factored into the final grades assigned. Only rarely is copper spotting or streaking such an issue that it affects a coin’s grade, and to the veteran collector of coins a few colorful blushes may be viewed as an asset. This positive aspect, too, is factored into the NGC grade assigned to each coin. Large copper colored streaks, like that shown at 2:00 on this 1920-S Saint-Gaudens $20, can result when impurities in the metal alloy are spread on a coin’s surface during the planchet-forming process. Click on the image to enlarge. In instances when spotting is extreme enough to impact a coin’s grade, there is a solution. Professional conservation of a coin using proven techniques may selectively eliminate such spotting without losing the coin’s original skin. This ability to address specific aspects of a coin’s surface appearance without harming its overall eye appeal is a hallmark of Numismatic Conservation Services, LLC. Anyone can clean a coin improperly, destroying, perhaps forever, its antique charm. On the other hand, it takes a knowledgeable professional to distinguish negatives from positives and selectively treat the former in a manner that brings out a coin’s greatest potential in both certified grade and aesthetic value. The motto of NCS could be borrowed from the Hippocratic Oath: “First, do no harm.” That is, indeed, the mission of NCS, and it works in concert with NGC in a seamless operation to provide coin buyers with the maximum potential of their coins. Yes, copper spots can be a bit distracting to someone first discovering vintage gold coins. To the real connoisseur, however, a vintage gold piece is its own animal, possessed of features and qualities that are unique. NGC recognizes these qualities, and it assigns the correct grade consistently, factoring into the equation such variables as strike, luster, surface marks and, yes, copper spots. So, when you see a beautiful, completely original gold graded by the experts at NGC, remember that the few blushes of coppery toning may be evidence of originality and a badge worn with pride.

Coin News Daily March 26, 2009

South Africa: Soaring Gold Price Tempts the Desperate Underground

Charlotte Mathews

16 March 2009

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Johannesburg — LACK OF job opportunities and a soaring rand gold price are tempting more people into the hard and dangerous world of illegal mining.

The rand gold price has surged to unprecedented levels of more than R320000/kg this year, largely because the rand has weakened about 25% against the dollar since mid-September.

In the past months 20 illegal miners have died at the Consort mine, part of Pan African’s Barberton Mines, when a fire broke out underground. Sapa reported that at the company’s nearby Sheba Mine, 86 illegal miners were arrested a few days ago after a police raid. At Harmony Gold Mining’s Free State operations, 114 people were arrested in a raid last week, including about 90 illegal miners and some of Harmony’s own and contractor employees.

Illegal mining takes place wherever criminals are able to get into disused shafts, and the problem is not confined to SA. Illegal mining is widespread in Africa, often because local communities, warlords or crime syndicates were making a living for decades out of deposits near the surface where ownership was unclear, until increasingly politically stable governments started to grant licences to foreign companies.

A report two years ago by nongovernmental organisation Communities and Small-Scale Miners (CASM) suggested there were between 6-million and 8-million illegal miners in Africa. CASM, which is sponsored by the UK’s Department for International Development and the World Bank, was working with multinationals to draw up guidelines on how to tackle illegal mining.

Harmony CEO Graham Briggs said part of the problem was legitimate employees aiding and abetting the criminals by lending them passes or breaching security measures. Although Harmony also had some illegal mining in other operations, in the Free State the abandoned working areas were not particularly deep, and trespassers were able to get access through a network of tunnels between both Harmony’s and other mining companies’ operations. Harmony has taken measures to improve security.

Briggs said like any criminal activity, illegal mining was driven by the lack of employment opportunities and by the price of the product. Until recently, theft of copper cable was widespread because of the high copper price. That had come down and theft of gold was more attractive.

Pan African CEO Jan Nelson said illegal miners in SA tended to concentrate on high-grade areas, where there was visible gold. The Barberton Mines are more than 100 years old with multiple entry points. “We plug what we can and patrol, but illegals still get in.”

For mining companies, illegal mining is not just about the theft of ore and equipment. It is also a public relations headache as the mine owners are sometimes depicted as responsible for the deaths of the trespassers, despite systems to protect their own employees.

Nelson said the recent incident at the Barberton Mines had created a difficult situation for Pan African, which is listed in SA and London. Although South African shareholders understood more of the issues around illegal mining, UK and US investors did not.

For illegal miners, the dangers of entering disused shafts, mining at depth in unsafe conditions and inhaling mercury and cyanide fumes from primitive refining methods are not necessarily fully compensated by a high gold price as the labourers are often employed by crime syndicates.

“There is a whole chain, and as you move up the chain, people are paid more,” Nelson said. “I feel sorry for the illegal miners because they are being exploited. It is not just that they are paid very little but they are also working in very dangerous conditions.”

The following are some of the more common questions we get asked.

 Q: How much is my coin worth?

 A: This is very hard to do over the phone or by email. The best thing to do is take your coin to a local coin dealer for an appraisal. Typically we do not give values by email or over the phone. There is plenty of information on the internet. Google the coin. That should give you an idea of what it is worth. Remember that the value of bullion coins changes with the spot price of the corresponding metal.

 

Q: We have never dealt with you before. How do we know we will receive what we order from you?

 A: This is the number one question we get asked from customers that call us. J&T Coins LLC is a member of the Better Business Bureau of Wisconsin. We have an A+ rating from them. This is the highest rating the BBB gives. We are also eBay Platinum Power Sellers. Our user id is jim_teri. Our feedback is 99.7% positive with over 41,000 transactions. We are a full time coin dealer. When dealing with a coin dealer for the first time you may want to pay with a credit card. You can do this either through Paypal if the dealer accepts it (J&T Coins LLC does accept Paypal.) or directly with the dealer via their merchant account. Should the product not be delivered or as advertise you as the buyer will still have protection from your credit card company. You should also ask about their return policy. J&T Coins LLC has a very liberal 30 day return policy.

 

Q: How do I know you’re not sending me a fake or counterfeit coin? This question is especially popular with buyers of Chinese Pandas. 

 A:   I can give lots of answers to this question; 1) it’s against the law 2) you might go to jail if you get caught, 3) you might really piss someone off and get shot. These are three of the answers that immediately pop into my somewhat vacant mind. With that said for a buyer I would recommend the following: 1) ask the dealer about their fraud prevention policy. Every dealer has one (weather formal or informal in writing or stored in the brain of the pop of mom and pop coins shops.) and EVERY dealer in the WORLD is worried about buying a fake coin. So what do they do to prevent this? 2) Ask them who they bought the coin from. Now they won’t give you names and that’s ok. What you really want to know is did they buy it from somebody they trust and have had a somewhat long term business relationship with.  3) You can buy graded coins which should greatly reduce the chance of buying a fake coin. I know this is not always possible due to cost. So what I think it really boils down to is know your dealer. Do you trust them? Do they do as they promise? Are their prices competitive? Is the material they sell as described? What is their return policy?  Fake coins have probably been around since coin collecting started or since coinage in general has been used. Use good common sense and find a dealer you can trust. Do that and you should be ok.

 

Q: How can you sell something you don’t have in stock?

 A: Generally we do not do this. If we do we let the customer know when placing the order. We are much better at advising customers of when a product will be delivered.  Up until maybe a year ago, this was not much of a problem for us. We called a distributor, ordered products and had them 2-7 days later. Now we call and order and we have the products 3-4 weeks later and sometimes longer. It took us awhile to get the hang of the new timing. We now allow extra time for delivery. Strong demand for bullion coins is the main reason for this.  The delay in local coin dealers getting ordered material is an industry wide problem. As long as demand remains strong delays in dealers receiving orders will continue.

 

Q: Do you buy coins?

 A:  You bet we do. If you as a seller are comfortable sending us your material before you get paid for it, we can most likely work something out. If you’re not comfortable with this then you should find a local coin dealer. If you would like to discuss selling to us in more detail give us a call at 866-267-6024. Typically if you sell to us we pay for shipping and insurance.

 

Q: I saw this coin on the internet at a really good price. Is it worth it?

 A: Please remember, “If it sounds too good to be true, it probably is.”  Please read above about knowing your dealer.

Central banks sit on their bullion reserves

Falling gold sales and loans provide price support; IMF has 400 tons to unload

By Moming Zhou, MarketWatch

Last update: 5:04 p.m. EDT March 24, 2009

NEW YORK (MarketWatch) — The world’s major central banks, which hold more than 15% of global gold stockpiles, are expected to reduce their sales or lending of their bullion reserves this year, potentially restricting supplies and putting a floor under gold prices.

Several precious metals consultancies and the industry’s main trade group anticipate total sales from major central banks such as France and Switzerland will decline again this year. One estimate projects sales could tumble to their lowest level in at least a decade.

Fewer sales mean gold supplies, which have been retreating in recent years as mining production has weakened, are likely to keep falling short of demand.

As long as investor appetite stays strong – and that’s a big question mark, of course – this trend should support prices over the long term.

“Falling central bank sales have been a part of the gradual improvement in the overall balance between demand and supply in the gold market,” said George Milling-Stanley, managing director of the official sector at the producer-funded World Gold Council.

“There are a whole bunch of reasons why the [gold] price has been going up, and I think that lower supply has been one of those reasons,” he added.

Jon Nadler, senior analyst at Kitco Bullion Dealers, said falling central bank sales “might put a floor of some kind under gold, near $500 or so.”

Analysts also anticipate official holders such as central banks will lend less of their reserves, keeping with a trend of recent years. Some analysts say central banks’ loans of their reserves to mining companies and private banks contributed to a slump in gold prices in the second half of last year.

Another important milestone for the supply of official gold this year is the International Monetary Fund. The organization has said it plans to sell more than 400 tons of gold to diversify its revenue and strengthen its balance sheet.

Some investors are worried that the IMF sales could pressure gold prices, although the fund has said it plans to coordinate closely with central banks to minimize the impact of this large gold sale.

The IMF’s plan could provide a boost in getting central banks to extend an agreement expiring in September to limit how much gold they will sell every year. That deal, called the Central Bank Gold Agreement, has helped restrain central bank gold supplies over the past decade.

In Tuesday’s trading, the London afternoon gold fixing, an important benchmark for gold prices, stood at $923.75 an ounce. That’s $88 lower than the record high above $1,000 hit about a year ago.

Bank of England‘s shocker

Central banks sell gold to rebalance their reserves portfolio by reducing the portion of gold. By selling gold, a country can switch into assets with higher return and better liquidity.

For example, Switzerland, which had held the most gold reserves per capita in Europe in 1999, has sold more than 1,300 tons of its gold reserves. Other major sellers in the past 10 years included France, the Netherlands, and the U.K.

Countries like France, where monetary policy is now set by the European Central Bank, still maintains its own central bank. The U.S. hasn’t sold gold.

In the past, abrupt selling has sometimes depressed gold prices. The Bank of England’s announcement in early 1999 that it was selling part of its reserves helped gold prices slump to a 20-year low. Gold traded at just above $250 an ounce by the summer of that year.

But efforts to coordinate those sales have reduced those shocks. On Sept. 26, 1999, 15 European central banks, led by the ECB, signed the first CBGA to take concerted moves on gold sales.

The banks agreed that in a five-year period, they will cap their total gold sales at around 400 tons a year, with sales in five years not exceeding 2,000 tons. The CBGA was renewed in 2004 for another five-year period. The second CBGA raised annual ceiling to 500 tons and the five-year limit to 2,500 tons.

“There is a general consensus in the gold market that the two successive CBGAs have been a success for the whole market and for central banks in particular,” said WGC’s Stanley.

Sales slip, slip some more

In the past 10 years, almost all the official gold sales have been from signatories of the CBGA. Their sales have fallen in recent years and are likely to fall further this year, analysts say.

VM Group, a precious metals consultancy based in London, estimated that selling under the CBGA will fall to 150 tons in the year ended Sept. 26. If realized, this will be the lowest number since 1999, when the first CBGA was signed.

The World Gold Council and CPM Group, a New York-based precious metals consultancy, also anticipate official gold sales will fall this year.

Central bank gold sales declined to 279 tons in the 2008 calendar year, more than 200 tons, or 42%, lower than a year ago, according to data collected by GFMS, a London-based precious metals consultancy.

The fall in official sales is a major contributor to the decline in global gold supply in 2008, GFMS data showed. Meanwhile, the portion of official sales in total gold supply also fell to 8% in 2008 from 14% a year ago.

“Central banks that wanted to reduce their gold holdings have sold most of the gold they wanted to sell by the middle of this decade,” said Jeffrey Christian, managing director at CPM Group.

But further selling could come from countries that still hold a big portion of gold in their reserves, such as Germany and Italy, according to analysts at VM. Earlier this year, politicians in Germany were talking about selling gold to fund the country’s stimulus package.

Borrowing and hedging

Aside from selling gold, some central banks also lend the metal to miners, big banks and funds. Miners borrow gold to sell forward in order to lock in their future revenue. Funds and banks sometimes sell borrowed gold to invest the proceeds in other markets.

Gold borrowed for these two purposes used to have a dramatic impact on the market because it was immediately sold in spot markets, said WGC’s Stanley.

VM estimated that total outstanding balance of central bank gold lending was at 2,345 tons at the end of 2008. That’s more than the year’s total mining production, the major source of gold supply.

Nonetheless, this balance has shrunk consistently since the late 1990s, reducing its impact on the markets. The balance in 2008 fell almost 50% from 2004′s more than 4,300 tons, according to VM.

“Gold mining companies have largely stopped selling production as a hedge, and the hedge funds have largely abandoned the practice of selling gold forward as a speculation,” said Stanley.

Miners reduced forward sales by 1.54 million ounces in the fourth quarter, the smallest amount for the year, according to GFMS. Gold producers still had 15.52 million ounces left in hedging at the end of the year.

Still, in the short term, gold borrowing can make a shift in prices.

From last August, when the global credit crunch hit the financial industry, bullion banks borrowed “as much gold as was available and executed gold swaps to raise liquidity,” VM analysts led by Carl Firman pointed out in a yearly report released earlier this month.

The activity had an “immediate and very marked affect” on gold by holding prices back, even in the wake of strong retail demand for physical metal, Firman wrote in a report.

Gold prices slumped nearly 30% from July’s high to below $700 in November. See related story.

By lending gold, central banks can earn interest on it. Unless central banks can lend out their gold, it earns nothing, and the stockpile in fact is a cost in terms of storage and insurance, said VM’s Firman in a telephone interview.

Despite some wild speculations, all evidence indicates that the U.S., the biggest gold holder, is not lending gold, said CPM’s Christian.

“The people, the gold conspiracy theorists who claim evidence, twist the truth like Uri Gellar twists spoons,” said Christian.

More than half of the 8,133.5 tons of gold held by the U.S. is stored in Fort Knox, Ky., according to the Treasury Department. Gold is also stored in West Point, N.Y., and Denver, Colo.

IMF has 400 tons to unload

The second CBGA is expiring in September. Stanley said he expected a new agreement will be signed. William Lelieveldt, an ECB spokesman, declined to comment on the potential renewal of the agreement.

One of the beneficiaries of a third CBGA will be the IMF, which is considering coordinating with central banks to sell 403 tons of gold.

The fund, which holds more than 3,200 tons of gold, ranking the third in the world after the U.S. and Germany, is facing a widening deficit. With the majority of its income coming from interest payment of the fund’s loans, the IMF has been looking for other revenue sources.

One of the plans is the creation of an endowment, with major financing for the endowment coming from the proceeds of gold sales.

The IMF acknowledged drawbacks of gold sales, but also said that the sales could “form part of a package approach” and should “subject to strong safeguards to limit their market impact,” according to the plan.

The sales “need to be coordinated with the existing and possible future central bank gold agreements,” the committee said in the report. By coordinating with the CBGA framework, IMF gold sales “should not add to the announced volume of sales from official sources.”

The WGC’s Stanley said the IMF is likely to help push through a third CBGA.

“The proposal was designed not just to plug the income gap, but also to put the IMF’s finances on a more diverse, sustainable and stable footing for the longer-term, and less subject to the ups and downs of the world economy,” wrote Matthew Turner, an analyst at VM, in a report.

Moming Zhou is a MarketWatch reporter based in New York.

Coin News Daily March 23, 2009

Article Re-printed from CoinLink – Published On March 20, 2009

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