Fed Comments Good for Gold

By Patrick A. Heller June 29, 2010

The Federal Reserve Open Market Committee is composed of the seven members of the Federal Reserve Board, the presidents of the Federal Reserve Bank of New York, and four other presidents of regional Federal Reserve Banks. This committee meets eight times a year to oversee America’s open market operations. It makes the key decisions about interest rates and the growth of the U.S. money supply. The FOMC, as it is called, is the principal agency implementing U.S. national monetary policy. With the U.S. Treasury, it formulates policy for the exchange value of the U.S. dollar.

At the end of each meeting, this committee issues a statement assessing the current U.S. economy. Every committee member and the other participants who were consulted during the meeting are required to sign off on the accuracy of the meeting minutes and on the final statement.

Literally, every word is carefully chosen for the statement. As a result, market watchers hang on every word, especially to any text that varies from the statement issued at the end of the previous meeting.

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At their latest two-day meeting that ended on June 23, the committee issued its summary statement that began as follows: Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit.” Later in the statement, it reads, “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”

Perhaps the most significant word in the whole statement was the use of the word “proceeding” to describe the economic recovery. In the April meeting statement, the committee used the phrase, “economic activity has continued to strengthen.” Eliminating this phrase constitutes a huge confession by the FOMC. In plain English, what they are saying is that the economy has stopped improving, the housing market is tanking and unemployment is rising. After all, the Census Bureau fired 243,000 workers in June, with many more to lose their jobs in the coming months. Contrary to the mainstream media reports that the recovery is under way, the unvarnished language in the Federal Open Market Committee statement says the exact opposite.

You have now been warned by the Federal Reserve to take steps to protect yourself.

The G-8 and G-20 meetings over this past weekend to address international financial problems were basically failures because they were all talk and no real actions. In particular, U.S. President Obama came away from the conferences with poor results, as the adopted recommendations of the meetings advocated fiscal restraint and cutbacks in government spending (positions especially promoted by Germany and the United Kingdom).

The reason that I expect no substantive actions to result from these meetings is partly from the reaction we have already seen by government employees in nations that are trying to cut back on expenses such as in Greece, Spain, France and many U.S. states and municipalities. I doubt that many politicians have strong enough backbones to withstand the pressures brought by those seeking to maintain their share of government largesse.

Just this past week, it was considered extraordinary news that the U.S. Congress failed to enact an additional extension to unemployment benefits (after having enacted prior extensions multiple times), at a time when fiscal restraint would instead indicate repealing past benefit extensions. Discerning the truth from what the politicians and bureaucrats are saying appears to be so difficult that many in the mainstream media are unable or maybe too lazy to figure it out. Those who have taken the time and effort required to do so have reaped huge profits from owning gold and silver for the past decade.

A number of uninformed commentators are now predicting that the gold and silver markets are at their peaks. If they really understood what has happened in the past, what is occurring now, and what will likely come in the near future, they would advocate the complete opposite. I agree with my friend, silver market commentator David Morgan, when he says that the easy money has been made with gold and silver already, but the big money is yet to be made. For your own financial well-being, come along for the ride.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Update (www.coinupdate.com) and Financial Sense University (www.financialsense.com)

By Terry Wooten
New York — (Kitco News): Rhodium prices could rise substantially during 2010, driven largely by strong fabrication and investment demand, the CPM Group Platinum Group Metals Yearbook 2010 said Tuesday.

The report by the New York-based metals consultancy also said price support will be accentuated by the concentration in the metal’s supply and demand. CPM said about 72 percent of rhodium’s supply comes from South Africa. Output there has benefitted from the increased mining of the rhodium rich UG2 ore body.

“A shortfall of resources such as electricity, water and labor, however, could compromise mining activity in South Africa,” CPM said. The report noted such factors affected production in 2008 and helped drive rhodium to record highs.

CPM said that about 85% of rhodium’s fabrication demand comes from auto catalysts. “The concentration of fabrication demand has been and seems likely to continue to play an important role in driving the price of the metal higher during 2010,” CPM said in the Outlook.

“After weakening over the past two years, the global auto market is expected to show strength this year,” the report said. “This, coupled with the global tightening of emission standards focused on reducing NOx emissions, is expected to boost fabrication demand for the metal during 2010 and beyond.”

The Outlook noted that total rhodium supply in 2010 is projected to rise 4.8% to 1,054,820 ounces. In 2009, total supply was 1,066, 217.

An increase in South African production was largely responsible for the increase in rhodium min production, which was up 4.0 percent from 2008, CPM said.

South African rhodium production in 2009 was 722,407 ounces, up 14.1 percent from 2008 levels. The increase followed two consecutive years of decline due to a range of production problems that plagued the PGM mining industry in that country.

CPM said the growth rate in South African rhodium has been greater than the growth rate of South African platinum and palladium production. “This no doubt reflects increased focus on the rhodium-rich UG2 ore body and efforts to increase the recovery of rhodium from all ore processing, given the tight market conditions and high prices for this metal” CPM said.

CPM noted that investor activity in rhodium increased when the price was rising in 2008. The report noted that investors typically buy an asset when the price is on the rise, even though that may not be the best strategy.

“If investors purchased this metal at the time when rhodium prices were peaking in 2008 they may be highly unlikely to liquate their positions and most likely would hold on to their metal for at least a few years in anticipation of prices reaching those high levels once again, CPM said.

Likewise, the report said, those who bought the metal closer to $2,000 are not likely to liquidate their positions in anticipation of maximizing their profits. Several trading companies and investors bought rhodium in late 2008 and early 2009 when prices had dropped into a range around $1,050 to $1,400, CPM said.

The Outlook emphasized that hedge funds and wealthy individuals are typical investors in physical rhodium One Canadian retailer of precious metals this year began offering one ounce, five ounces and ten ounces of pure rhodium sponge. “There is a possibility that the investment market for this metal will expand following this move,” the report said.

Courtesy: coinlink.com

Strong fundamentals positive for platinum group metals – CPM

Investors are expected to remain attracted to platinum in 2010 because of potential price appreciation based on the metal’s tight supply, increasing fabrication use and investor demand.

Author: Dorothy Kosich
Posted:  Tuesday , 29 Jun 2010

RENO, NV - 

A combination of constrained supplies, rising fabrication and increased investor interest in PGMs is expected to drive these metals prices higher in the near future, New York metals consultants CPM said in a presentation Tuesday.

In CPM’s Platinum Group Metals Yearbook 2010, the analysts expect platinum demand to benefit from the global economic recovery this year.

Investors purchasing platinum for its safe haven attributions are likely to be outnumbered by those purchasing the metal for its tight market balance. Nevertheless, CPM said, “Investors are expected to remain attracted to platinum because of the potential for price appreciation based on the metal’s positive supply and demand fundamentals.”

Platinum ETF investment holdings are forecast to continue to rise this year.

“Given the forecast for strong investment demand during 2010, there is an expectation that there will not be sufficient metal coming into the market from newly refined supplies to meet both rising fabrication demand as well as robust investment demand,” CPM suggested. “This scenario suggests an extremely tight market, which would push platinum prices higher.”

CPM forecasts that global platinum mine production may rise 5.6% this year to 6,658,461 ounces. 

The largest platinum producer South Africa “is confronted with certain resource constraints which are not expected to be resolved in the near future and are expected to inhibit supply from the country, irrespective of how high metals prices rise.”

New mine production coming on line is expected to boost South African output to 5,112,174 ounces this year, up from 4,845,000 platinum ounces mined in South Africa in 2009.

Platinum production from Russia is forecast to increase from 831,000 ounce in 2009 to 890,000 ounces this year, according to the yearbook.

CPM projects that total newly refined platinum supplies will rise 5.5% from 7,043,000 ounces last year to 7,468,461 ounces this year.

Secondary platinum recovery, which fell 25% last year to 750,000 ounces, is forecast to increase 8% this year to 810,000 ounces due to the present improvement in platinum prices and pick up in the auto sector.

“Platinum fabrication demand is forecast to rise at a healthy pace during 2010,” CPM advised, “driven largely by an improvement in global economic activity and restocking of metal by users.”

Total platinum fabrication demand dropped 4.1% to 6,584,000 ounces in 2009. The yearbook projects fabrication demand will recover 8.4% to 7,137,000 ounces this year.  However, CPM predicts the growth in demand for platinum jewelry during 2010 “is forecast to be relatively weak compared to 2009.”

“The declining platinum price volatility, at least during the first three months of 2010, coupled with an improving economic environment that could boost discretionary spending among consumers, are both factors that could supply platinum jewelry demand,” CPM suggested.

In their analysis, CPM noted investor interest in platinum futures remained high in 2009 and early this year. Commodity funds and other institutional investors held large net long positions throughout last year.

Combined trading volumes of platinum declined 30.4% to 101.7 million ounces on Nymex and Tocom last year.

Unfortunately, there were no Platinum Eagle coin sales by the U.S. Mint in 2009 because the Mint had run out of coins due to strong investor demand. “The Mint plans to produce these coins sometime around July or August this year,” CPM advised.

PALLADIUM

Total palladium supply reached 7.6 million ounces last year, the third consecutive year that total palladium supply declined.  This year total supply is expected to increase 8.2% to 8,265,706 ounces, according to CPM’s forecasts.

However, CPM cautioned, “The increase in supply is not expected to be enough to meet the needs of both fabricators and investors.”

Meanwhile, total palladium fabrication demand dropped 7.5% last year to 7,170,500 ounces. Total fabrication demand is forecast to increase what CPM called “a healthy 8.2% pace in 2010, reaching 7,795,000 ounces.”

In their analysis, CPM said palladium investment demand rose sharply last year and in the first quarter of 2010 due to several factors including the expectations of a tight supply/demand balance in the palladium market. The launch of a new palladium backed investment products and the continued increase in investor interest in commodities as an asset class also generated palladium investment demand.

Trading volume for palladium on both Nymex and Tocom was a combined 45.5 million ounces last year, down 44.1% from 81.4 million ounces traded in 2008.  Combined inventories of palladium in both Nymex and Tocom vaults were up 46.1% for a total of 673,735 ounces at the end of last year.

RHODIUM

Newly refined total rhodium supply was up 4% at 1,006,217 ounces in 2009. Total supply of newly refined rhodium is projected by CPM to increase 4.8% to 1,054,820 ounces this year.

The growth rate in South African rhodium production has been greater than the growth rates of South African platinum and palladium production, CPM observed. “This no doubt reflects the increased focus on the rhodium-rich UG2 ore body and efforts to increase the recovery of rhodium from all ore processing, given the tight market conditions and high prices for this metal.”

Nearly 85% of mined rhodium supply comes from South Africa. “Due to this concentration, total rhodium supply is sensitive to the various factors pertinent to South African mining,” CPM said.

“Rhodium mine production in South Africa will be negatively affected by the tightness in and any potential future shortfall of South African electricity supply, as well as labor issues. Rhodium supplies meanwhile will be positively affected, to some extent, by the ongoing reliance on UG2 ore in PGM mining.”

Overall South African mine production of rhodium is forecast to total 754,061 ounces this year, up 4.45% from 2009.

Rhodium production in Russia is expected to increase to 87,000 ounces this year, according to the yearbook.

CPM also forecasts that total rhodium fabrication demand may rise 11% to 992,273 ounces this year.

To order the CPM Group’s Platinum Group Metals Yearbook 2010, go to www.cpmgroup.com

Signals From Platinum and Palladium Inventory Movements

by stuart on June 28, 2010

Standard Bank ran an interesting analysis of current palladium movements last week in an investors note. While cautioning that the evaluation of import and export data is only one part of a much larger supply/demand and investor sentiment dynamic we would agree there are some interesting directional trends highlighted by the bank’s analysis.

Broadly the note reviews the movement of platinum and palladium into and out of Switzerland. As the global hub for these metals, such movements can be very informative. Switzerland was a net exporter of 336,291 oz of platinum in May according to Standard Bank. This is the largest net export number for Switzerland in more than two years, indicating a strong demand due, the bank believes, the lower platinum price. The main destination of exports was the UK (140,059 oz), China and HK (140,556 oz) and Germany (52,844 oz).

The majority of exports to the UK appear to be sponge, which signals industrial demand and not ETF related flows. This is confirmed by ETF holdings that were largely unchanged during the month. The bank believes platinum has shifted to the UK for Loco London settlement on the London Bullion Market.

In May, China imported the largest volume of platinum from Switzerland since Feb 2009. China’s imports of platinum have steadily declined since Feb 2009 the bank says as the platinum price recovered, reaching only 16,800oz in Apr 2010. For China to be back in the market now suggests three issues:

• China is price sensitive and has proved to be a buyer when prices drop

• For China to be buying now suggests they see current prices as good value – previously they were buying when platinum was around $1050 per ounce

• Last, China demand supports the bank’s own cost curve model which shows platinum is good value below $1500 per oz

With palladium, the figures are a little different. Although Switzerland was again a net exporter in May at 170,000 oz and again the UK was a large importer at 188,000 oz, China was largely absent in Swiss export figures suggesting demand is relatively weak at current prices. Indeed China has now been a net exporter of palladium to Switzerland since Dec 2009. As with platinum, the majority of palladium exports to the UK appear to be sponge which signals industrial demand and not ETF related flows. Palladium ETF holdings were largely unchanged during the month so, as for platinum, the bank sees the same inventory shift for Loco London settlement in evidence.

In summary, the bank sees the above movements, taken in isolation as supportive of further price strength in platinum but neutral for palladium.

–Stuart Burns

Build a Portfolio with Affordable Coins

By David L. Ganz June 24, 2010

Other News & Articles

• Build a Portfolio with Affordable Coins

• Mint Stats: Whatever the Number, it’s Over

• Coins Disappeared in War Year 1862

The following is an excerpt from David Ganz’s upcoming book, Rare Coin Investing: An Affordable Way to Build Your Portfolio, due in bookstores mid-August. It can be pre-ordered at www.ShopNumisMaster.com.

What attracted me to coin collecting (and ultimately coin investing) some 50 years ago was the ease of entry. No forms to fill out. No disclosure. Just sift through your pocket change and transform money into MONEY – real money. Perhaps my story is typical, but in 1960 I used to check my pocket change for things that were unusual. I found a well-worn, circulated 1906 Indian head cent in my pocket change, probably from a comic book or baseball card purchase. That wasn’t unusual, because D.C. Comics charged 12¢ for a Superman comic, which meant tendering a dime and a nickel, with three cents change.

Thinking that I had been given a worthless foreign coin, I complained to the wise fountain of information, my mother, who took me to the Rockville Centre, N.Y., public library. A red-covered book by R.S. Yeoman set me straight at once: the coin was an Indian head cent, American issue, and was in very good condition (three letters of the word “Liberty” were visible). According to the Guidebook of United States Coins, then in its 14th edition, my pocket change investment was worth somewhere between 15 and 70 cents.4 This wasn’t rocket science; my allowance in those days was 25 cents a week in return for which I made my bed, cleared the dinner table, and dried the dishes. (This is so long ago there wasn’t widespread use of dishwashers, except for the two hands of a child). For an investment of 1/25th of my weekly allowance I was hooked on coin collecting very quickly. Before long I was helping the local newspaper delivery boy go around each week to collect for the paper’s subscription delivery costs. My fee: 25 cents, which I could apply toward buying any coins that I needed for my collection at double face value.

That started a lifetime of collecting, though in those days, I rarely bought anything more than an old, well-worn Shield nickel (cost by this “method,” a whopping 10 cents), but still not a bad deal considering that the Red Book was quoting Shield nickels in good condition at $1.20 to $1.50 for the inexpensive common dates. I picked up some 2-cent pieces (4 cents cost) that way, too: the Guidebook listed inexpensive dates in good condition at 85 cents to $1.30.

What is astonishing is to place this investment (the real start of a coin collection) in a very affordable coin from pocket change and to overlay on the same scale the price of gold, which in 1960 on the nascent “free” market averaged $36.50 per troy ounce, and to carry the returns over a 50-year collecting lifetime. Because the “investment” is so nominal, a convenient and practical way to measure the success is to borrow the price shown in the Guide Book of United States Coins (the Red Book) in seven years selected at random during the period: 1961 (the 14th edition, covering 1960), 1964, 1970, 1979, 1997 and 2010.

The overall gain is from the base cost of 1 cent. I measured it against the price quote in 2007, as well as 2010. Even as gold topped $1,000 per troy ounce in the late fall of 2009, the rare coin from pocket change had a better return when holding both for essentially a half century.

Almost a dozen years ago, I wrote a book called Planning Your Rare Coin Retirement. It built a $10,000 portfolio and a $100,000 portfolio in 1997 and suggested reasons why these portfolios could grow over the long run. The results, in 2010 and beyond, exceeded my expectations and, I am assured, anyone who followed that advice. A more expanded view of the premise and results will be discussed in upcoming chapters.

This is not a book about 1804 silver dollars or 1913 Liberty head nickels. It’s a book of affordable rare coins that you can collect or invest in, or if you agree with Harvey Stack’s theory – and I do – both.

Here are some of the statistics that form the basis of my underlying thoughts on the general topic of this book. It summarizes my experience as a writer for various coin magazines over the last 45 years and the experiences that were polled when I was on the board of (or legislative counsel to) the ANA, as the lawyer to the Professional Numismatists Guild, as a founding board member and counsel to the Industry Council for Tangible Assets, as a member of the Citizens Commemorative Coin Advisory Committee, and as a lawyer in New York City with a significant practice dependent on offering of advice that draws on this.

It’s not the questions or answers from the surveys, but the impressions and trends that are the bulwark of my philosophy of collecting and investing. Each aspect of this counts in taking either a contrarian view, or one which you think will lead the herd.

So here is a summary of key analytical data and points from all the interchange with collecting investors:

• The average collector spends $2,500 annually maintaining and expanding his collection.
• Prior to 1999, most collectors (95%) were men
• Prior to 1999, there were about three million coin collectors in the United States.
• Prior to 1999, there were about 200,000 serious coin collectors in the U.S.
• Prior to 1999, there was a thin market for coin collecting items.
• Prior to 1999, the number of serious investors in rare coins was probably under 200,000.
• Post 1999 and the introduction of the state quarter program, the U.S. Mint says that between 120 million and 150 million people collect coins (most of them collecting state quarters)
• Today there are probably more than 300,000 serious collector-investors.

Population of serious collectors and investors
• Median age of collector: 63
• Average investment position: $380,000
• Average investment position excluding coins: $342,000
• Average value of numismatic collection: $39,100
• Collects popular series such as silver dollars (59%)10
• Collects other silver coins (50%)
• Collects gold coins (25%)
• Collects modern U.S. 1964-date (45%)
• Collects other things: antiques (28%), old books (12%), toys (11%); autographs (5%).
• Social and economic:
• Gender – Male (92%)
• Married (74%)
• Attended college (70%)
• Own my own home (89%)
• Average net worth (about $800,000)
• Average household income exceeds $100,000

Tax laws recognize three types of “collector” investors: those who pursue their hobby regardless of the profit or loss, investors who seek a long-term profit, and dealers. Some collectors become “vest-pocket” dealers; some dealers are also collectors. Some investors become collectors – but every collector is ultimately an investor, the longer that he or she holds on to the coins in their collection.

This book will look at some models of portfolio building as well as past performance as analyzed by Wall Street wizards of another generation – the Salomon Brothers survey that took a model portfolio for a dozen years starting in 1978 and showed how rare coins stood up against other investment entities. The method works so well, and is grandly illustrative, that you can compare how the extended Salomon charts look at the market of yesteryear and that of tomorrow. (I have extended some of the coins back 80 years, and carried all of the coins forward from the last time Salomon did the chart to the 21st century, now a generation later).

You’ll also have the opportunity to look at the model portfolio of $10,000 that I suggested in the original 1998 edition of Planning Your Rare Coin Retirement, and the expanded $100,000 portfolio. This will give the opportunity to see how not only the portfolio as a whole made out, but selected individual coins as well. (There are too many coins to have extended analysis on each, but the typical specimens are included). Ditto on the $100,000 portfolio. At the end, I’ll ask you the question, “How’d we do?” You can’t hide from the printed recommendations. The answers will be black and white and may surprise you.

Please remember that past performance is not a guarantee or even a hint that a new portfolio – or the same one – will yield similar or identical results. Indeed, it could be the opposite. That’s a hint to do your own research and draw your own conclusions.

Coins Disappeared in War Year 1862

By R.W. Julian June 23, 2010

Other News & Articles

• Build a Portfolio with Affordable Coins

• Mint Stats: Whatever the Number, it’s Over

• Coins Disappeared in War Year 1862

This article was originally printed in Numismatic News.
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As the year 1862 opened, matters were not going well for the Union government in Washington, D.C., and its monetary system. At the end of December 1861 the public had suddenly begun to hoard gold coins and the banks were forced to suspend specie payments; the United States Treasury followed suit the same day. This meant, for practical purposes, that the so-called Demand Notes ($5, $10, and $20) issued under the acts of July 17 and Aug. 5, 1861, were now fiat money and could not be exchanged for gold or silver.

However, and most importantly, these bills could still be used to pay customs duties, meaning that importers could use either gold or Demand Notes for this purpose. This had the desired effect of keeping the Demand Notes at close to par with gold coin. Once paid to the customs they were not re-issued, forcing importers to buy gold coin on the open market at ever-increasing premiums.In late December 1861 the Army’s command notified the Treasury that there were serious difficulties in paying the soldiers their monthly stipends, small as they were. An unpaid military is a disaster waiting to happen so the Lincoln Administration asked Congress in January 1862 for authority to print and distribute another $10 million worth of Demand Notes. In due course the legislators agreed and the President signed the enrolled bill on Feb. 12, his birthday.Prior to Dec. 30, 1861, when specie payments were suspended, the face side of the Demand Notes carried a notice to the effect that they could be used for any debt owed the government, which of course included customs fees. This particular face, which was similar on all three Demand Notes of 1861, is called ‘The First Obligation’ by modern collectors. It is presumed, however, that the $10 million worth of Demand Notes printed under the Act of Feb. 12, 1862, used the earlier plates, which were dated Aug. 10, 1861.

According to a later statement by the Treasury, the total value of the Demand Notes issued through the spring of 1862 was just over $60 million. Between July 1862 and June 1863 redemptions totaled $47.7 million and by the fall of 1864 more than 99 percent of the issue had been recorded as destroyed. No more than a few thousand notes of all three denominations escaped official burning and of these many were lost in fires and other disasters of time.

The $10 million of Feb. 12, 1862, proving inadequate, Congress discussed various solutions and over the course of the next few days produced a comprehensive bill incorporating fresh changes to the monetary system. The new legislation was signed into law by the President on Feb. 25, 1862.

Under the newly drafted regulations, the Treasury now had the authority to issue up to $150 million worth of “Legal Tender Notes,” which were similar in appearance (on the face) to the 1861 Demand Notes but minus the right to be used for the all-important customs duties. This was the first time the law recognized that we were now using fiat money, with virtually no backing, just the good faith and credit of the government.

Because there was confusion over the exact status and value of the 1861-dated Demand Notes, on March 17, 1862, the President signed a supplementary act which, in essence, verified that the Demand Notes could be used to pay customs duties even though a fiat currency in the marketplace. Perhaps a rumor had made the rounds indicating that the $10 million of Feb. 12, 1862, could somehow be distinguished from the notes printed in 1861.

Under the legislation of July 17, 1861, the Treasury had the right to call in the Demand Notes and the new law of Feb. 25 stated that, of the $150 million authorized, $50 million was allocated for this express purpose, an oddity since legislation had allowed for $60 million of the Demand Notes to be issued.

On July 11, 1862, the Feb. 25, 1862, act was amended to add another $150 million in Legal Tender Notes for Treasury use. In a significant change, however, the government was now authorized to print notes of less than $5 in value but with a maximum of $35 million in circulation at any one time. It was originally planned to issue $1, $2 and $3 notes but the last-named exists only as unadopted proofs. A further stipulation in the July 11 act was that notes of less than $1 could not be issued. Notes issued under the July 11, 1862, legislation were dated August 1862.

Part of the Feb. 25 law was taken up with combating the growing threat of counterfeiting. As early as the fall of 1861 it has been reported that counterfeits of Demand Notes had already appeared and such activities were a threat to the stability of the Union currency. The United States government secretly encouraged the counterfeiting of Confederate notes and it is possible that rebel sympathizers were busy with U.S. currency to balance the scales.

The notes dated Aug. 10, 1861, issued under the Acts of July 17 and Aug. 5, were all printed by the American Bank Note Company, judging from those seen to date. On the other hand the new Legal Tender bills of 1862, produced under the Feb. 25 act, were printed by both the American Bank Note Company and the National Bank Note Company.

With the implementation of the Feb. 25 law, the Union government once more seemed to have the monetary system under control. Silver coins still circulated and these were supplemented by the Legal Tender Notes. The old “7.3 – 20s” Interest Bearing Notes of 1861 did see occasional use in the marketplace or in payment of debts, but otherwise were rarely seen by the general public. In addition even the smallest of these notes at $50 was a considerable sum of money.

(The “7.3 – 20s” earned their name from the fact that each note earned 7.3 percent interest, payable every six months, and could be exchanged for 20-year government bonds.)

The continuing litany of Union military defeats, with few victories, meant that the Northern population grew increasingly nervous about the war. These fresh concerns came to a head at the end of June 1862 when the public suddenly began hoarding silver coins. For some odd reason the trime (three-cent silver) remained in daily use for a few more weeks and then it also disappeared.

After the silver coins left the marketplace, the work of the two operating mints, Philadelphia and San Francisco, sharply diverged. At the California Mint matters proceeded as before with enough silver coinage being made to satisfy local demands while gold minting remained strong due to deposits by area mines and miners.

Philadelphia was in quite another league. The coinage of silver showed a precipitous drop as few people wished to pay gold, which was required, to obtain minor silver coins that did not circulate anyway. Gold, mostly double eagles, continued to be struck, though in diminished quantities. Many of the $20 pieces were exported to Europe to pay for military supplies ordered by the Union government.

Proof coins were another matter entirely. Prior to 1862 the collector could purchase entire sets or just individual pieces, a rather handy arrangement if one collected, say, $3 gold pieces or half dollars. For reasons that are not entirely clear, Mint Director James Pollock at the beginning of 1862 changed the rules by requiring that complete silver or gold sets be purchased; even the lowly cent had to be obtained in the silver set, which cost $3 but which had a face value of $1.91. The buyer had to pay in silver or gold, whichever was appropriate in the circumstances. It is not clear if Demand Notes were accepted for the proof sets but one suspects that they were.

It is worth noting that the Treasury had made a strong effort to keep silver coins in daily use. Dimes and half dimes in particular were coined heavily during the first six months of 1862 but in retrospect they were being poured into a seemingly bottomless pit. The hoarding of silver coins no doubt had actually started in December 1861, when specie payments had been suspended, and then had slowly gathered momentum until the sudden exceptional demand came in late June 1862.

In July 1862 it was assumed by Treasury officials that this sudden hoarding was only temporary and the coins would again be used in the marketplace once the war began to show better results for the Union. However, much of the silver coin had not been retained by the public but rather sold to bullion dealers, who promptly shipped large quantities to other countries, especially Canada and Central America. The coins went into local circulation in these countries although many of them also went into private hoards where the political makeup of the country was unstable.

The removal of silver coins meant fresh problems for the Treasury. Except for the lowly copper-nickel cent there were no coins in circulation in the United States east of the Rocky Mountains; west of those same mountains the San Francisco Mint held sway in an area where paper money was banned by popular demand. From 1861 to 1865 California and surrounding areas were well supplied with gold and silver coins.

The complete removal of silver coins from the marketplace caught Treasury officials, and Secretary Salmon P. Chase especially, completely off guard. As with the similar crisis of the early 1960s, there was little in the way of contingency plans to deal with a very serious monetary problem. The war then raging on many fronts occupied everyone’s mind but the Treasury had an obligation for contingency planning and in this case there was little or none.

With a sudden need for small change, the Treasury abruptly decided to use postage stamps in lieu of the silver coins so recently hoarded. On July 14, 1862, Secretary Chase asked Congress to consider two different plans in dealing with the crisis, neither of which addressed the problem all that well.

The first suggestion dealt with reducing the amount of pure metal in the minor silver coinage. While on the surface this seemed reasonable, in practical terms it was not. The coins had been hoarded in part because the value of the paper money, now universally called “Greenbacks” from the color of the ink used on the reverse, had fallen in value compared to gold and silver. No one knew how far the paper money would fall so a reduction in weight for the minor silver coins might have to be repeated. It would have caused considerable confusion.

The other suggestion was almost as bad. Chase thought that postage stamps could be used a small change. In his book Fractional Money, Neil Carothers calls the plan “grotesque,” which is as good a description as any. Carothers went on to note that, “It is at first glance difficult to believe that a responsible finance minister would propose the circulation of tiny squares of glue-coated paper as a national currency.”

Actually the idea had already occurred to many people during the first week of July and there were several methods tried by the public, including pasting stamps to sheets of paper. In most cases, however, the stamps were simply passed hand to hand until they literally fell apart or became stuck to one another and no longer usable.

In a related development, on July 16 Congress had passed a law that stipulated relatively harsh penalties for the reuse of canceled stamps. Apparently, due to the need for stamps as small change, unscrupulous individuals were soaking stamps off envelopes and removing the cancellation marks whenever possible. Congress thought that a prison sentence up to three years or a fine up to $1,000, depending upon the severity of the offense, was a reasonable response.

Because there seemed to be nothing else to do, Congress quickly accepted the postage stamp suggestion and passed a poorly written bill on to the President, who signed it into law on July 17, 1862. Once the law became widely known, there was a sudden demand for postage stamps by the public. Normal daily sales of stamps at the post offices in New York City, for example, were around $3,000 but immediately after the law was passed the amounts skyrocketed; the total for the 18th and 19th of July, for example, was $26,000.

Part of the problem with the new law was that Postmaster General Montgomery Blair had been virtually ignored when the bill was being drawn up and passed. He retaliated for this slight by ordering local post offices to restrict sales to regular customers only and in normal amounts.

One of the more ingenious temporary solutions to the problem of stamps falling apart in use was patented by John Gault. He developed a small round frame with a mica window to protect the stamp. Merchants then put advertising on the back (metal) side and the “encased postage stamps” circulated among the public. It worked, and Gault had several competitors, but the idea was relatively expensive and only a short-term fix. These appear to have been issued through the late fall of 1862 and perhaps even into 1863.

It did not take all that long to realize that the idea of stamps being used as small change simply would not work. One section of the law said that the Treasury would redeem stamps no longer fit for use and this provision proved a nightmare for everyone involved. At first the Post Office refused to carry out the law but under public pressure had to do so in limited circumstances. In reality the Treasury was supposed to redeem the worn-out stamps but it had no means of doing so despite what the law required.

The Treasury then hit upon the idea of printing stamps in a different form. For example a 25-cent stamp would be much larger than normal and the design motif would be five stamps of five cents each. It was an innovative solution except for one thing: the law did not authorize any such innovation, a point which seems to have been lost in the scramble to provide currency for the public. Secretary Chase should have gone back to Congress for an emergency bill to cover this plan but did not.

The new idea amounted to issuing greenbacks in fractional amounts of a dollar, a clear violation of the law. The latest authorization (July 11, 1862) for paper currency had specifically banned notes of less than $1. Despite this inconvenient fact, Chase ordered that every effort be made to print these “postage notes” as quickly as possible. To speed up the process, there would be no signatures and no serial numbers, an open invitation to mass counterfeiting but perhaps unavoidable under the circumstances.

In order to provide a semblance of adhering to the law of July 17 as well as speed up the whole process, the Secretary ordered the printing contractor, American Bank Note Company of New York, to use depictions of actual stamps in preparing the plates. The 25-cent note, as indicated above, showed five overlapping five-cent stamps. The 10-cent issue, on the other hand, had only the single 10-cent stamp. Denominations ranged from five to 50 cents for this first emission of fractional paper money.

On Aug. 21 the initial disbursement of Postage Currency was made, for use by troops in the field. Printing was slow at first but by early in September 1862 public distribution had begun; by Oct. 1 the rather inadequate sum of $800,000 worth had been printed but this gathered momentum as the weeks passed. By the first week of January 1863 more than $100,000 per day was being issued.

The first notes carried the stamp affiliation almost to the extreme. The printed sheets of Postage Currency were perforated just like sheets of stamps and tore off just the same, except that the new issues were much larger than ordinary stamps. It was not long before there were complaints about the difficulty of tearing a note off cleanly so the Treasury changed the format by dropping the perforations and using a straight edge as on regular paper currency.

One of the stipulations of the July 17, 1862, act creating stamp money was that no private person or business was permitted to issue fractional notes of any kind. The law was widely ignored, however, despite a possible jail sentence of up to six months. There was too much public demand for currency of any kind, so federal officials just looked the other way.

As if the problems with the silver coinage and stamp money were not enough, during the summer of 1862 the public began to hoard even the lowly copper-nickel cents. Considering that the intrinsic value of these pieces, even with the relatively expensive nickel contained, was less than a half cent, this hoarding was baffling to contemporaries.

Some idea of the lack of urgency in the coinage of late 1861 and early 1862 may be judged from the following figures for cents on hand for distribution by the Philadelphia Mint at a given point in time. 1861 – Aug. 31: 420,505; Oct. 31: 92,290; 1862 – Jan. 31: 737,935; April 30: 940,379; Aug. 31st: 368 pieces. The reserves had collapsed.

In May and June 1862 the cent coinage was sharply increased to meet the expanded demand, but it was too little and too late. As late as July 3, 1862, the Mint presses were still keeping up with the demand, if only on a daily basis with no reserves. An order from a bank received on that day prompted a Mint reply to the effect that the coins would be shipped in “a day or two.”

Within a few days of the above there had been a drastic change in the situation. An order received on July 20 for $50 worth of cents (5,000 pieces, a common order for the times) was not shipped from the Mint until Sept. 12, nearly eight weeks later. Although not realized at the time, the abrupt change of July 1862 and increased hoarding was to signal the death knell for the copper-nickel cent. From this point until June 1864 the Mint was unable to fulfill cent orders on a timely basis.

The cent coinage of the last six months of 1862 was about triple that of the first half. From 7 million the total climbed to about 21 million pieces, nearly one million pieces per week. Mint Director James Pollock was sparing no resources to fill the orders but it was a losing effort.

By the latter months of 1862, Pollock was sufficiently alarmed about the state of the coinage in circulation – there was precious little of that except for the lowly cent coins – to write Treasury Secretary Salmon P. Chase on Dec. 1. Pollock was concerned about the future of the cent coinage as there were increasing difficulties in obtaining sufficient supplies of nickel; there was no problem with the copper, however.

During the fall of 1862 the first private cent tokens began to appear as merchants needed something by which to make change for the fractional notes tendered for purchases. At first these tokens carried purely patriotic themes on both sides but as the need for such pieces intensified merchants placed their advertising on one side. By the end of 1862 these Civil War Tokens, as they are known to modern-day collectors, were becoming a staple in the marketplace.

In 1862 the monetary system of the United States underwent profound change. Even more changes would come in 1863 as marketplace pressures continued to increase.

	Why Silver is a sizzling investment
	By Jeff Clark Silver has been sizzling and causing lots of buzz in the industry. Investors are excited.Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low.This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record. Take a look at the jump in U.S. Mint coin sales since 2007. Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006. There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own? We have all the answers straight ahead, including lots of actionable info, so let’s jump right in… Why Should I Buy Silver? There are several reasons to own silver in addition to gold. First, it’s cheaper! Known as the poor man’s gold, those with limited budgets will find it easier to purchase. You might hesitate plunking down $1,200 for an ounce of gold, but you can pick up 32 ounces of silver for half that amount. Second, silver has wide industrial use and this component can help or hinder its price. As its consumption increases across a growing number of industries, this should help place a floor under demand. And because of its unique properties, new uses continue to be discovered. Third, silver is money and has served this role more than any other material on earth, save gold. Due to its historical role, silver will always have monetary value and offer similar protection as gold to the ongoing global currency devaluations, and will definitely benefit from the inflation hurricane we see as inevitable. Silver is more practical as a currency used for everyday purchases. When the time comes, you can sell the requisite number of silver coins to cover a specific need, as opposed to being forced to liquidate a high-dollar-value gold holding. Silver is perfect when smaller amounts of cash are required. Fourth and last, silver could possibly outperform gold before this bull market is over. The market capitalization of silver (and silver stocks) is much smaller, making its price more susceptible to demand spikes than gold. In the latter part of the 1970s precious metals bull market, gold gained over 700% – but silver soared over 1,400%. If you’ve got a bit of Gordon Gekko in you, we recommend investing a portion of your dollars in silver. Caution – Hot! Like all things, silver has its drawbacks, two in particular. First, the price is volatile. Over the past 12 months, silver has seen gains of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period of months or even weeks. If you’re going to own silver, you must be prepared for big price gyrations. The best way to do that: buy it and forget about it. And… ►Make price volatility your friend. Big price swings present the opportunity to snag silver at a big discount. We give some guidance on prices below. Second is the storage issue. As your pile grows, the advantage to storing gold will become self-evident. At $1,200 gold and $18.50 silver, $10,000 will get you eight gold eagles that will fit nicely in the credit card slots of your wallet; however, it will buy 540 silver eagles, weigh nearly 34 pounds, and fill a small bank safe deposit box. ►How to store physical silver. There are several ways to solve the storage dilemma, even if you plan to buy like the Hunt brothers. Spread your holdings around. Not only is it wise to avoid keeping all your physical silver in one place, diversifying your storage arrangements allows you to buy more. Hide some at home in several locations (no cookie jars, though), and obviously tell only one trusted person. Store some in a bank safe deposit box and use more than one bank as your holdings grow. Buy bars. Silver bars take up less space than a pile of coins of the same weight. We wouldn’t start out with nor have all our holdings in bars, because you want the advantage coins offer. But the larger your holdings, the easier it will be to store some of it in bar form. Use pool accounts and unallocated storage. With a pool or unallocated account, you’re essentially getting free storage no matter how big your stash. That’s hard to beat. You’ll pay fabrication and delivery charges if/when you convert your holdings and take delivery, but in the meantime, you save on storage costs. Great value for the large holder. Private storage. Store your silver with a private vaulting company. The advantage is that it’s outside the banking system; the disadvantage is that it’s usually expensive, though it can be cost effective for large holdings. Do your own due diligence if you go this route because we can’t vouch for any facility, but you could start by checking out delawaredepository.com. Keep in mind that using a vaulting facility beyond a reasonable driving distance will mean added shipping/insurance costs and restrict quick access. Is Now a Good Time to Buy? With the gains we’ve seen in silver, would we buy right now? Let’s first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980. .Since our current bull market in precious metals began in 2001, the ratio, while fluctuating wildly, has never gone below 45. And yet look where it went during the precious metals peak in 1980: it bottomed at 17. Even though gold was soaring at the time, silver outran it. The ratio might show relative strength between gold and silver, but it’s not a good buying indicator. A falling ratio could mean silver is rising faster than gold, like it is currently, or it could mean silver is falling slower. As a result, we’d use the ratio to determine silver’s upside potential but not necessarily when to place an order. These big-picture signals tell us silver is undervalued and, at the moment, a better bargain than gold. And given the currency crisis we’re convinced is in the cards, we wouldn’t want to be caught without any. If you have a long-term mindset, silver is a buy today. Would we wait for a better price? If you do not own any, and plan on holding what you buy until a mania develops, then we wouldn’t wait. The risk of buying silver at current prices is lower than owning none at all. If you do own some but want to add to your holdings, we’d probably wait for a drop in price, in part because silver could more easily fall when the economy is found to be more fragile than what many believe. And with industrial uses comprising approximately half of silver’s demand, it would be more susceptible to sell-offs than gold if our research is correct about global economies. Further, summer usually brings pullbacks in prices, and this can be especially true for silver stocks. This is the tendency, though we can’t be sure if this summer will follow past trends. Still, our best guess is to anticipate another leg down this year. If you already own silver, we’d look for a correction to add to your holdings. In our opinion, owning no silver in this bull market would be a mistake. And your first (and biggest) investment in silver should be in a physical form. How much physical silver should you have? There’s no right answer and one size will not fit all. But we do recommend holding more gold than silver. Our suggestion for your precious metal holdings is roughly 80% gold and 20% silver. Like gold, silver comes in different forms. We’d start with the more popular one-ounce coins and then branch out into other types as your holdings grow. Jeff Clark Senior is a Editor with Casey’s Gold & Resource Report Courtesy: www.caseyresearch.com

 

VANCOUVER, BRITISH COLUMBIA (Commodity Online): Majority of the investors who took part in the 2010 Resource Investor Survey felt that gold prices will reach $1500 by end of 2010, according to Dig Media Inc.

Dig Media recently conducted its Resources Investing News 2010 Survey to gauge the interests of its readers and gain insight into investors’ perception of the markets.

The survey results showed that nearly 69 percent of respondents said they believe the price of gold will reach $1500 before the end of 2010. This bullish sentiment is most likely supported by the increasing flight-to-safety climate currently taking shape in Europe and North America as investors contemplate the likelihood of a slow economic recovery and the possibility of a double-dip recession.

Our audience is very focused on the resource investing market and as such has some interesting insights into the current state of the market,” said Nick Smith, Publisher at Dig Media. “Our reporters have taken these results and are digging into the background to provide readers with some interesting insights on the market overall and specifically in gold, uranium, copper and oil and gas.”

It’s not surprising that such a high percentage of respondents would answer yes when many analysts this past month have been calling for $1500 gold this year or next, including commodities analysts at Citibank, Macquarie Securities, UBS AG and Fairfax IS plc, Dig Media said.

Quoting Wayne Atweel, Managing Director at Casimir Capital and former Morgan Stanley Managing Director, the Gold Investing News brought out by Dig Media said that the longer term outlook for gold prices is rather bullish with the precious metal at $1500 to $2000 an ounce within the next one to three years, his short-term outlook goes against the grain, pegging gold as trading in a band between $1100 and $1300 an ounce through the end of the year.

Thinking of Selling Your Gold Jewelry? Watch Out for Gold Buying Tricks and Scams

By Patrick A. Heller on June 16th, 2010
Categories: Featured Articles, Gold and Silver Commentary, Precious Metals

Recent Volatility in Metals Nothing to FearBy: Dr. Jeffrey Lewis

– Posted 16 June, 2010 | Share this article| Discuss This Article – Comments: 1 Source: SilverSeek.comRecently, the metals markets have become far more volatile, often rising and falling upwards of three to four percentage points in just one day.  That volatility, however, is nothing you should fear.  In fact, it’s mostly due to the extreme attention being paid to the metals markets. Silver More Important than Ever Momentarily leaving aside what we know from the work of GATA and Ted Butler – namely that both gold and silver price discovery is predominately controlled by a few dominant (bullion bank) sellers – perhaps the most volatile in the metals markets is silver. Despite owing much of its demand to industrial uses and photographic development, is still a prime target for anti-inflation investors.  As gold treads toward new heights and pushes the 70:1 ratio with gold’s price, investors are looking to trade in their gold holdings for silver, realizing it has yet to reach its maximum price.  Of course, this is easily reflected in daily volume and price changes, with silver rising and falling at different times and degrees than that of gold.  However, even more recently as gold as pushed upward, silver has followed, and in many times, silver has risen on days when gold has taken a sharp dip. Embrace Volatility with Purchases Even as silver heads to new highs, there is still no sign that investors should even contemplate an exit.  With silver at a 70:1 ratio with gold, one should expect at least a slight pullback in gold or an advance in silver prices, though gold appears to be stagnating temporarily while silver plays catch up.  The catch up advance in silver prices will take some time, and it will ultimately come in the form of ten steps up, eight back, ten steps up, eight back.  This extreme volatility may be shunned upon by investors, most of whom are looking for a store of value, but what it actually does is allow for even more entry points as silver bottoms out on the silver to gold ratio.  Few times has silver touched the 70:1 value against gold, and every time it did, the price of silver rose significantly while gold stagnated.  If you believe history is an excellent indicator, and it should be, then there is no excuse not to be loading up on silver at today’s relatively low prices to gold. Start Shopping at $17 Physical silver’s sister security is the exchange-traded fund SLV, which may not have all the same benefits of physical silver, but does give an accurate representation of what silver investors are doing in the other physical and futures markets.  At $17 on the exchange-traded fund, investors are buying hand over fist, whereas less than three months ago they were selling at that price.  Knowing this, we can establish that the short term floor on silver is at $17 on SLV, which works out to about $17.25 on the spot metals markets or roughly $18 in the physical markets.    The Perfect Storm With gold on a tear through $1250 and silver breaching the bottom of the historical silver to gold ratio, there has never been a better time to buy.   Silver’s volatility should smooth as the metal closes the gap with gold with higher prices.  Dr. Jeffrey Lewis www.silver-coin-investor.com – Posted 16 June, 2010 | Share this article| Discuss This Article – Comments: 1

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