by Louis Golino for CoinWeek

Recent news accounts have revealed some interesting information about the precious metals investment perspectives of three of the world’s richest men.

Two of them, George Soros and John Paulson, are very bullish on gold, and have put their money where their mouths are, while a third billionaire, Warren Buffet, remains as skeptical as ever about gold.

George Soros

Hungarian-born investor, philanthropist, and hedge fund manager, George Soros, is probably most famous for having bet against the British pound in 1992. His actions allegedly netted him about $1 billion in one trading day.

Mr. Soros’ views on the wisdom of investing in precious metals have evolved since last year when he was skeptical about gold’s future.

Last year we read that he had reduced his holdings of gold and argued that it is a bubble. But this year he believes that global economic and financial uncertainty will keep prices high. He recently increased his investments in the SPDR gold-backed ETF, or exchange-traded fund.

Mr. Soros told CNN on February 12 that the European financial crisis has the potential to be far worse than the collapse of Lehman Brothers, and that it could precipitate a global financial meltdown, if not handled right.

The European Union used to be an idea that inspired him and many others, but he now has serious concerns about its future, especially because European authorities still don’t have the tools needed to resolve the crisis.

In an interview in the German magazine, Der Spiegel, he said that German Chancellor Angela Merkel is leading Europe in the wrong direction by focusing too much on austerity and not enough on growth. He also pointed out that Germany was one of the first countries in the euro zone to break the very rules that have gotten Greece in so much trouble.

John Paulson

John Paulson is a billionaire hedge fund manager, who is probably most known for having bet big against the U.S. housing market. He is said to have made billions by doing that, and he has since invested a lot of money in bullion, metal company stocks, and other investments.

Last year his hedge fund performed very poorly because of investments in areas other than metals, and it was reported that he lost a lot of money. But he remained bullish on gold.

Mr. Paulson told French newspapers last year that he believed gold’s price would continue to rise as long as the Federal Reserve continued printing dollars. At the time, though, he said he did not expect another round of QE.

Last year many articles appeared that contrasted the bullish gold position of Mr. Paulson with Mr. Soros’ decision to start selling his gold, but this year they seem to be on the same wavelength.

According to recent news accounts, Mr. Paulson has reduced his stake in the SPDR gold ETF, which is backed by gold bullion. The SPDR owns as much gold as many large countries, although some analysts of a more conspiratorial bent question whether the fund has all the gold it says it does.

Mr. Paulson is still the largest single investor in this fund, and he remains very bullion on gold. He has reduced his stake in the fund several quarters in a row, but mainly to cover losses in other areas of his fund.

He recently told his hedge fund investors that gold’s price will be driven by inflation. He also said that he believes Greece may default on its debts in late March, and that the euro currency will fail because of the Greek default and structural flaws.

Warren Buffet

Warren Buffet, often called the world’s most successful stock investor, and head of Berkshire Hathaway investment company, is known best for buying and selling companies, and for being very bullish on America’s economic future.

He is also a well established gold critic.

Years ago he invested billions in silver when it was inexpensive, and he later sold his silver for a hefty profit, although he would have made a lot more if he had sold it years later.

Given Mr. Buffet’s more mainstream economic views, it does not come as a large surprise that he is not bullish on gold.

Mr. Buffett famously said “Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

More recently Mr. Buffett compared a cube with all of the gold in the world (170,000 tons with a current value of about $9.6 trillion) with purchasing all the crop land in the U.S. and 16 Exxon-Mobils (with $1 trillion left over) in another attempt to dismiss gold as useless.

But gold analysts quickly point out that gold should not be compared to crop land or oil companies. It is actually a medium or means of exchange, a currency really, so the apt comparison would be to the dollar.

As a result of such comments from Mr. Buffett, gold investors tend to view his statments against gold as bullish signs, and as another confirmation of how anti-gold the mainstream U..S. financial establishment remains.

Lessons from the billionaires

What can the average investor learn from the experience of these three men?

First, the fact that Soros and Paulson are both bullish at the same time on gold is significant.

It is, of course, possible that they and others who are bullish on metals will be proven wrong, especially if serious inflation does not materialize in the coming years.

The Fed is divided on the issue of doing more quantitative monetary easing, or QE, through asset purchases and/or extension of bond maturities and other measures. According to the minutes released on February 15, only a few of the members of the Federal Open Market Committee argued in favor of more QE.

But all that could easily change if economic conditions deteriorate. Moreover, unlike the previous rounds of QE, the next steps are not likely to be labeled and announced as QE. They are expected to be done more quietly and subtly.

The U.S. economy has been showing signs of improvement, as have consumer confidence levels.

But these are fast-moving targets. The economy remains sluggish despite the improvement in recent months, and the U.S. is still vulnerable to the situation in Europe. U.S. banks have substantial investments in Europe, and at a minimum a collapse of Greece and a major recession in Europe, not to mention a possible Euro-wide debt crisis, could put the U.S. back in recession or worse.

Mr. Buffett’s growing skepticism about gold also does seem like a bullish sign, in a contrarian way. It is also probably further evidence that the Oracle of Omaha just does not understand the yellow metal.

Finally, the fact that Mr. Soros and Mr. Paulson share many views on the gravity of the European crisis is also significant, and I suspect that has a lot to do with their converging views on gold.

Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites

from Ben Traynor
BullionVault
Monday 27 February 2012, 08:30 EST

Precious Metals “Under Pressure” as Investors and Traders “Take Breather” and G20 “Adds to Risk Anxiety” by Putting Onus on Germany to Solve Crisis

U.S. DOLLAR prices for buying gold dropped to $1764 an ounce Monday morning London time – a 0.5% fall from Friday’s close – while stocks, commodities and the Euro all lost ground.

Germany’s DAX index was down 1.1% by lunchtime, after G20 finance ministers over the weekend said Germany must do more towards solving the Eurozone crisis.

Prices for buying silver meantime dropped to $35.07 per ounce – a 1.1% fall on last week’s close.

“Precious metals are a bit under pressure this morning,” one Hong Kong bullion dealer noted, adding though that “there seems to be some decent size interest in silver”.

Prices for buying gold “are taking a breather,” agrees Barclays Capital, “after rallying to levels last seen over three months ago.”

“There is nothing to say that gold should directionally pull back,” says David Wilson, metals research and strategy director at Citigroup.

“But if it got to a lot of investors’ targets, whether that was around the $1780 an ounce level we saw last week, they will take some money and wait for it to pull back before re-entering.”

“Gold…is likely to bounce between $1760 and $1780,” reckons Nick Trevethan, senior commodity strategist at ANZ bank in Singapore.

“The G20 added to the risk anxiety…but the eventual breakout will be towards the upside.”

Eurozone leaders must do more to boost the single currency bloc’s “firewall” against debt crisis contagion before asking for more International Monetary Fund assistance, according to several non- Eurozone finance ministers who met in Mexico over the weekend for a G20 meeting.

“We have to see the color of the Eurozone’s money first,” said UK chancellor George Osborne.

“There is broad agreement,” added US Treasury secretary Timothy Geithner, “that the IMF cannot substitute for the absence of a stronger European firewall and the IMF cannot move forward without more clarity on Europe’s own plans.”

The Eurozone “doesn’t really need any outside money,” reckons Jim O’Neill, chairman of Goldman Sachs Asset Management.

“It needs [its] own policy makers, especially Germany, to show leadership.”

Germany has repeatedly expressed its opposition to increasing the size of the €500 billion European Stability Mechanism which is due to become operational in July.

“We see no need to increase the upper limit of the ESM,” an official close to chancellor Angela Merkel’s government told newswire Reuters.

European leaders are expected to discuss the ESM at a summit this Thursday, while G20 leaders will reconvene in April to continue working towards a $2 trillion crisis-fighting package.

Germany’s parliament is due to vote today on last week’s Greek bailout agreement, with German finance minister Wolfgang Schaeuble noting last week that “it is possibly not the last time that the Bundestag will have to consider financial assistance for Greece”.

“Don’t go any further along this crazy path,” urged German tabloid Bild on Monday, adding that that “[the] billions for Greece [should] stop”.

At least 12 members of Merkel’s coalition government are planning to rebel and vote against last week’s deal, Reuters reports. If 20 or more were to rebel, Merkel would need to rely on opposition support to ratify the €130 billion second bailout deal.

Many European banks who borrowed from the European Central Bank at December’s 3-Year longer term refinancing operation are using the money to refinance maturing debt rather than fund new loans to businesses, news agency Bloomberg reports.

“This will ease credit flows but won’t stop the great deleveraging,” says Huw van Steenis, head of EMEA banks and financials research at Morgan Stanley.

Banks borrowed €489 billion from the ECB at December’s LTRO, which also saw the ECB relax its restrictions on the collateral banks can post against their borrowing. A second LTRO scheduled to begin tomorrow is expected to see a similar level of borrowing.

“Providing money so cheaply, for so long, against what is now effectively any collateral whatever, leaves the ECB in a position no central bank would choose to be in,” says a note from London- based analysts at UBS.

“It cannot control the credit risk coming onto its books…worse, the success of its interventions risks encouraging politicians to avoid making necessary but difficult decisions.”

“This buys time for banks,” adds Stewart Robertson, London-based chief European economist at Aviva Investors, “but does it really provide them with an incentive to sort out their books? The worry is it doesn’t.”

Sweden’s central bank on Monday denied buying gold in January, after IMF data suggested it added 18.3 tonnes to its reserves. A spokeswoman for the Riksbanks said its reserves remained unchanged at 125.7 tonnes.

Over in New York, meantime the difference between bullish and bearish contracts for buying gold held by Comex futures and options traders – the so-called speculative net long – rose by nearly 10% over the week ended last Tuesday to hit its highest level since mid-November, latest data from the Commodity Futures Trading Commission show.

“Large spec futures accounted for the lion’s share of the rise…with much of the rise coming on the 21st, as the US returned from holiday and sentiment turned bullish,” said a note out Sunday from precious metals consultancy VM Group

The volume of gold bullion held to back shares in the world’s largest gold ETF, the SPDR Gold

Trust (ticker: GLD), edge up 0.2% to 1284.6 tonnes over the course of last week to Friday.

Over the same period the world’s largest Silver ETF, the iShares Silver Trust (SLV), saw its silver bullion holdings rise 1.2% to 9692.96 tonnes.

Ben Traynor
BullionVault

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest- running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Patrick A. Heller – Liberty Coin Service
Commentary on Precious Metals Prepared for CoinWeek.com

As I discussed in my last column, the US government’s suppression of gold prices in years past was done as secretly as possible. The manipulation of the price was more effective if the public could be tricked into thinking that falling prices were a free market phenomenon.

Almost certainly the most commonly used tactic was the leasing or selling central bank gold reserves without disclosing the source of the new supplies of physical gold. The central banks would continue to report the gold as still being in their vaults. In fact, for many years the International Monetary Fund (IMF) required that central banks report all gold they had out on lease as being in their vaults. At the same time, the IMF also required central banks that had in their vaults gold they had leased from another party to count this gold as part of their reported reserves. In this manner, gold reserves were often double reported.

Even the most conservative analysts (such as Jessica Cross) estimate that a minimum of 15% of central bank reported gold reserves are out on lease and no longer in the vaults. Other knowledgeable analysts (such as Frank Veneroso and James Turk) believe that somewhere between 25% to 50% of reported gold reserves are already gone from the central bank vaults.

A few years ago, when Russian leader Vladimir Putin investigated gold reserves in his own country, he learned that the central bank possessed only 124 tons out of the 500 tons of gold reserves that Russia reported to the IMF as being in the vaults.

With central bank supplies of physical gold reserves diminishing, it has become more difficult to regularly suppress gold prices through surreptitious sales and leases. In recent years, other tactics used to hold down the price of gold have been a bit more obvious.

Most of the gold price suppression occurs between the London AM and PM fixes. January’s results are a perfect example of this strategy. The last London fix in January was $169.50 higher than the last London fix in December. However, the net change in the price of gold between the AM and PM fixes each day was only fifty cents in January. Between the PM fixes and the following trading day’s the price of gold rose $169.00 for the month. This consistent pattern has been documented for the last twelve years by researcher Adrian Douglas. The statistical odds of this pattern occurring for this length of time by random chance are more remote than that the sun will not rise tomorrow.

A second fresh example occurred last week with respect to the release of the US Nonfarm Payroll report Friday morning. This jobs and unemployment report is a major indicator to the public of the strength of the US economy. If the news is poor, that would be a sign to investors that holding US dollars or US Treasury debt is riskier. Therefore, investors might be inclined to dump dollars and demand a higher interest rate for Treasury debt. So, the feds have a strong incentive to publish the best possible Nonfarm Payroll reports.

Almost every month for the past five years, gold and silver prices have been clobbered just before this report was released. Last week was no different. Last Thursday, the day before the release of the report, six- and twelve- month gold lease rates turned negative (one-, two- and three-month lease rates were already negative). Yes, that means that not only could gold be borrowed at zero cost, but the lessor would actually pay the borrower for leasing the gold! This tactic creates the image that there is much more physical gold available on the market than there really is. So, when the investing public perceives an excess of gold supplies, prices decline.

The jobs and unemployment report released last week appeared to report good news. Supposedly there were 243,000 net new jobs created in the month, plus another 60,000 added to the prior November and December statements plus the unemployment rate declined from 8.5% to 8.3%. However, these figures are all distorted by what is labeled “seasonally adjusted” and by hiding actual changes in the number of employed and unemployed people.

If you dig deeper in the reports, though, the news isn’t good at all. In the raw data that was not seasonally adjusted, there were almost 2.7 million fewer job holders in January 2012 than were reported for December 2011. The decline in the reported unemployment rate happened only because more than 1.l million people that were counted as unemployed in December and who did not get hired in January were completely removed from the count of the labor force for last week’s report.

There are many problems with the US government reporting other deceptive financial and economic statistics. The result of this disinformation is that the general public will make decisions that will adversely affect their personal finances compared to the choices they would make if they received honest data. The suppression of gold’s price by any means gives the US government more time to steal the wealth of its citizenry through inflation of the money supply.

For your own sake, do not blindly accept all the supposed good news coming from the US government. And make sure you establish your gold and silver positions sooner rather than later.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a 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 Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

By Patrick A. Heller – Liberty Coin Service
Commentary on Precious Metals Prepared for CoinWeek.com

Over the past ten years, the Feds have admitted to almost every kind of market rigging including stock prices and interest rates on Treasury debt. It has also openly subsidized and bailed out banks, Fannie Mae and Freddie Mac, the housing industry, and automotive companies.

The government has openly manipulated commodity market prices such as oil (by using part of the Strategic Petroleum Reserve). By postponing the Keystone oil pipeline, the president has thrown a huge financial benefit to Warren Buffett, his richest political supporter. Oil that would have been carried by the pipeline will now have to be carried mostly by railroad cars of companies owned by Buffett’s Berkshire Hathaway.

Even though the federal government will admit that it has intervened and manipulated in almost every market niche, officials are still trying to claim that it has kept hands off of the gold market.

In 2007, the Gold Anti-Trust Action Committee, Inc. (GATA) sued the US Treasury and the Federal Reserve under the Freedom of Information Act seeking information on the US governments gold swap arrangements and activities going back to about 1990. These efforts were unsuccessful. Shortly after Barack Obama became US president, GATA renewed the effort. Then Federal Reserve Board Governor Kevin M. Warsh rejected GATA’s request under exemptions from disclosure that were almost an open admission that such arrangements and activities had occurred. Upon judicial appeal, the Federal Reserve was ordered to release one document in February 2011, which disclosed the existence of a secret 1997 G-10 meeting at which US officials discussed gold swap arrangements.

Paul Volcker served as the US Treasury Undersecretary for International Monetary Affairs from 1969 to 1974 and as chairman of the Federal Reserve from 1979 to 1987. He is currently an economic advisor to President Obama. In his published memoirs, Volker discussed the 1973 revaluation of the US dollar, expressing his opinion that it was a mistake the US government had not intervened at the time to prevent a steep rise in the price of gold.

Recently, Lars Schall, a German freelance journalist, became curious why Volcker had never been questioned about this particular statement contained in his memoirs. Through persistent efforts, Schall was able to send his questions to Volker. On January 26, Schall received Volcker’s reply, which was sent by Volcker’s wife in her capacity as his professional assistant.

The second paragraph of Volcker’s letter states, “The U.S. has not, to the best of my knowledge, intervened in the gold market for more than 40 years.”

Upon seeing the information in Volcker’s letter, writer Rob Kirby quickly discovered that the statement was a lie. Official United Nations documents posted on the UN website name Volcker as the “fiscal agent” for the U.S. Treasury in matters related to gold swaps with the Bank of England executed in 1981, during the time when Volcker was chair of the Federal Reserve.

Kirby published his column on with this information on January 31 at http://news.goldseek.com/GoldSeek/1328037291.php. Apparently, within hours of the appearance of this whistle-blowing article, “someone” at the United Nations disabled the link to the 1981 document. However, before the document coincidentally disappeared, GATA had copied it and posted it on the GATA website at http://www.gata.org/files/GoldSwapTreatyUSUK-UN.pdf.

On February 1, Jonathan Bier in Britain asked the United Nations why the link had been broken. The UN employee had no explanation, but did provide another link to the document on the UN’s website of http://treaties.un.org/doc/Publication/UNTS/Volume%201267/volume-1267-I-20864-English.pdf.

As I write this column, that alternate link is still viable. However, by the time you read these words, it may be disabled as well.

It is highly unlikely that this sequence of denials and suppression of evidence was a coincidence. You may ask why the US government would have an incentive to engage in such public deception over intervening in the gold market, given the openness at which it intervenes in so many other financial markets.

The answer is pretty basic. The price of gold is effectively a report card on the US dollar, the US government, and the US economy. The higher the price of gold gets, the worse the US looks. If the US government looks to be in dire straits, investors are going to demand higher interest rates on Treasury debt. Foreigners will become more aggressive at repatriating $4 trillion of US currency which right now serve as an interest-free loan to the US government.

As more information is revealed confirming surreptitious US government suppression of gold’s price, there will be even more incentive for investors and central banks around the world to dump their dollars and acquire other safe haven assets—like gold.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a 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 Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

By Patrick A. Heller – Liberty Coin Service
Commentary on Precious Metals Prepared for CoinWeek.com

Even though gold and silver prices are up significantly since the beginning of 2012, that doesn’t necessarily mean that this trend will continue. Buyers and sellers modify their decisions as prices change.

When you look at who is and who isn’t actively buying or selling gold and silver right now, that can give you significant clues as to where prices head in the near term.

Ever since the price of gold surpassed $1,000 for the first time in 2008, there has been significant liquidation and recycling of “scrap” gold such as jewelry and industrial products. In many instances, people who lost jobs or experienced other financial setbacks have sold assets to generate cash flow. Investment demand in the past three years has been so strong that prices continued to rise despite the increase in recycling supplies. From now into the future, however, the amount of scrap gold that could be liquidated will be smaller than it would have been because of all the gold already recycled.

The story is similar for silver. During the 1979-1980 precious metals boom, many companies acquired equipment to recycle metals. Even though prices later fell so low that it was no longer economical to acquire such equipment, it was still profitable to continue to use existing machines since the acquisition costs had already been paid. As a result, silver recycling continued at a steady pace even when prices were far lower during the past few decades.

Therefore, there is less silver available for recycling today and in the future than there would have been. Another factor to consider is that the use of silver in photography (including x-rays) has fallen sharply in the past decade or so. This is significant because a high percentage of silver used in photography is recycled. As the amount of silver used in photography has fallen, so has the amount of silver that could be recycled.

With higher prices, there would be a strong incentive for mining companies to expand production. However, it’s not quite that simple. From discovery of a mine site until full production used to take an average of about three years. With increasing environmental and other regulations, it now takes an average of about ten years to go into full scale operation.

Increasing regulations have also impacted the ability of existing mines to operate. In January, the government shut down operations at the Lucky Friday mine in Idaho, producer of about 0.5% of the world’s newly mined silver supply. Even though the mine had passed twice-a-year federal safety inspections, it was closed because of alleged problems with its state of the art mine shaft supports. The owner of the mine stated that it will take a full year to fix the alleged safety issues before the mine can resume operation.

Overall, silver mine output has been rising over the years even as global gold mine output mostly declined. Still, silver supply is just not increasing enough to match the rise in demand.

For decades, the central banks were net sellers of gold every year. That changed a couple of years ago to central banks now being net buyers of gold. The swing from being a net supplier to a net buyer has affected the supply/demand equation by about 40 million ounces a year. This is a huge impact when you consider that worldwide annual mine output may be only 70 million ounces.

Above ground inventories of physical gold and silver have dwindled over the past few decades, with supplies of both metals becoming tighter every year. Last year I received several reports of would-be buyers of multi-million dollar amounts of physical gold or silver who wanted to take immediate delivery but were unable to find sellers willing to accept their orders.

While the supply side of gold and silver is constrained, I think the largest impact on the prices of both will come from a surge in buying demand. Even though there has been an increase in demand for the two metals for industrial and investment purposes, the market has not yet experienced a sustained rush to buy physical gold and silver.

For instance, when gold and silver prices fell sharply in late 2008, there were significant delays in purchasing almost every form of bullion-priced physical gold and silver. At the most extreme, new orders for 1 ounce size silver rounds and ingots were taking three months for delivery after the buyers had paid for them. Today, in the US almost every bullion coin and bar is available for live or short term delivery. Premiums are close to as low as they have been over the past couple of years.

The recent weekly Commitment of Traders Report issued by the COMEX show that speculators have not jumped into the market. This means that the price increases have occurred without this source of demand.

China and India are the world’s two largest nations for consumption of gold and silver. What happens in those countries has a major impact on prices.

The Chinese government has been very aggressive at purchasing physical gold and silver for itself and also encouraging its citizens to accumulate precious metals. It is expanding the venues which would make it convenient for people to acquire gold and silver. There are regular stories of Chinese citizens who are unable to purchase physical precious metals because the stores are out of stock or have lines so long that it takes (literally) several hours to get service.

Demand in India is very sensitive to price. When prices fall, demand soars. When prices rise, demand tapers off until there is a sense that the market has established a base from which prices will resume climbing. Right now, buyers in India are mostly sitting on the sidelines since the price of gold broke above $1,700. So, prices rose in the second half of January without extra demand from this nation.

In Europe and the Middle East, there is strong demand for physical gold and, to a lesser extent, silver as safe havens from deteriorating currency values. Demand was especially strong in North America in March and April 2011, but is now lackluster.

Although there have been some investment funds taking positions in gold or silver, this activity has been on a minor scale.

Perhaps the most significant indicator that the rush to buy gold and silver has not started in earnest is the relatively minor importance that the two metals have in world finances. There were times in the first half of the 20^th century where the value of gold and silver mining shares and all the circulating gold and silver coins made up more than 20% of global wealth. Today that proportion of worldwide wealth is about 0.5%.

By the way, perhaps a significant indicator of where prices are headed in the near future is a decision by Endeavor Silver to inventory part of its newly mined silver output rather than sell it at current prices. I have heard that other mining companies are discussing this option, where they might only sell enough metal to fund continuing operations. It is highly unusual for mines to choose to defer cash flow in anticipation of much higher prices in the coming months.

The real rush to buy gold and silver will not be underway until there is strong demand from China and India, elsewhere in the Far East, the Middle East, Europe, and across North America. You will also see central banks and investment funds purchasing greater quantities of physical gold and perhaps silver. When fabricators and wholesalers are unable to meet demand for physical metal, prices could skyrocket. We are a long way from this position today. But it is coming and will be here surprisingly soon.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a 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 Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

by Louis Golino for CoinWeek

For the first time since the early 1980′s gold and a possible return to the gold standard have emerged as issues in American politics.

One GOP presidential candidate, Ron Paul, has made it a centerpiece of his campaign; another, Newt Gingrich is interested in exploring the idea; a third, Mitt Romney, opposes the idea as inflationary; and Rick Santorum also supports returning to the gold standard.

1981 gold commission

During the presidency of Ronald Reagan, a gold commission was created in 1981 that included Lewis Lehrman, a longtime advocate of returning to the gold standard.

The 1981 commission was marked by strong disagreement among its members on the idea of once again linking our currency to gold. The idea basically went nowhere, and in the view of many gold proponents it was just a sop to the gold bugs.

Mr. Lehrman was one of only two members of the seventeen-member commission who actually backed the idea of a new gold standard. He helped write the minority report of the commission, The Case for Gold, that was published in 1982. He frequently makes the case for a gold standard in interviews and articles.

Last year he published a book called The True Gold Standard that explains how to go about implementing it. He also has a web site, www.thegoldstandardnow.org, which is a project of the Lehrman Institute.

The gold standard started in 1853, became official in 1900, and ended in 1971, when another Republican president, Richard Nixon, ended the convertibility of the dollar into gold.

The gold standard was replaced with a system of floating, paper-based, or fiat, currencies that many conservative economists have argued over the years is at the root of inflationary pressures.

Price inflation was almost non-existent when the U.S. was on the gold standard, but the amount of gold that was pegged to the dollar has changed numerous times in U.S. history. For example, as Alan Herbert explained recently in Numismatic News, in 1792 a dollar was worth 1.604 grams of gold, but by 1971 it was only half that amount (0.8016 grams).

2012 GOP race

Of the candidates still in the 2012 GOP primary race, four have raised or been asked about the gold issue, and several of those who dropped out earlier also support the gold standard. Only Mitt Romney opposes the idea.

Rep. Ron Paul (TX) strongly endorses the idea of returning to a gold standard. Congressman Paul is widely known a gold bug and a supporter of backing the dollar with gold because it is the only sound form of money in his view.

He is also a former coin dealer, and his personal portfolio, as revealed last year in Barron’s, includes major investments in gold company stocks.

Last year he held a hearing on this issue in his position as chairman of the monetary policy subcommittee of the House Financial Services Committee.

Rep. Paul was also a member of Reagan’s 1981 gold commission, and he was the other commission member besides Mr. Lehrman who supported a new gold standard. He also favors abolishing the Federal Reserve.

Newt Gingrich, the former House speaker from GA, has expressed an interest in exploring the idea and has also backed a proposal to form a new gold commission that would evaluate the feasibility of returning to a gold-backed dollar.

During a January policy forum, Mr. Gingrich called for a return to hard money and said “Part of our approach ought to be to reestablish something Ronald Reagan did in 1981 and that is to have a Commission on Gold to look at the concept of how to get back to hard money.”

He also said he thinks the Federal Reserve’s mandate should be limited to maintaining the stability of the dollar.

Mitt Romney, former governor of MA, was asked about the idea in a recent interview with CNBC’s Larry Kudlow, who is a proponent of a strong dollar that he calls King Dollar. Mr. Kudlow often comes across as a sceptic about gold’s bull run in his CNBC appearances. He served in the Reagan administration.

Gov. Romney, whose front runner status in the GOP primary race is under siege by Speaker Gingrich, gave the following response to Mr. Kudlow when asked on January 25 about Gingrich’s proposal: “I know that in the past when we had a gold standard, the idea that somehow it was detached from or free from any interference by Congress was simply wrong because even with the gold standard someone has to decide what is the conversion rate between the gold and the dollar.”

He added that “And Congress can inflate the dollar simply by changing the exchange rate, as was done in the past. So I don’t think there’s any, if you will, magic bullet substitute for economic restraint, for not spending more money than you take in, for having the nation that’s the most productive in the entire world.”

Former Sen. Rick Santorum of PA also supports the idea. Last June he participated, along with some of the candidates who are no longer in the race, in a tea-party bus tour that was focused on support for returning to the gold standard.

A new gold standard?

It has been estimated that based on current U.S. gold reserves a price of $10,000 per ounce would be required to return to a gold-backed dollar. Others have put the figure as high as $45,000.

Many mainstream economists say such a system would be totally unfeasible because there simply is not enough gold in the world to make it workable. That may well be true, but it goes back to the idea of the amount of gold that would be linked to a dollar, which would not be permanently fixed.

But if that were the case, a new gold-backed currency might face many of the same problems the current dollar faces, especially devaluation, or reflation, through increases in the money supply.

A more widely accepted idea is the notion that the U.S. dollar, which is currently the world’s global reserve currency, will before long be replaced by a new system that would include a number of different currencies as well as gold.

Finally, any discussion of a new gold standard raises the issue of possible confiscation of privately owned gold.

I personally do not believe it is likely that we will see another U.S. government effort at confiscation in part because the wealthiest Americans are believed to store a lot of their gold offshore in locations like the Perth Mint of Western Australia and other locations that provide secure storage.

It would be very difficult for this and other reasons to achieve anywhere near the compliance level that was achieved when President Franklin Roosevelt declared it illegal for Americans to own all but a limited amount of gold in 1933. He did so to expand the money supply during the Great Depression.

Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

By Mark Ferguson for CoinWeek – MFRareCoins.com

There have been three major trends driving the coin market during 2011 that are continuing to influence the market into 2012. All three of these trends are economically driven.

The most influential of these trends has its roots deep within the global economy. It’s the global debt bubble. Here in America that debt load reaches from individuals to municipalities, county governments, state governments, and finally the Federal government. And sovereign debt, as we all know, is in crisis mode around the globe.

As a result, gold has been a hot commodity throughout 2011 and during prior years. Many financial professionals even refer to gold as a currency. Silver has also been considered a financial metal, in addition to its industrial utility, and routinely follows the market trend on the heels of gold. Although, we’ve seen some divergence in the short-term market trends between these two metals as the gold market has reacted to economic crises, especially as its price has climbed during 2011, as shown in the charts below. This divergence is illustrated as the gold price was driven to comparatively loftier levels than the silver price during the July to August period when Congress found itself in a stalemate over raising the debt limit.

Gold began 2011 at a closing price on the London exchange on January 4 at $1,388 and ended up the 2011 year at a closing price of $1,531 on December 29. In the interim it reached a closing price of $1,895 on two consecutive days, September 5 and 6, after breaking through the $1,900 benchmark in intraday trading. The low price for gold during 2011 was a closing price of $1,319 on the London exchange on January 28.

Silver started 2011 at a London closing price of $30.67 on January 4 and ended up at a closing price of $28.18 on December 30. During the interim in 2011 silver reached a high closing price on the London exchange of $48.70 on April 28, after coming within cents of its all-time high price earlier in the day. The 2011 low was $26.16 on December 29. The silver price showed strength from mid-July to mid-September by remaining in the low $40s during that time, while the gold price continued to advance to its all-time high of around $1,900.

But those are just short-term trends. Below are charts of the gold and silver prices from January, 2000 to the present. Clearly, these two metals are in a long-term price trend that’s rising. You can see how silver prices are traditionally more volatile than gold prices. Of course, when investing in these metals, it’s difficult, if not impossible, to pick the short-term highs and lows at which to buy and sell. I urge my customers to go with the long-term trend. Don’t buck the trend. Don’t try to outguess the market. Dollar cost averaging, by purchasing at various price levels over a period of time, is often used by some of my customers to even out their costs when buying.

So, what does all this mean to the coin business? It has meant much more business for coin dealers, but higher prices for collectors who collect common date coins that are heavily influenced by gold and silver prices. On the other hand, many collectors have used these price advances as opportunities to cull out some of their common gold and silver coins and use the proceeds to purchase more expensive collector coins they’ve always wanted, but couldn’t afford.

The higher prices have also brought out into the market lots of accumulations of coins the general public has had stashed away for decades. And along with the gold and silver coins the public has sold to coin dealers have been coins of better date “collector coins.” Some better date silver coins have gone into the melting pot, as their collector values have been exceeded by their silver values. But a lot of these kinds of coins have wound up in coin dealers’ inventories.

And this illustrates another major trend in the coin hobby. Except for some die-hard collectors who have solid jobs, middle class collectors have been largely cut out of the collecting market. Job losses, debt reductions, and general caution over spending have curtailed their coin collecting activities, and some established collectors have had to become coin sellers, instead of coin buyers, for the same reasons. This trend has resulted in soft prices and lower sales for many collector coins regularly purchased by the middle class – which is the majority of people.

So if it wasn’t for all the increased business in the precious metals area, many coin dealers probably would have been forced to close up shop during the past two or three years. Instead, most dealers have had very good years in business during that time.

However, on the high end of the coin market, business has been brisk in selected areas. Investors looking for alternatives to main stream investment vehicles have been buying high end rare coins, including “trophy rarities,” in which to park some of their money.

A great example of this is the 1787 Brasher Doubloon, with the “EB” punch on the eagle’s breast, which sold for $7.395 million at the end of 2011. This is now the third rare coin that has sold for more than $7 million. The first was back in 2002 when a famous 1933 $20 Saint Gaudens gold coin sold for $7.59 million. It’s the only example of this coin issue that the U.S. government has legally allowed to be privately owned. The third coin ever to sell for more than $7 million was a 1794 silver dollar, believed by some numismatic researchers to have been the first silver dollar struck at the U.S. Mint. It brought $7.85 million during spring, 2010.

Of these three sales, the recent Brasher Doubloon sale has best demonstrated how much great American numismatic rarities have appreciated in price during the past several years. I’ve been writing regular major market reports about the U.S. coin market for the past decade or more, for several publications, and in doing so I’ve observed these transactions and have knowledge about the backgrounds of some of these coins and have talked to some of the principals involved. I know most of them well and do business with them. This Brasher Doubloon, one of just two pieces known, but also unique in its own right, is one of the most important coins in American numismatics, and for that matter, is also one of the most important coins in world numismatics.

Of the other two coins mentioned above, the 1933 $20 Saint Gaudens coin came from Europe when it surfaced, just a few years before its famous 2002 public auction sale in which the U.S. government participated – an interesting story to search for if you’re not familiar with it. These 1933 $20 gold coins were illegal for Americans to own and some numismatists believe this 1933 $20 is the famous King Farouk specimen, sold during the 1940s. Previously, it could not have been sold publicly, as it was in 2002, because of the risk of confiscation by the U.S. government, until it became the only example of this coin issue to be declared legal to own. So a previous price was never established in which to compare the 2002 sale.

Similarly, the 1794 silver dollar mentioned above was thoroughly researched by the seller and is believed to be the first silver dollar ever struck at the U.S. Mint. It was given the status and grade of “Specimen-66” by PCGS, and previous to its sale, it was extensively exhibited by the owner who has referred to this coin as a national treasure. Reportedly, the seller purchased it several years before the 2010 sale for “millions of dollars,” but its status had been elevated during the time he owned it, making it difficult to compare its price appreciation with the coin’s previous status.

So, the recent sale of the Brasher Doubloon for a reported $7.395 million, with the Ephraim Brasher “EB” punch on the breast, as compared to the other example which has the punch on the wing, is most important in illustrating the trend of the market for trophy rarities because it is a coin that has been known for years and has been exhaustively researched. It has not had a change in status like the other two important coins mentioned above have had. This doubloon was last sold at public auction during January, 2005 for $2,990,000…and now for $7.395 million in a private transaction.

So what are the people who invest such large sums of money expecting when they buy these trophy rarities? First, such buyers aren’t just freely throwing their money around, like the proverbial rice after a wedding ceremony. Negotiations for such rarities are usually well thought out, and sometimes tricky. Secondly, buyers expect these coins to at least hold their values, but hopefully to appreciate. They are looking for investments that are alternatives to risky mainstream investments, and these buyers are often expecting economic inflation during the next several years. And thirdly, another consideration taken into account is the vast price differential between these high end numismatic rarities and record-selling works of fine art, which are now bringing more than $100,000,000 on the high end.

While the coin market probably won’t see those nine figure price levels anytime soon, the reasoning is…there’s huge potential for the price of famous American numismatic rarities to close the gap with fine art, even by a comparatively small margin. Therefore, is it possible that some of the great American numismatic rarities could become worth $25 million or more, for example? Absolutely!

By Doug Winter – Raregoldcoins.com
A CoinWeek Content Partner

A popular feature of the www.raregoldcoins.com blog is the “what’s hot and what’s not” article that I write at the end of every year. As its the very end of what’s been an interesting and active year, let’s take a look at what was in demand in 2011 and what you, literally, couldn’t give away. We’ll look at a number of areas in the market and determine a “heat index” based on my personal experience in the 2011 coin market.

1. Gold Dollars

This was a mixed market area but overall it was fairly strong and in some cases it was very strong. The segments of the gold dollar market that were strongest were superb, one-of-a-kind Type One and Type Three issues (especially “wonder coins” graded MS68 and MS69) and very high quality Dahlonega issues (especially better dates such as the 1855-D, 1856-D, 1860-D and 1861-D). Areas that remained flat or trended downwards in 2011 include mid-level Uncirculated New Orleans pieces and San Francisco issues. The weakest segments of the gold dollar market included Gem common date Type Two issues and MS65 through MS67 common dates from the 1880′s.

2. Quarter Eagles

Early quarter eagles were a strong area in the market. This was especially true for attractive, original coins in the EF40 to MS63 range that were priced at $50,000 and below. A few nice 1796 No Stars quarter eagles sold in 2011 and these generally saw prices that were higher than in the previous couple of years. Early quarter eagles priced at $100,000 and up remained hard to sell, unless they were either very rare or very nice or, ideally, a combination of the two.

The Liberty Head series saw mixed results in 2011. Nice circulated Dahlonega pieces were good sellers and even Charlotte coins, at least those in the $2,000-5,000 range, sold well if they possessed good eye appeal. The very high end of the market was strong. Ultra rare issues such as the 1841, 1854-S and 1863 all saw strong price increases in 2011. The surprise “trendy date” of the year was the 1864 which, in a short period of time, saw explosive price growth as collectors realized how rare it was.

Most quarter eagles dated 1870 and later remained hard to sell, even those with low mintages. There were a few exceptions (the low mintage 1875 became popular in 2011) but this seems like an area in the market that offers good growth potential for collectors with a budget of $1,000-5,000 per coin.

2. Three Dollars

After a rough patch of five or so years, the Three Dollar market showed more strength than I can remember. Buyers were fussy and coins that were not high end were hard to sell. The most popular dates included the 1854-D, 1855-S, 1861-1864 and the low mintage issues from the 1880′s. Dates that were hard to sell included the 1854-O, 1865 and 1877. The rare Proof-only 1875 was a good seller while the not-as-rare Proof 1876 was harder to sell.

Prices on better dates in MS63 to MS65 have dropped to levels that make them prime for a promotion in the coming years. There are enough nice to very nice coins available (not factoring in common issues such as the 1854, 1874, 1878 and 1889) that I would not be surprised to see prices for nice coins rise.

4. Half Eagles.

The market for early half eagles was very quality conscious in 2011. As an example, a common date early five such as an 1803/2 in AU55 to AU58 was worth 5-10% more if it were CAC-quality as opposed to the typical washed-out, unappealing example. The grade range that really began to see price separation due to quality was MS63 to MS64. There are early half eagles in MS63 holders that are hard to sell at $25,000; the exact same issue in the same grade with a CAC sticker and real eye appeal can be an easy sale at $30,000+.

The market for very rare early half eagles was hard to gauge in 2011 due to so few pieces trading. But in the Heritage 2012 FUN sale there is a superb date run of rare half eagles including an 1819, 1821, 1825/1, 1826, 1828, 1828/7 and both varieties of 1829. I expect these coins to bring record prices and the “heat” that they generate is likely to spread to the rare but more more obtainable dates of this era.

The Liberty Head half eagle market was generally good in 2011. The areas that were strongest include collector quality Dahlonega pieces, rare Civil War dates and high quality New Orleans issues. Areas that began to show some tentative strength included No Motto Philadelphia issues in AU and Mint State grades and rare but formerly unpopular low-mintage dates from the 1860′s and 1870′s. The market for Carson City half eagles in 2011 was mixed. There were not many nice coins on the market and the better dates that did sell only brought solid prices if they were very choice.

5. Eagles

While not everyone realizes this, eagles were probably the strongest denomination in the gold coin market in 2011. Nearly all areas were as stronger or stronger than in 2010 with the exception of early eagles (1795-1804) which remained off their market highs of a few years ago. But this statement needs to be clarified. Most of the early eagles that are offered for sale are very low end for the grade. Nice early eagles sell for 10-20% premiums over their low-end counterparts.

The Liberty Head eagle series came into its own in 2009 and since then, prices have been strong for choice examples of rare and low mintage dates. In my opinion, prices of rare, low mintages issues such as the 1863, 1864, 1865, 1872, 1873, 1876 and 1877 are still very low in comparison to less rare but more popular double eagles from this era.

The Carson City eagle market was similar to that described above for the half eagles. If a coin was choice and rare, it sold for a strong price. If it were just so-so, the price ranged from decent to slightly above average. But if a real “pig” was offered (and some of the CC eagles in holders are grossly overgraded) it might bring a distortingly low price. Collectors are urged to work closely with an informed specialist and to learn how to distinguish a choice, original piece from an overgraded low-end example.

6. Double Eagles

For the last five years, the Liberty Head double eagle market has seen an inexorable march upwards in price. In the second half of 2011, this area of the market seemed to weaken a bit, probably due as much to the steep rise in bullion prices as a natural correction.

The always-popular Type One market softened a bit but remained strong. CAC approved coins brought good premiums, especially for issues like the rarer New Orleans mint coins where eye appeal was a real concern. Premiums for rare shipwreck coins remained very strong in 2011. If an S.S. Central America, Brother Jonathan or S.S. Republic coin that had a population of just a few coins was available at auction it brought many multiples of a non-shipwreck coin’s price.

The Type Two market was a bit stronger than in the last past few years. The market for common dates in MS62 through MS64 dropped rather significantly but scarcer dates (such as the 1868, 1869, 1870 and 1871) rose in AU and Uncirculated.

The bullion-related Type Three issues and the condition rarity market declined in 2011 but the market for truly rare issues (1881-1886 and 1891 Philadelphia) was strong.

7. Proof Gold

This was a strong area of the market in 2011 and part of the reason was a greater supply of choice coins than in recent memory. Strong prices were seen at the Heritage 2011 FUN sale where the Henry Miller collection, which contained dozens of superb rare date Proofs, brought very strong prices. Coins that were in demand include very low mintage issues and virtually all pre-1880 half eagles, eagles and, especially double eagles.

8. 20th Century Gold

The various 20th century series saw a mixed year in 2011. Common date generic issues saw significant shrinking in premiums over spot and in some series, coins were trading for tiny premiums.

A series that was stagnant in 2011 but which is primed for attention is the St. Gaudens double eagle. The upcoming sale of the Dr. Steve Duckor collection, to be sold by Heritage next week in their FUN auction, includes many very choice, very rare issues which are likely to bring record prices. This may not necessarily impact lower quality examples of these dates but it will clearly bring a lot of attention to a series that has been flat since the Morse Collection sale of 2005.

A series that seemed to be quietly attracting collector and investor attention in 2011 was the Indian Head eagle. I only handled a few interesting Indian Head eagles in 2011 but the coins I did own sold quickly and generally to smart dealers.

All in all, I look at 2011 as being a good year for the rare gold coin market. Not a great year but certainly a stronger one than 2009 or 2010. It was a year that rarity and originality became more in vogue. It was a year that soaring bullion prices were a big story during the first three-quarters. My firm DWN had an excellent year in 2011 and I am personally excited about the coming year and what it will bring.

by Louis Golino for CoinWeek

This is the second part of my year-end review and outlook for the coming year. The first part addressed the numismatic market. This one covers precious metals.

Bullion market

2011 has been a roller coaster of a year for precious metals. This article only addresses gold and silver, but it is also worth keeping an eye on platinum, which I believe is undervalued at today’s $1400 level.

Silver came very close to reaching its 1980 price of $50 per ounce in late April, but has declined 40% to $29 since then.

Gold hit an all-time high of $1920 on September 6*, but since then its price has usually been in the $1600-1700 range, and many analysts believe even lower prices are coming.

As of now, for the year gold is up 12%, while silver is down about 5%, and equities are basically flat for the year. Despite all the sound and fury about gold being a bubble that has burst, it continues to be the best-performing asset class, as it has for the past decade.

A lot of the recent price decline in gold is due to dollar strengthening, as investors seek the perceived safety of U.S. Treasuries at a time when the European crisis seems to loom larger every day. To help put things in perspective, in euros the price of gold is only 100 euros off its all time nominal high reached in September (1300 to 1200).

For the year that is finishing, the key questions in the precious metals realm are: Why did gold decline sharply after hitting its all-time high in August? Second, why is gold apparently no longer viewed by many investors as a safe haven asset? For silver, why did it fail to surpass $50 this past spring and decline by 40% since then?

Looking foward, for the coming year, the main questions are: Where is gold’s price headed? Is it moving towards $1500 or less as the bears predict, or will it reach new highs in 2012? And will silver continue to hover where it is now, or even decline to $20, especially if the economic recovery falters? Or will it hit new high well above $50, as silver bulls predict?

A series of macro-economic factors will help shape precious metal markets in 2012, including: the European debt and banking crisis and the possibility of European quantitative easing, what happens to the U.S. economy, the value of the dollar; and prospects for further quantitative easing in the U.S. Each of these factors is intertwined with the others.

Gold

Some analysts have begun to speculate that either the European Central Bank, or the Italian government, might liquidate some its gold to raise funds to increase liquidity, especially if the bond vigilantes continue to try to raise the cost of borrowing for Italy to unsustainable levels (over 7%). Italy will need to refinance many billions in government debt in 2012.

Italy currently has the fourth largest gold reserves in the world.

While I would not rule out the possibility of Italy selling some of its gold, I believe it is more likely that we will see increased buying of gold by central banks for asset diversification.

China, despite all the headlines indicating it is buying and mining precious metals as fast as it can, continues to hold all but 2% of its foreign reserves in dollars, as noted recently by Brent Arends in http://www.marketwatch.com. If the world continues to lose faith in the long-term prospects for the dollar, China is virtually certain to shift more its foreign reserves into gold.

A senior Chinese central bank official made just this recommendation the day after Christmas. That would be a major market mover for the price of gold.

Other countries’ central banks, including those in India, Russia, and Malaysia, have added to their gold holdings this year.

In 2012 the ongoing European debt and banking crisis is likely to put pressure on the price of gold, which may seem counter-intuitive. But as I explained in the fall, gold’s role is changing.

What has changed in gold this year is that it is now seen as a risk asset, like equities, rather than a safe haven to flock to when riskier assets are down.

But the long-term fundamentals, most analysts agree, remain very bullish, especially since governments around the world lack effective tools for dealing with the economic crisis and are likely to continue using the main tool left: currency devaluation, which reduces the value of a country’s debt, but also raises the prospects for future inflation.

Moreover, supplies continue to be constrained by the cost and difficulty of finding new deposits, and demand is strong, especially in Asia.

In the short-term, European economic troubles could result in more selling pressure on gold, but 2012 is expected to be (finally) the year of reckoning for Europe. The European Central Bank is likely to be forced to print money (quantitative easing) to monetize the debt of European countries, and this should eventually push gold over $2,000.

Silver

For silver, a different set of dynamics will play out.

Continued economic slowdown would clearly put a damper on silver prices, but silver is a hybrid metal, both industrial and precious. If the gold market reaches new and sustained highs, it is likely to bring silver along with it.

A major wild card is possible resolution of what Kitco has called “The Great Silver Debate.” That is a reference to the idea that silver prices are manipulated by the U.S. government working with large banks involved in the metals trade to suppress prices through techniques such as frequent margin hikes.

Silver bulls believe firmly that a day of reckoning is arriving in which the true extent of silver shortages will be revealed, but it is hard to say when that will happen.

Silver did not decline by 40% since late April because demand for it declined. In fact, demand for silver remains very strong, as seen in the record-number of American silver eagles sold this year and tight supplies at silver bullion dealers.

It is the disconnect between the physical and paper markets; repeated margin increases; and the need to cover losses in other trades that explain silver’s decline. In particular, paper silver speculators got spooked by silver’s wild ride after April, while large institutions have had to sell metals to raise capital. But long-term physical investors have continued to take advantage of low prices to add to their holdings.

According to Paul Tracy of http://www.seekingalpha.com, 25% more silver is consumed than mined every day. Even if one accounts for silver recycling, the shortage of silver in the world should eventually drive silver a lot higher, probably well over $100 per ounce.

Silver also seems very undervalued now since according to Mr. Tracy, silver is 17 times more abundant than gold, but one can buy 54 ounces of silver for an ounce of gold.

Lessons of 2011

Overall, I remain bullish on precious metals for the long-term based on the fundamentals of supply and demand. But we also were reminded in 2011 how imperfect the precious metals market is, and how much it is shaped by macro-economic factors, regulatory regimes, and the performance of other asset markets.

So it would be prudent not to assume that there will be a direct correlation between global economic turmoil and the price of gold and silver, in which investors flock to metals for safety. We have learned that things are more complicated than that.

Happy New Year to CoinWeek readers!

*In my December 23 article on the coin market, I said gold hit an all-time high of $1906 on August 22. This was based on a chart I found at Kitco, but the correct date and figure are $1920 on September 6.

Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.