By Jim Kingsland for Certified Assets Management International
A CoinWeek Content Partner

In March, 2011 I took the pro silver side of a gold/silver debate in CoinAge Magazine on which metal would outperform on a percentage basis in 2011. My positive silver ideas were empowered by the freight train momentum that developed early last year for silver that eventually shot silver to within a hair’s width of closing above $50 in late April.

Obviously, my bullish outlook was destroyed thanks to the series of margin hikes that were implemented by the Chicago Merc. I’ll say it: When the real owners of the market (various giant banks), with their massive short positions in silver were about to be shellacked, the silver bulls had to be neutered (of course they and I forgot about the possibility of not one or two margin hikes, but of many margin hikes). Yes, you could argue that slower world economic growth, even good old profit taking chilled the price of silver, but those margin hikes in and of themselves are what led to the collapse of silver from its 2011 high.

In 2011, silver fell 7 percent, while gold rose 10%. While I am no longer going to take an official bullish, or bearish stance on silver, let’s say I am waiting for the opportunity to pick up MS state generic Morgan dollars (those beautiful silver coins from the late 1800′s to the early 20th century) in the $25 range. The coins should either be certified by PCGS, or NGC and encased in plastic holders. You can do the math, but I will do it for you. Since there is a slight premium for Morgans to the spot silver price, at the present $27.78 spot price, to get my $25 buy price on Morgans will require action that my bullish friends won’t enjoy. This bottoming process could take some time to play out, but who knows.

My thought is to have nothing to do with silver futures, or SLV and pick up the real thing on further dips as some very cheap insurance, not as a way to game a new silver bull market, but has a hedge. Forget about the silver to gold ratio for now. Yes, it’s out of whack historically, but then again this isn’t a late 19th century bi-metallist society that we’re living in. We are living in a deranged system where everything, including these metals, are priced in the ever vanishing power of the paper dollar (which is masked by what everyone focuses too much attention on – that dollar index). Forget about the kook internet reports of physical silver being priced well above the spot paper price. Little old me as a coin dealer can still get silver for about $1 over spot and lots of it, not just a few ounces.

The rumors of a physical shortage of silver is a sales tactic aimed at getting ignorant people to pay a big premium to the hucksters. Forget about all of the claims that silver will become so rare soon that it will be rarer than gold. That one leaves me speechless. The tall tales are fun, but none, NONE have kept silver out of an ongoing downward trend. The best apologists for silver in the business have been largely ineffective. For now, the silver market is muddled and will remain so, so long as the CME and its margin hikes remain. Funny that they haven’t since removed the hikes, now that things have calmed down. But I digress.

Insurance to offset the collapsing paper ponzi system – now that’s not so crazy. We buy insurance for all sorts of potential negative events. I believe that one day silver will become far more valuable than it is now, but let’s not be so anxious for that to happen. When this dog called silver eventually has its day, there will be many other things to be worrying about (eg. securing supplies of food, etc). Silver, and gold for that matter, should be accumulated by people who have an understanding about the monumental shift that’s taking place. What would that be? The coming end to fiat paper, back to hard money. This has happened before in society. It is unlikely to be pleasant. There are many who have admitted to me that they want nothing to do with silver, or gold – that they have faith in the present system. I am fine with that, though they register in my mind as the sitting ducks class. Lol.

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 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.

by Adrian Ash
BullionVault
Tuesday, 20 December 2011

Cheer up! This permanent state of emergency is doing a wonderful nothing to unwind the bubble…

SO 2012 will mark the fifth anniversary of the global financial crisis. There’s little reason to think it’s reached its end yet. Merry Christmas.

Banking and household leverage in the rich West has barely ticked lower from the credit bubble’s historic peak of 2007. Financial leverage has only been reduced by a fraction, while governments have been stuffed like a French goose with that new debt spurned by the private sector since 2008.

So why this slow, seemingly permanent pain? Because interest rates are still set at zero, with no uptick in sight – an emergency measure that’s now etched in stone. “There is a lot of financial stress out there,” the UK insolvency specialist Begbies Traynor moaned last week. “[But] if it wasn’t for low interest rates the number of insolvencies would have been twice what they are.” Twice as many debtors would have enjoyed a write-down, in short. But do you really think their creditors sleep any better knowing what’s keeping debtors in debt?

The gambit of low rates – first played in mid-2007 and now stuck – comes from studying the Great Depression of 80 years ago. If only the US Federal Reserve had slashed rates to zero, then today’s central bankers could have avoided the deflation of their grandparents. Low teaser rates under Alan Greenspan have thus become permanently low revolving rates under Ben Bernanke. Which is where the mechanics of this depression stands apart from the downturn of, say, 30 years ago.

Back then, central bankers imposed deflation by hiking short-term interest rates towards 20% per year. Today the credit crunch is priced into the weakest balance-sheets only, and in the interbank lending market, where liquidity has vanished again in 2011. Contrast with the early 1980s’ depression, when bond yields badly lagged policy in forcing through the deflation. Ten-year US Treasury yields, for instance, broke into double digits 10 months after the Federal Reserve’s overnight target rate breached that level. It wasn’t until 1983 that the curve reverted to normal, with 10-year bonds offering a higher rate of return than overnight credit held at the Fed.

The impact of this policy-driven deflation? A rise in the Dollar so strong – both in real purchasing and forex conversion terms – that it unwound all of gold’s plunge for non-Dollar investors.

That we’re living through deflation again today is plain, no matter how far the Fed and other central banks string it out. A deflation in credit, asset prices and economic activity. A deflation that doesn’t need shop prices to fall; it’s still “a deterioration of the monetary standard”, this one characterized by volatility as much as deleveraging, but also squeezing debtors every time the Dollar rises.

That in turn is squeezing creditors, of course, now terrified of default and writedowns but so far spared the actual pain. The worst of all possible worlds results. No new investment, because lenders won’t lend and debtors won’t borrow. No write-down or write-off of existing debt, lugging a permanent drag onto economic activity. And meantime the Dollar remains money the world over, proving last decade’s Cassandras early, wrong or just stupid.

Call me all three if you like; the last thing the world wanted pre-2007 or today is a rising Dollar. Not the US, China, Europe or anyone else. So just to screw the most people the most, that’s what we keep getting. But only in fits and starts. Which like the wonderful nothing achieved by zero interest rates, might just be the very worst we could ask.

Plenty of chart analysts and media hacks will tell you today that the price of gold just broke below its 200-day moving average. The smarter ones will add that it fell through the uptrend starting with the great deflation of Lehman’s collapse, too. But only in US Dollar terms, we note here at BullionVault.

Look at gold ex-the Dollar – as our bright orange line does above. The Dollar devaluation, forced through by Ben Bernanke cutting in line and slashing rates faster than anyone else in 2007-2008, worked such magic that non-Dollar investors are now – to date – wearing a much shallower top-and-drop pattern in gold so far.

This might matter. Because gold has outperformed all other assets (and very nearly all mutual and hedge funds too) since the eve of this crisis. Most people thank the inflationary response of central banks everywhere. A handful think gold’s rise might instead be due to bullion offering the perfect deflation escape – a route to extricating yourself from the debtor/creditor relationship underpinning the vast bulk of alternative homes for your savings.

Either way, a Dollar rally is rarely good for the gold price. And no one, least of all the Bernanke Fed, wants to allow a persistent Dollar rally on their watch either.

Adrian Ash
BullionVault

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(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 Steve Roach – http://www.steveroachonline.com

Rare coin investment funds have been around for decades, and on Oct. 31, the formation of four new funds to be managed by Certified Assets Management International LLC, was announced. One of the funds is expected to acquire up to $250 million in rare coins.

For many, what first comes to mind regarding “coin funds” are two rare coin funds in which the Ohio Bureau of Workers’ Compensation invested a total of $50 million between 1998 and 2005.

Although the funds returned more than $10 million in profit to the state, their success was tainted when Ohio coin dealer Thomas W. Noe was found guilty of various charges including theft and money laundering related to his management of the two funds.

The concept of collectible objects forming the basis of an investment fund is not new. In the past decade several fine art funds have emerged. Philip Hoffman, CEO of The Fine Art Fund Group LTD, summarized the appeal of art-based funds, stating, “The value of a [painting by] Canaletto will never go down to zero, it will never do an Enron or a Marconi.”

The Fine Art Fund Group fund has created relationships with several major banks including the Emirates National Bank of Dubai. Gary Dugan, chief investment officer of the bank, has stated: “We’re not doing interior decoration. It’s not an aesthetic investment but a financial investment.”

Investors are increasingly turning to alternative asset classes like fine art and rare coins as stores of wealth, although the case for paintings as an investment differs somewhat from coins, in that thousands of art museums around the world acquire and serve as permanent depositories of art, creating an ever-shrinking supply of Old Master through Modern paintings.

Rare coins generally enjoy greater liquidity than fine paintings and the possible infusion of $250 million in the rare coin market could help the market reach new levels.

As some paintings can trade for up to $150 million privately, many have wondered whether the presence of institutional investors is needed for individual rare coins to break the $10 million barrier.

Whether CAMI will be able to attract investors to the funds is yet to be determined, as is the impact that an additional major buyer will have on the coin market. If the funds are done right, it could add legitimacy to rare coins as an alternative asset class worthy of high-end investor dollars.

By Mark Ferguson for CoinWeek – MFrarecoins.com

There are several of us coin dealers nationwide who’ve been in this business virtually all our lives – for 40, 50 or 60 years, or even longer – since we were teenagers, or even younger. We’ve been around the market for gold bullion all that time and have been buying and selling gold as physical assets.

We’ve all handled rare coins, collected for their numismatic attributes, such as high grade or rare date gold coins, and we’ve bought and sold gold bullion coins, valued just for their precious metals content, such as South African Krugerrands, Canadian Maple Leaf coins, and American Eagle gold coins, all one ounce of gold each.

There are also smaller sizes. As coin dealers, we’ve lived with the great swings in the gold price from $35 per ounce before the gold window reopened for Americans to own gold during the early 1970s to the record high price gold bullion reached during January, 1980 of $850, and to today’s record price of around $1,900 per ounce.

We’ve also lived with a depressed market for gold bullion that last pretty much during the rest of the 1980s and 1990s while the economy was being pumped up by the country’s rising debt load. Then the gold price began to perk up again during the early 2000s. For many of us in the coin business, what’s going on in the foundations of the financial world these days is intuitive. The recent record high prices for gold have not been a mystery to us, or even a surprise. We see the foundations of the world economies weakening because of the massive debt load, from individuals, to cities, counties, state governments, and federal or sovereign debt.

Social tension around the world is growing, and so is crime. Since World War II several generations have lived very good lives, as least economically speaking. But in doing so, our economies have been pumped up through taking on all this debt. And now it’s become unsustainable. The solution is to cut way back on government spending and produce tax revenue and employment through private sector productivity. Now the day of reckoning to pay for our good times since the war is upon us. Politicians and governments are trying their best to put this off, by putting “band aids” on the problem, like all those stimulus dollars that have been pumped into economies around the world during the past three years.

Even though gold doesn’t produce an end product, like a business does, for example, gold has been recognized as the ultimate form of money for literally thousands of years. We have to have something that represents stored value to trade for goods. When the United States Mint was created during the early 1790s U.S. coins had to contain a specific amount of gold, silver, or copper. There was no official paper U.S. currency at that time, however most people remember “Colonial Currency,” used in the colonies before we became a country, which is what preceded the official coinage of the United States of America. The U.S. didn’t have paper currency, as we know it today, until the Civil War days. Precious metals were our currency.

When paper currency was introduced into the U.S. economy, during that time, it represented a specific amount of gold or silver that was stored in vaults. For example, many people remember the “silver certificates” the U.S. used for generations. Because the price of silver was rising and the value of our paper currency was falling, the U.S. government stopped redeeming those silver certificates back in 1968. But because our society was so used to using paper money, most people didn’t notice what was happening. As this evolution moved further away from using precious metals as money, i.e. gold, silver, and copper coinage, as mandated by the young U.S. government in the 1790s, money became nothing more than paper certificates, then became computer digits, in the bigger picture. Today our money is “faith-based!” Nothing stands behind it, except the faith in our government leaders – people, just like you and me. It’s all just notations inside computers, except for the actual paper certificates in people’s wallets and cash registers.

So today our government leaders, in a good-hearted attempt to preserve our standard of living, are doing what they can to avoid an all out collapse of our financial system, exemplified by the events of late 2008, when we began to see runs on banks and financial bailouts. These bailouts, and using government and Federal Reserve created stimulus money, are just temporary fixes, while avoiding the austerity measures needed. People simply don’t want to reduce their living standards. But this may be forced upon us through natural market forces that readjust all the pumping up through the debt load that’s been taken on virtually throughout the worldwide economy, including households.

But those people who’ve been around gold for a long time, like coin dealers, know our economy is heading back to using inflation, by creating money, to stave off a depression that we all want to avoid, because we know what times were like during the 1930s. Inflation is not just printing more dollar bills, or $100 dollar bills, or even larger denominations, like $500s and $1,000 dollar bills that we used to use. There even used to be $10,000 and $100,000 bills that were mostly used within the banking system! And this could happen again. To illustrate, some people have even seen the 100 trillion dollar notes issued by the country of Zimbabwe during the past few years because of inflation.

But inflation is created more behind the scenes, where the general public doesn’t realize what’s happening. It’s a complex system of using the Fed (the Federal Reserve System) to create financial instruments, like bonds, that are traded on a high level – between governments, as well as in the private sector. Inflation will make times seem better on the one hand, because the economy will seem like it’s churning along, but prices will rise dramatically and purchasing power will diminish, like during the late 1970s. Imagine paying $10 or $15, or more, for a gallon of gas! When I was a youngster, the lowest I remember gas costing a mere 23 cents per gallon. And people older than me remember it being even cheaper.

So, yes gold doesn’t produce anything useful, like a factory does, but it’s a “store of value” asset that protects us from the destruction of our currency during inflationary times. Traditional investment gurus are claiming that gold is in a bubble because it’s at record price levels. We’ll always hear this as the price of gold continues to rise during the coming years. Will gold reach bubble proportions? – Probably, but only when the economy begins to be productive again, with nearly full employment and a debt load that’s finally under control. Do you see this happening anytime soon? – Not likely! That scenario is many years away.

As pension funds and other investment funds around the world come to the realization that gold should be a part of their portfolios, its price will skyrocket even further. It is currently estimated that less than one percent of the trillions of dollars in these funds are invested in gold. In global financial terms, the gold market is small compared to all other investments. Therefore, an investment of just one, two, or three percent, for example, by these funds will push the gold price to extraordinary heights. Just remember where the price of gasoline was during years past, and you can see a similar analogy – only it’s happening faster this time around.

When buying gold, many people want to look through a “microscope,” so to speak, and try to buy at a low point in the near term. Unless you’re an expert commodities trader, you won’t be successful. I saw many of my own customers miss some very nice profits in gold because they didn’t buy when it was below $1,000 per ounce two years ago, or more recently at just over $1,400 per ounce, as it was last summer. But does this really matter when gold reaches $10,000 per ounce, as some experts are predicting, because of the inflationary period we’re now entering and because of large investment funds jumping in?

The best strategy is to follow the long-term trend. Don’t buck the trend! And be observant of economic trends. We’re now reading and hearing about how the U.S. government recently raised retirement contributions from $16,500 per year to $17,000 per year because of inflation and also raised Social Security checks by 3 ½ percent for the same reason. We’re just at the start of a new inflationary period. Our national debt is now $15 trillion. Three years ago it was $10 trillion, and 10 years ago it was $3 trillion. It’s getting unsustainable, and I’ve read that when it gets to between $20 and $25 trillion that’s when things will really start to get tricky for our government and the Fed to get a grip on the economy. Interest rates will rise very high, like they did during the early 1980s where they reached the 20 percent level.

So, get in while we’re at the beginning of this trend, both to preserve the purchasing power of your assets and to profit. For the above reasons, many investors want to invest in the real thing – physical gold – which is outside the financial system, rather than gold stocks, or “paper gold” through large investment pools. Physical gold is best purchased in one ounce sizes which come in coin form issued by government mints, such as the American Eagle Gold coins produced by the United States Mint, or the one ounce gold Canadian Maple Leaf coins. There are many others, struck at sovereign mints around the world, and experienced coin dealers are some of the best sources to buy them from. Give any of us a call, most of us are happy to answer your questions and help guide you through the process of owning gold – how to buy it, where to store it, how to resell it, etc.

Mark Ferguson was a coin grader for PCGS , a market analyst for Coin Values and has been a coin dealer for more than 40 years. He has written for the ANA, Coin Dealer Newsletter, Coin World, Numismatic News, , Coin Values, The Numismatist and currently has a weekly column on CoinWeek. Mark can be reached at Mark Ferguson Rare Coins ( www.mfrarecoins.com)

by Louis Golino for Coin Week

These are definitely interesting times for a precious metal analyst, or anyone trying to make sense of where precious metal prices are headed.

Gold and other precious metals are traditionally viewed as safe haven investments, and as assets that help to diversify a financial portfolio because they are inversely correlated with stocks. They normally move up when stocks are down, and vice-versa.

But the global financial situation is changing all that. During the past three years, for example, gold has often moved up on the same days that stocks closed higher.

In part, that has been a function of dollar strength or weakness. When the dollar is stronger against the euro, yen, and other currencies, investors choose the safety of the dollar in the form of U.S. Treasury bonds. This is what is known as “risk off” periods.

But when the dollar is down, investors have tended to buy more stocks and gold, seeking higher yields than what they can get on Treasury bonds, which is essentially nothing. This is what the experts call “risk on.”

These days all eyes are on Europe and its debt and banking crises that threaten the future of the euro, Europe’s economies, and the global economic and financial system.

Last year whenever Greeks were protesting against austerity measures, gold tended to increase in value, as investors sought the perceived safety of precious metals.

Better-off Greeks lined up to purchase gold coins at highly inflated premiums because they worried that their paper euros would become virtually worthless.

But things have changed, and now gold often declines on the very days when it used to go up. This is an example of what I think of as “the new normal” in precious metals.

Since gold’s major correction last month, it has tended to go down on days when stocks are also down. This is often correctly attributed to a liquidity crunch, as investors seek to cover their equity losses with gold profits.

It also has something to do with increased margin requirements. In fact, this week the Commodities Futures Trading Commission decided to move forward with rules which seek to limit commodity speculation by making it harder to hedge in the form of derivatives.

It is confusing to see gold decline on days when the European crisis seems further away from resolution. But in the “new normal” world this is perhaps best understood with the “risk on/risk off” paradigm.

Precious metals actually increase in value on days when the European seem to be getting their acts together perhaps because increased global financial stability provides the space for riskier assets to flourish, and because the euro strengthens on those days.

Whenever it looks like the sky is falling, investors seek dollar safety, but when the world seems like a relatively safer place, precious metals are seen as a better choice.

This may be partly because increased financial stability helps spur global growth, which will result in higher inflation, and precious metals are still seen as a hedge against inflation.

On October 18 news reports suggested that Europe’s leaders were moving towards an almost $3 trillion rescue fund for countries like Greece and Italy, which have unsustainable levels of debt. This helped gold reverse earlier losses.

The conventional wisdom among Europe watchers is that the crisis will end with a disorderly Greek default, Greece leaving the euro, and ultimately the demise of the euro and perhaps even of the European Union itself.

As someone who has studied Europe closely for decades, I would suggest not underestimating the determination of Europe’s leaders to solve this crisis.

Greece will almost surely eventually default in one form or another, but that is something that can be managed, if handled carefully. An Italian default is another story.

Patrick Heller, who writes for Numismatic News, predicted recently that the euro could fail in the next couple weeks. There have also been rumors that the European banking system faces imminent collapse.

I am highly doubtful that either of those events will take place any time soon, and perhaps at all.

To be sure, the Europeans have been slow to fully understand the dimensions of their crisis, and their policy responses over the past two years have tended to be insufficient to say the least. Germany, in particular, has been seen as dragging its feet.

But again, I would not count the Europeans out. The cost of failure is simply too high, and the major countries of the EU are still very wealthy and wish to remain so.

They will eventually do whatever it takes to defend the euro and their own economic future. The wildcard is whether they will do it in time, that is, before serious damage is done to the euro, the EU, and the world financial system.

The EU plans to hold a key summit this coming Sunday, October 23, when leaders may approve the massive EU rescue fund. If things go as planned, which is definitely not assured, I think that the euro will strengthen and precious metals and stocks could both experience major rallies next week. They also could all decline substantially if an agreement is not reached.

German officials are downplaying the chances of a grand bargain that resolves the crisis.

There are plenty of other clouds on the precious metals and EU horizons. For example, France may be about to lose its AAA credit rating because of its high debt and deficit ratios and the pressure that bailing out other European countries would place on its banking system.

In addition, many metal watchers seem to be virtually certain that U.S. economic weakness will result in another round of asset purchases by the Federal Reserve, “QE 3,” as it is termed.

But this week Fed Chairman Ben Bernanke said that its may be necessary to use monetary policy to deflate asset bubbles, so those counting on QE 3 may be disappointed.

It is not easy to reach agreement among 17 sovereign EU countries, and each of them has a domestic populace that helps shape policy.

In Germany, for example, public opinion is strongly against bailing out what it sees as its profligate southern neighbors.

But Germany will do whatever it takes because it simply has no choice. If it abandoned the euro, its economy would go into a tailspin because a new Deutschmark would be vastly stronger than the euro and that would be very harmful for German exports, which are the motor of the German economy.

Similarly, Greece can’t afford to leave the euro because it would result in high inflation and a collapse of the banking system and economy.

So don’t count the euro out just yet, and expect gold and other precious metals to continue to act in counter-intuitive ways.

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 Coin Week, “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.