by Louis Golino for CoinWeek ………

Over the weekend we learned that the EU was giving the small country of Cyprus, with an economy smaller than that of any U.S. state, a bailout of 10 billion euros, or 13 billion dollars. Then we found out that based on an initial plan by European authorities that holders of bank accounts could lose up to 10% of their bank deposits to pay for the EU bank bailout through a bank deposit levy.

According to accounts on March 18 in Market Watch (www.marketwatch.com), those with under 100K euros would pay 3%, those with 100-500K in euros would pay 10%, and those with over half a million would pay 15%. The details were expected to be worked out later in the week, and banks in Cyprus will remain closed until Thursday to help prevent a bank run.

Cyprus is a kind of mini-Switzerland or Cayman Islands because it is a banking haven, and some of its largest depositors are foreigners, including large numbers of Russians and
reportedly, Russian organized crime members. Cyprus is also unusual because its banking sector is eight times the size of the economy, which is not the case in other European countries.

Germans and other well-off Europeans clearly did not want to bailout the Russian mafia, and other non-European depositors, which has a lot to do with the origins of the bank deposit levy.

Over the course of the day on March 18 most international markets seemed to largely take these developments in stride, and gold saw its first decent bounce in weeks, moving up about $15 for the day.

By the end of the day, the initial plans were beginning to change. The Euro Group issued a statement indicating that those with under 100,000 euros in bank accounts should be protected, though there is no guarantee of that happening, even though Cyprus actually has an FDIC-type guarantee on smaller deposits up to 100,000 euros.

Some people see the beginning of the end for the euro and even the European Union in these dramatic events, but we have learned over the last few years that it is wise not to count the Europeans out. To be sure, the EU economy remains mired in deep recession with very high unemployment levels. But the consensus over the last couple years is that the euro would disappear, and so far it is still worth 30% more than the dollar, which is a big part of why the EU economy is not doing well since the EU is an exporting economy.

UPDATE: On March 19, following strong pushback from Cypriot politicians and the public, and Russian government authorities, the Cypriot parliament rejected the bank levy plan. That leaves the situation in limbo, as a bank ran may now be averted, but Cypriot banks could still collapse without funding from the EU.

For some the events in Cyprus could point to what may happen elsewhere in Europe, or even possibly here in the U.S. But each country has its own problems, and we will see whether Cyprus turns out to be some sort of banking or economic domino, portending more trouble down the line in other countries.

However the Cyprus bank crisis ends up playing out, these developments are forcing many people to think hard about how they protect their assets. Gold and other precious metals are obviously seen as safe havens of choice in such situations, and I would not be surprised to see physical gold premiums rising dramatically in Cyprus in the coming days and weeks, as they did in Greece during the worst moments of that crisis.

As I wrote recently, gold has been in the doldrums in 2013, which experts often see as bullish because when everyone is chasing an asset, it has usually peaked, or may even be approaching bubble status. But when sentiment is negative assets often move up.

The events in Cyprus have at least momentarily helped push gold up a little, and if we really do see something like bank runs, which I am not sure we will, there is little doubt the metal would continue advancing.

The Cypriots and the EU may be able to contain this crisis at least for a while, but the real danger is if something like this were to happen in a larger EU country like Italy that has serious economic problems, and a political class that seems largely unable or unwilling to face these problems, with the exception of outgoing Prime Minister Mario Monti, whose painful economic reforms were helping to get Italy on track.

The outlook for an EU-wide banking union to help support the euro currency also seems substantially diminished now.

In such an environment of ongoing banking crises coupled with long-term economic problems, the European Central Bank is likely to need to continue its version of quantitative easing. Mario Draghi, the Italian who heads the ECB, famously said he would do “whatever it takes” to defend the euro.

The European situation therefore does appear to provide good reasons for owning some gold.

At the same time, as I have argued many times, the world does not need to end for gold to go up in value, and of course if we really did find ourselves in a truly calamitous economic situation, things more practical than gold would probably be more in demand.

My point is that if the European and/or world economic environments deteriorate, investors are likely to seek haven in precious metals. But if instead we continue a slow but steady progression towards economic normalcy, as we appear to be in the U.S., precious metals will still be a useful asset class, as inflation rises due to improved economic activity.

Finally, for those who are more sophisticated investors than the average person, it is also useful to bear in mind that gold prices in currencies other than the U.S. dollar has done much better than gold in dollar terms, even this year. This is a point that Dennis Gartman, long-time commodities trader and author of the Gartman Letter, makes frequently.

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 Jeff Starck-Coin World Staff | 03-16-13
Article first published in March 25, 2013, World Coins section of Coin World

The Mint of Poland has released a cylindrical coin with a design on its edge honoring the Roman god Mercury.

By Paul Gilkes-Coin World Staff | 03-11-13
Article first published in March 25, 2013, U.S. Collectibles section of Coin World

Should the U.S. Mint ever produce American Eagles in palladium, enabling legislation mandates that the obverse design be a high-relief rendition of the obverse of the Winged Liberty Head dime, left, and that the reverse be a high-relief rendering of the reverse of the American Institute of Architects gold medal, right.

GOLD ticked higher but silver prices stalled Friday morning, as a rise in Asian stock markets failed to carry over into European or pre-opening trade in US equities.

The Euro currency rose sharply through $1.30, knocking the gold price in Euros back below €1220 per ounce, virtually unchanged for the week.

Sterling gold prices slipped to £1050, some 2.3% below Tuesday’s new 4-month high.

For Dollar investors, Friday morning’s London Gold Fix came in at $1593.25 per ounce – more than $6 above yesterday afternoon’s level and the highest AM fixing in more than two weeks.

Silver achieved only a 2-day high at its London Fix on Friday, set at $28.91 per ounce.

“Given what we have seen in Libor [the interbank lending rate], we’d be foolish to assume that other benchmarks aren’t venues that deserve review,” said Bart Chilton of US regulator the Commodity Futures Trading Commission in an email Thursday, clarifying reports that the London Fix is under investigation by US derivatives regulators.

The CFTC has not begun an investigation, but is “discussing internally” whether the global benchmark for valuing and pricing gold – a snapshot taken at 10:30am and 3pm for gold, and at midday for silver – may be open to “manipulation”, along with “energy, swaps…and the whole litany of ‘bors,” as Chilton said in testimony more than 2 weeks ago.

Back in today’s markets, “Gold prices are not being supported by the current confluence of events,” says French investment bank and bullion dealer Natixis in its latest weekly comment.

“[The] stronger Dollar predicated upon fiscal retrenchment suggests further downward pressure upon gold prices, while any move by the Fed to scale back QE3 in response to a pick-up in growth…also represents a downside risk for gold prices.”

Consumer price inflation in the US rose to 2.0% annually in Feb, new data showed today, with gasoline prices rising at the fastest pace since 2009.

“Inflation is still contained, but there’s a fear that it’s starting to rebound,” Bloomberg quotes Hideo Shimomura, chief fund investor for $63 billion in assets at Mitsubishi UFJ in Tokyo.

“Treasury yields at 2.0% show people expect improvement in the economy.”

Money markets are now pricing in 2.6% inflation, the newswire adds, the highest level of inflation expectations since September.

“The American economic revival, diverging monetary policy expectations and the unfinished Euro area crisis…all point in the same direction,” says a note from SocGen analyst Sebastien Galy – “a stronger Dollar.”

“Gold’s fate will largely ride on what direction US equity markets will take,” counters Thursday night’s note from INTL FCStone, saying that “only a sizable correction in US equities will likely prompt funds to get back into gold.”

Noting that silver investment has risen while ETF trust fund holdings in gold fell, “We find this divergence surprising given that silver investment demand tends to be closely linked to sentiment towards gold,” says Anne-Laure Tremblay, precious metals strategist at BNP Paribas.

Trimming her silver price forecast from a 2013 average of more than $34 per ounce to $31.35, “A reversal in trend is likely in the next two months if our forecast for a subdued gold price performance [also] proves correct.”

Adrian Ash

By Jeff Starck | 03-04-13
Article first published in March 18, 2013, World Coins section of Coin World

Designs for some coins, like the gold €100 piece honoring the Sistine Madonna, will require a new portrait and legend after the new pope is elected. Graphics seen here are the designs as proposed before the resignation was announced.

by Louis Golino for CoinWeek ………

Last year the U.S. Mint saw its numismatic revenue decline by a third as a result of declining sales of gold and platinum coins due to higher underlying precious metal prices and strained collector budgets because of a still-struggling U.S. economy. Silver coins, on the other hand, continued to be profitable for the Mint, and their sales increased.

But rather than try to reverse the trend in gold and platinum coin sales by keeping prices as competitive as possible, which is what most market analysts for any business would suggest, the Mint has raised premiums on all of its precious metal products at a time of declining precious metal prices, virtually ensuring that numismatic revenues decline further unless an enormous amount of very well-heeled buyers comes to the rescue, possibly in hopes of making profits on temporarily low mintage coins.

Earlier this year, as I discussed previously , the Mint announced new, higher prices on some of its silver-based coins, including the 5 ounce America the Beautiful coins, and American silver eagles in proof and uncirculated finishes. Because those increases were announced as silver prices were declining, I asked the Mint about it, and their response, which was included in my article, essentially argued that the Mint needed to retain the ability to adjust prices “to reflect the changing price of silver,” which is a curious argument when silver prices were declining.

To be sure, there are certainly plenty of non-metal costs involved in the production of collector coins such as labor, machinery, etc. If the Mint had pointed to some of those in its response, it would have been easier to understand the rationale for the increases.

As of Feb. 27 the Mint has gone ahead and implemented a new pricing grid for gold and platinum coins that was published in the Federal Register on February 20 , which raises premiums just as gold and platinum prices have been declining markedly in recent weeks.

Some people say they were trying to get ahead of the curve and expect higher metal prices soon, as many experts do, because of the view that precious metal prices have bottomed out, as sellers reached what is known as capitulation.

But that really misses the point, as the whole point of the grid is to establish fixed premiums at different metal price intervals, so the new grid has nothing to do with expectations of higher metal prices down the road.

The one saving grace of the new grid, and this is something I brought to the Mint’s attention in my inquiries, is that now when platinum prices are increased or decreased, it will be in $50 increments, as is used for gold, not $100 increments as was the case previously.

But if one considers, for example, the 2012 American platinum eagle, which contains one ounce of the white metal, the peculiarity of the new pricing mechanism is abundantly clear. Platinum prices recently declined below the $1600 level, hitting $1575 on February 28, but the platinum eagle coin price was raised to $2,000 the day before.

Those are proof coins and clearly some premium over melt value is understandable, but sales of last year’s coin were already running well below those of prior years. And raising the premium to $400 over melt value hardly seems like a recipe for increasing sales.

So one must ask what is the Mint’s strategy here? Since no one outside the Mint knows for sure, it is hard to say, but a number of possibilities come to mind.

The Mint could well be trying to make up for lost revenue by increasing its profit margins on the numismatic coins it sells with higher premiums over melt value. But, first, those margins are already quite healthy, especially for silver coins, and raising them beyond a certain point seems almost certain to force many buyers to stop buying, reduce their purchases, and quite possibly turn to other areas of numismatics where they may find better opportunity.

In fact, Royal Scandinavian Mint owner Ola Borgejordet told me today that the Spanish Mint on Feb. 20 announced it was lowering prices on its gold coins in response to lower gold prices, after having increased them in September.

He also added that one needs to bear in mind the other costs of producing coins such as “tool making, the production and preparation of blanks, etc., which could very well have increased. If the U.S. Mint’s reasoning for the increase is the price of precious metals, then this seems odd.”

Again, since the Mint has not made clear the specific rationale for the substantial new premium increases, it is hard to understand what is going on.

The Mint has many times explained that the price grids for precious metal coins were intended to give the Mint flexibility in pricing these coins, and that such a system was better suited to the pricing of numismatic coins than the system used by bullion dealers for their products, which constantly adjusts as metal prices ebb and flow.

It is important to consider also that last year, as I have discussed several times recently in this column, many new mintage lows were reached across a variety of silver and gold product options such as the American gold eagle uncirculated coin, the individual proof gold eagles, and the 5 ounce silver uncirculated coins, which have been selling out in the past few weeks and garnering substantial premiums in the secondary market.

Many experts predict that higher premiums, even when metal prices are down, are likely to further squeeze collectors who simply cannot afford to keep up with all the series they used to collect. One frequently reads online comments from collectors who say they are paring down their purchases as prices rise, and I am doing this myself.

Some people speculate that the Mint is perhaps adopting the approach of many foreign mints that price their collectible precious metal coins way above the melt value of the coins, with the Royal Mint in the UK probably being the best example of that. The Royal Canadian Mint and Perth Mint in Australia also do that though not quite to the same extent.

The idea behind this seems to be that there is a core of collectors and buyers who will pay almost any price to keep their sets updated, or perhaps to speculate and try to make a profit. And the lower mintages would go hand in hand with that approach, which is what foreign mints do to stir up demand.

But that would go against the stated objectives of the U.S. Mint to make its numismatic coins available to a wide audience at the lowest price possible, while still making a profit that is used to help fund other programs of the Mint and to reduce the deficit. Many people forget that numismatic coins are never produced with taxpayer funds.

Moreover, it is evident that the high price/low mintage approach to selling numismatic coins has its limits. The Perth and Royal Mint have both experienced revenue declines in recent years in their numismatic programs, though the Canadian experience has been different. The RCM in the past couple years has vastly lowered the mintages on many of its coins, while issuing a very strong and innovative line of products at different price points. That is partly true of the other two mints as well, but in my view not quite to the same extent. Examples include the 2012 glow-in-the dark dinosaur coin and some of the Titanic releases from the RCM that were inexpensive and achieved quick sell-outs and high secondary market prices. Meanwhile, a lot of Perth and Royal Mint coins have seen their values decline recently.

Like many collectors I was disappointed by the Mint’s recent actions, and I welcome any clarification Mint officials can provide for their rationale. Eventually, if too few people can afford to keep buying the Mint’s precious metal products, especially the higher-priced items, it will no longer be cost effective to even produce them. If not reversed, such trends could ultimately drive collectors away from modern U.S. coins and accelerate the increased interest among U.S. collectors in modern foreign coins, some of which offer great value at relatively little cost over melt value, like the coins of Mexico.

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.