What Gold Can (and Can’t) Do For You

It wasn’t so long ago when the Euro was flying high and some experts were predicting that the dollar could be replaced as the world’s reserve currency because of the United States’ ballooning deficit. Now, there are fears that Greece could default on its debt and even the Euro may cease to exist. The dollar has made gains against the Euro, but the real winner in this debt crisis can’t be printed by central banks. It must be harvested by miners: gold.

While the Euro has taken a hit, gold has shot up to all-time highs, above $1,200 per ounce. Investors must decide for themselves whether or not commodities like gold belong in their portfolio, but for those who want to know what all the fuss is about, here are a few things to know:

[See U.S. News's list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]

It has never been easier to invest in gold. Exchange-traded funds have revolutionized investors’ access to commodities. “The ease and liquidity of ETFs have really opened up commodities in general as a new asset class for investors,” says Tom Lydon, editor of ETFTrends.com. “In the past, for investors to buy gold, they either have to buy the coins or the bullion, and now in the form of ETFs there’s a whole variety of options,” Lydon says. In addition to buying gold through futures contracts, investing in physical gold—bars in underground vaults—through ETFs is now possible.

[See The Appeal of Gold ETFs.]

Gold can diversify. A small amount of gold can limit the overall volatility of your portfolio because it often performs differently from mainstay investments like stocks and bonds. “Gold and some other types of commodities are what you call non-correlating assets, so they tend to move independently of overall moves in the market,” says John Diehl, senior vice president in the retirement division at the Hartford. Gold sometimes reacts differently to market selloffs, which can help offset losses in stocks.

Gold as a reserve currency. The past few weeks have been a roller coaster ride for stock investors, punctuated by steep falloffs and strong rallies. The market’s behavior is partly due to worries that debt problems in some European countries like Greece could spread to other parts of the European Union and damage the Euro. The dollar has rallied somewhat in responses, but the United States has debt problems of its own.

The world’s primary reserve currency—the most commonly held currency by central banks around the world—is still the dollar, but when fear strikes the market, many investors flock to the safety of gold. “It’s not irrational that people are buying more gold right now because in the past, you had two reserve currencies, potentially, then you were down to one with the Euro, and now you may be down to none for a while, so gold is really the ultimate reserve currency,” says Paul Zemsky, head of asset allocation for ING Investment Management. “It’s the only thing that holds its value even if central bankers and governments are eroding the value of their own currency.” When there are global concerns about monetary policy, Zemsky says, gold will benefit from a flight to quality.

It has been a good, long run. The shiny metal set record highs last week. Diehl says he is worried that some investors who are new to commodities may not know what they’re getting into. “If fear in the market is at a high and everyone you talk to is saying, ‘Hey, you should put your money in gold,’ as a contrarian investor, that should be somewhat of an alarm to say, ‘Is this really the right thing to do? When everybody says, ‘Now is the right time to buy anything,’ you can generally feel fairly confident that it probably isn’t,” he says. A general rule of investing, Diehl says, is to look for asset classes that seem to be undervalued, and gold could be reaching its peak price.

Gold can be extremely volatile. Gold can provide diversification, but investors should be aware of the risks of investing in commodities. “Gold is really a precautionary hedge and not something your whole portfolio should be in,” Zemsky says. He recommends that investors only have 3 to 5 percent of their overall portfolio in gold. Diehl is even more cautious. “A singular bet on gold is, at its core, still a singular bet,” he says. “Just as emotions are volatile, the price of gold is a pretty volatile asset.” He suggests finding a fund that invests in a broad basket of commodities and not just in gold alone. Two popular choices are PIMCO Commodity Real Return Strategy Fund (PCRAX) and PowerShares DB Commodity Index Tracking Fund (DBC).

Investing May 13, 2010, 10:55PM EST text size: TT

The Gold Frenzy: Why Investors Should Resist

The price of gold is at a record high, attracting the attention of many retail investors. But this precious metal is no safe haven

By Ben Steverman

As an investment, gold has never been more popular. And, for individual investors, that’s part of the problem.

Gold spot prices hit a record of $1,243.10 per ounce in Comex trading on May 12 before slipping $13.90, or 1.1 percent, to $1,230.10 on May 13. In the past three years, the precious metal is up 84 percent. The SPDR Gold Shares (GLD) exchange-traded fund now contains $48.1 billion in assets, with the number of shares outstanding up 111 percent since September 2008.

Encouraged by TV and radio ads touting the virtues of gold, retail investors are buying it up. One leading gold dealer, Goldline International, estimates it has added 50,000 clients in the past three years. The gold frenzy is worldwide: On May 13, a vending machine that dispenses gold bars was unveiled at Abu Dhabi’s Emirates Palace hotel.

Financial experts warn that all this enthusiasm for gold could be a warning sign—that gold prices could be near their peak. “It’s very in vogue right now, which is usually a telltale sign [of] a bubble-like mentality,” says James Miller, president of Woodward Financial Advisors in Chapel Hill, N.C.

Gold’s advocates may be right that the metal could head higher still, driven by the fiscal crisis in Europe, high deficits in the U.S., and fears of inflation. “All we can do is put our money into real assets, because paper money everywhere is being debased,” Jim Rogers, chairman of Rogers Holdings, told Bloomberg Television on May 12 as gold hit new highs.

Treacherous Field

But even if gold keeps rising—a prospect very difficult to predict, given the metal’s volatile track record—there are several features of gold that make it treacherous for individual investors, financial advisers say.

Gold might have a reputation as a “safe haven,” but nothing could be further from the truth, says Susan C. Elser, of Elser Financial Planning in Indianapolis. Unlike other commodities, gold has few industrial uses. Unlike businesses owned through the stock market, gold earns no profits and doesn’t pay out dividends. Unlike bonds, no one pays interest to holders of gold. And, unlike insured bank deposits, there is no guarantee of your principal investment.

“There is no downside protection on investing in gold,” Elser says.

Gold used to be the backing for currencies, but no longer. Now “it really is only a store of value because people say it’s a store of value,” says Ken Eaton, principal at Stepp & Rothwell, a financial planning firm in Overland Park, Kan. That can lead to extreme volatility, which financial planners cite as one of gold’s biggest downsides.

Gold may be up 84 percent in three years, but it has taken a wild path to get there. Most recently, gold fell 12.6 percent from Dec. 2 to Feb. 8, then rebounded 16 percent in the next three months.

Much of gold’s appeal is built on its use as protection against inflation, which some—but not all—investors see as a potential threat.

“We’re in very unusual times,” says Barbara Camaglia, head of Legacy Financial Advisors in Beachwood, Ohio. “Everyone is debasing their currencies, so I think having some gold is not a bad idea.”

Portfolio Allocation

Gold is just one part of a diverse portfolio, she says, with a portfolio allocation often kept to 5 percent, though “you could argue for a higher percentage.” A small gold holding is typically recommended even by financial planners, like Eaton, who are skeptical of buying gold now. Gold is one sliver of commodity holdings that make up 2.5 percent to 5 percent of his clients’ portfolios, Eaton says.

It’s true that gold kept pace with inflation in the 1970s. The annual increase in the consumer price index averaged 9.3 percent from 1973 through 1981. The market price of gold at the end of 1972 was $63.91, rising to $456.90 by the end of 1982. That’s a 615 percent increase, compared to cumulative inflation from 1972 to 1983 of 138 percent.

However, gold’s record as an inflation hedge is more mixed over the long term. Because gold fell from 1980 to 2001, the metal’s total appreciation from 1972 to 2001 was just 336.5 percent. That barely beats inflation over those 29 years of 323.7 percent, and is way behind the 2,466 percent return of the broad Standard & Poor’s 500-stock index if dividends are included.

“There are [short] periods of time—like now and the 1970s—when there is really a lot of uncertainty out there, and people flock to [gold] for safety,” says Miller of Woodward Financial Advisors. But gold’s long-term record is weak, he adds. “It’s a short-term trading vehicle rather than a long-term investment.”

There are practical problems with owning gold, as well. It’s heavy, and not easy for the average investor to buy, sell, ship, and store. “You’re dealing with a lot more transactional costs,” says David Lamp, a financial planner at BBJS Financial Advisors in Seattle. He keeps no more than 1 percent or 2 percent of client portfolios in gold.

Goldline’s Profile

One easier way to get exposure to gold is through exchange-traded funds. For example, the SPDR Gold Trust holds actual gold bullion. The PowerShares DB Gold Fund (DGL) holds futures contracts linked to the price of gold, and the Market Vectors Gold Miners ETF (GDX) holds stock in gold mining companies.

Many gold investors, however, don’t trust funds to hold their gold. The vast majority of Goldline customers want their gold physically delivered to their homes, says Goldline Executive Vice-President Scott Carter.

The company, which nets about $500 million in revenue each year, touts the endorsements of conservative pundits Glenn Beck, Laura Ingraham, and Mark Levin, as well as former Arkansas governor and Republican Presidential candidate Mike Huckabee. The average initial customer at Goldline invests $15,000 to $25,000, and Carter says Goldline discourages “the speculator,” recommending holding gold for three to five years and only as 5 percent to 15 percent of a diversified investment strategy.

The transaction costs of gold are reflected in Goldline’s prices. To buy from Goldline, gold bullion sells for about 5 percent above the current market price, while special gold coins can get markups of up to 35 percent. Selling back to Goldline, customers typically pay 2 percent below the market price, Carter says.

For many investors, however, the appeal of gold, especially in its physical form, remains strong.

“They don’t want a piece of paper,” Carter says. “You’re buying something you can see and touch. There is a large group of investors who like to buy physical, tangible assets.”

Steverman is a reporter for Bloomberg Businessweek’s Finance channel.

What Kind of Gold Buyer Are You?
May 18, 2010

By Dave

Everybody knows gold has been going up, right?

You would think so. However, I had an e-mail from Pat Heller an online writer for our e-newsletter and he mentioned that some dealers were taken unawares by a 10 percent move higher in the price of Mint State gold $20 coins as they were setting up at the Texas Numismatic Association show.

That is the definition of volatility – when even professionals are taken by surprise.

With Europeans rushing into the gold market because the euro has been sinking, it would seem that this becomes a selling point for more American investors to jump in. They bid up the price of Mint State U.S. gold in consequence.

Is it rational to buy fairly common gold coins and pay high premiums just because they are Mint State?

Rational is probably not the right word. But it does happen a lot.

Buyers pay premiums over bullion value for common coins in strong markets that disappear in weak markets. This has happened time and again.

That’s why it is so necessary to stay on your toes if you want to make moves in this area.

Traders love volatile markets because they can make money on the price swings. Investors who buy at market low points and sell at high points over long periods of time make money, too.

Buyers who stampede into things on an adrenalin rush generated by rapidly rising prices can easily be whipsawed with large losses. The rush turns into buyer’s remorse.

So be a long term investor, or trade day to day, but don’t be an investor who acts only when gold generates a new headline.

Will Gold Shoot to New Records?

By David L. Ganz, Numismatic News April 20, 2010

Gold charged forward, hitting $1,161 a troy ounce on April 12, suggesting perhaps the beginning of an assault on the $1,200 an ounce mark achieved last December.

The Dow Jones Industrial average was 10,452 on Dec. 1 when gold hit $1,214.80 on Kitco’s close; today the Dow is above 11,000. What about gold?

Each time that gold ticks upward, the numismatic consequences are enormous. That’s because double eagles are such a significant component of the rare coin market, and each contains almost a full ounce of gold. The U.S. $20 gold piece, which was produced in circulating quantities from 1850-1932, contains .9675 troy ounces of gold.

At $1,150 an ounce, the current base camp before assault on the golden peak, an uncirculated double eagle has a starting point, before numismatic value, of about $1,112 in gold. Some market analysis say that this makes MS-60 and MS-61 double eagles a great purchase opportunity.

Gold’s movement over the past 12 months has also seen its effect on gold bullion coins. The Engelhard gold quote at $1,161 was $898 a year ago. The Krugerrand and Canadian Maple Leaf have gone from $940 to $1,209. Coming up next is the American Eagle, moving in the same year period from $949 to $1,214. The U.S. Eagle gain is 27.9 percent. Slightly higher at 28.6 percent are the Krugerrand and Maple Leaf.

Meanwhile, silver is at $18.47 (up from $12.74 a year ago); platinum was $1,243 and is now $1,728. The silver gain is over 44 percent, platinum a bit less.

LONDON (Commodity Online): Will gold price zoom past the record of $1227 per ounce that the precious metal achieved in December 2009? It looks gold price is surging once again prompted by a number of reasons that include the Greek financial crisis, volatility in dollar and Euro and several central banks’ decision to raise interest rates.On Monday, gold price started climbing in global markets across several continents from Asia to Europe. Gold prices hit a fresh four-months high in Asian trading on euros rebound as EU offered a bailout package to Greece. Gold for immediate delivery was seen trading at $1165.35 an ounce at 11.30 a.m while U.S. gold futures for June delivery was at $1,166.40 per ounce.Bullion analysts said that gold price is once again on a boom. Gold’s steady ascent to a record of $1227 per ounce began in October 2009 in the aftermath of India buying 200 tonnes of gold from the International Monetary Fund (IMF). IMF decision to sell gold to India at a high price led to a frenzy in bullion markets around the world, resulting in the precious metal’s historic rally to $1227 per ounce on December 4, 2009. Precious metals analyst Mark Robinson says gold price is once again on a surge. “Gold has turned out to be the best investment asset for common people, banks, brokerages and investors around the world. Everyone is betting on gold on increasing political and currency worries in several nations from Greece to Brazil,” he pointed out. “April is going to be the month for gold, it looks. The current gold rally has the potential to cross the $1227 per ounce. I am looking at a gold price of $1250 or above per ounce in short terms. Gold is surely going to achieve another historic record. Gold is on a bullish run on global investment demand,” Robinson told Commodity Online. Analysts like Robinson say that the bull run in gold will continue for some months now as investors are scouting for pouring money into gold funds, gold bars, gold coins and several other bullion-based assets. “In countries like India, one of the largest gold consuming countries in the world, people are buying into Gold ETFs and gold funds based on mutual funds. This is all leading to another bullish run on the yellow metal,” he added..Several bullion analysts are now banking on the bull run theory on gold. David Levenstein, another precious metals analysts posted this report on gold on Monday: “In dollar terms the gold price is now about 5 percent below its all time high, but the weakness of the pound and the euro against the American currency means that the price of the yellow metal in sterling and euros has just made new record highs. The price of an ounce of gold has thus reached record levels of £754 and €865 in recent trading, and the dollar price has reached a three-month high of $1,157. In August last year the gold price in sterling terms, for example, was £562, so British gold investors have made a profit of 34%, compared with a rise in the dollar price of 23% over the same period. During the past week, the Euro was very volatile especially as the financial drama in Greece continued. As expected, the ECB left the main refinancing rate at 1% in April, and both growth prospects and inflation were largely unchanged from previous meetings. ECB President Trichet addressed questions about Greece’s deficit problem and said that ‘default is not an issue for Greece’. Although the Euro edged up higher on Friday, the trend for the week has been down. There were a number of Central Bank events last week. Australia raised rates by 25bps to 4.25% as widely expected, and the Bank of Japan and Bank of England left rates and the quantitative easing program unchanged. The U.S. Federal Open Market Committee minutes for March’s meeting unveiled the Fed’s dovish monetary outlook. While forecasts of real economic activities remained largely unchanged from previous meeting, policymakers were surprised by deceleration of inflation. At the same time, the Fed noted unemployment would be undermining recovery. Nicholas Brooks of ETF Securities, which runs exchange-traded funds, said: “The strong performance of gold, despite the strength of the US dollar, indicates that investors are increasingly viewing it as an alternative store of value, not just to the US dollar but to fiat [paper] currencies more broadly, as sovereign risks continues to rise. “Traditionally, investors concerned about the structural outlook for the US dollar would buy euros, British pounds or yen. However, with policy and debt risks rising in all of these countries, investors – as well as central banks and sovereign wealth funds – are increasingly looking to gold as an alternative ‘hard asset’ store of value.” On April 8, of this month The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings hit an all-time high at 1,140.433 tons surpassing an earlier record of 1,134.03 tons touched on June 1, 2009. The rise in the ETF holdings to a new record level reflects strong investor demand. In my previous report I mentioned that the IMF had turned down a bid from Eric Sprott to buy the remaining 191 tons of gold on offer. Evidently, the IMF claimed that Sprott’s desire to purchase the gold from the IMF did not comply with ‘protocol”, and that the IMF only sells gold to central banks. When Sprott explained what happened, he also mentioned that “I’m a 100% believer that central banks have suppressed the price of gold. I find it hilarious today that they have these programs to sell gold – it’s of no use. It’s one of the dumbest decisions in the last decade.”

Gold Ready for New Highs?

By Patrick A. Heller February 16, 2010

Other News & Articles

• Gold Ready for New Highs?
• UNESCO, Nationalism, Collectors Clash
• Greek Economic Turmoil Could Hurt Euro

As I write this mid-day on Monday, gold has addded more than five percent to recover from of its intraday lows 10 days ago. It is about $1,100 at the moment.

It looks like the $1,108 level is one that would signal to technical traders to again jump in to buy. If gold can get and hold that level, and there is a good possibility it will occur this week, then it’s highly likely that gold will generally rise in the short term to pass the early December 2009 all-time high of about $1,212. It won’t go in a straight line, but it could rise so quickly that it will amaze people.

Once gold reaches a new record high, the odds are that it would pause for some profit-taking before again rising up to even higher levels.

There continues to be so much demand for physical gold (versus paper gold contracts) relative to the available supply, that many would-be buyers seeking immediate delivery in the London market are having their orders rejected by every trading house on that exchange.

London is the world’s largest gold trading center, so larger buyers frequently try to place their orders there. The London Bullion Market Exchange trades contracts for physical delivery of gold. In theory, the trading houses on the exchange have the physical gold to deliver on maturing contracts. It does not make sense for these firms to reject orders on which they would make a profit. With multiple reports of great difficulty experienced by buyers seeking delivery of London contracts, a great suspicion is raised that the physical gold may not all be there.

I would not be surprised if, within a month, a two-tier market develops between the physical and the paper gold spot prices. If this happens, the price for physical is almost certain to be significantly higher. The lower price for paper gold contracts reflects the risk that the seller of the contracts would default. Obviously, a buyer who takes custody of physical gold has no risk of seller default.

The recent major snowstorms in the eastern part of the United States have disrupted U.S. Mint production and delivery of gold and silver American Eagles. The U.S. Mint headquarters in Washington, D.C., was closed Feb. 8-11. Both the Philadelphia and West Point, N.Y., mints, the manufacturers of most Eagle products, closed on Feb. 10. The receipt of planchets to make the coins, the production of the coins, and the shipment of finished product were all interrupted. This has made existing supply shortages even more of a problem.

Even better than the positive outlook for gold, silver seems hugely undervalued at today’s levels. Silver fell more than 20 percent from its early December peak, with the result that the gold/silver ratio is now above 70. The long-term forecasts I have seen for this ratio range from about 10 to 50, so all of the analysts behind these projections like silver’s prospects better than gold.

My own long-term expectation is for a gold/silver ratio of about 35 to 40. If our analyses are correct, silver’s price should appreciate far more than that of gold.

It should be no surprise that most of the action in physical metals in the past two weeks has been in the silver market. It is almost unanimously one-way traffic, with buyers eager to buy but almost no liquidation by owners. As a result, premiums are rising and delivery times are stretching out into the future, with some products already having expected delivery of more than one month. Supplies are not yet as tight as they were in late 2008, but they are going in that direction.

Physical gold products are relatively available, though U.S. Buffaloes are up in premium and not that easy to find. Once the price of gold starts to rise to new heights, I anticipate that supplies will dry up, just as we are now experiencing with silver. Between now and the end of March, the precious metals markets could get very exciting.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Financial Sense University (www.financialsense.com). His periodic radio interviews on WILS-1320 AM can be heard at http://www.amlansing.com and on the Korelin Economic Report at http://www.kereport.com.

By Harry Miller, Numismatic News February 02, 2010

Other News & Articles

• COTY in Berlin
• Treasury Chief Seeks Power
• Design Panels Agree on Two Selections

The big story this week is the continued retreat in the precious metals sector and its effect on bullion-related type gold coins. While gold is down about 1 percent, silver and platinum have eroded by 6 to 7 percent and all are near the bottom of the recent trading range. Trading in this area and lack of strong investment buyer demand has hammered many of the premiums on eagles and double eagles of the generic variety. So far there has been little to no effect on better date issues.

Circulated common date Morgan and Peace dollars remain firm at recent levels due to promotional demand and tight supplies. There has been some minor softening in lower grade S-mint Peace dollars starting with the 1924-S followed by the 1927-S and 1928-S with the 1934-S bringing up the rear. With the exception of 1928-S, only the VG to Fine show decreases, typical of the grades that set promoters buy for their mass marketing programs.

While there has been little price change noted, both varieties of the 1879-CC Morgan are showing strong activity. Also the 1889-CC has advanced in MS-60 through MS-63 and was joined by the 1884-S. ably a good buy.

Proof sets and mint sets remain active and demand lead by the 2008 issues is healthy.

Premiums Decline on Older Gold

By Harry Miller, Numismatic News January 21, 2010

Metals stocks and bullion-related coins seem to be signaling some continued weakness in gold and silver. Gold is hammering away at the lower end of its recent trading range with silver following. Thus far the $1,100 level has held. Platinum while off its high is well above recent levels on continued ETF demand.

Older U.S. eagles and double eagles have again lost premium in the most commonly traded grades and there is definite absence of any aggressive buyers in the market. High-grade and small-size issues are moderately active with some pluses and some minuses. Proof gold American Eagles are quiet with few buyers seeking them at current levels. Proof silver Eagles remain strong and business strike 2010 issues have come down in premium slightly in anticipation of large shipments available next week (about when you receive this issue). Demand remains strong for all silver-related bullion issues.

Type coins remain active with very optimistic reports regarding Seated issues of all denominations with special emphasis on scarcer dates and by variety. There is a continued scarcity of all better date Barber issues especially in grades F-12 to EF-40.

Aggressive buyers go for half cents, large cents and three cents with emphasis on the tiny silver issues, which in my opinion are much underpriced in VF to EF grades.

Historic Hoards Echo in Population Reports

By Paul M. Green, Numismatic News January 07, 2010

There have always been some mixed emotions when it comes to hoards. It’s probably natural if you are a collector or dealer to have a concern about hoards and the possibility that one might appear and cause a sharp decline in the price of a coin you own.

The classic instance of that happening occurred to collectors owning 1903-O Morgan dollars back in 1962. They thought that they had a $1,500 coin only to see it fall to $15 seemingly overnight as hundreds of thousands of examples were released by the Treasury.

It would be hard to convince them that hoards are good.

On the other side of the matter, there is the very real fact that a hoard can make a certain coin much more available and at a much more reasonable price than was previously the case. This allows many collectors who otherwise would never have owned something to be able to acquire it.

The discovery of roughly 5,400 examples of the 1857-S Coronet Head double eagle on the sunken wreck of the S.S. Central America made not only the date available, but it also made it possible for many to have a chance to have a Mint State Coronet Head double eagle and one that was produced from the early days of the San Francisco Mint.

Without that recovery of 5,400 examples of the 1857-S from their underwater resting place, the possibilities of owning a nice Mint State double eagle from San Francisco in the 1850s would definitely be reduced and that is just one of many examples.

The discovery, promotion and original sale of hoard coins is just one part of the story. That may be the most exciting part of the story, but after the hoard coins are dispersed, how well do they really hold up in terms of price? In fact, there may be no single answer for the simple reason that there are literally hundreds, if not thousands of hoard coins.

In many cases, we simply do not have a name and story to attach to the numbers of one issue or another that are known today. That is especially true in the case of gold where hundreds and in a few cases even thousands of Mint State coins returned to the United States from primarily European bank vaults in the past half century.

There was no accounting of the numbers, but when you check the numbers seen at grading services today there is absolutely no doubt that there were substantial numbers.

Even in the cases where we know of specific hoards and likely numbers involved, it is unfair to expect that each and every hoard coin will show similar price movements. After all, they are part of a set and a set of large cents is not likely to move in price at the same rate as double eagles or silver dollars or Jefferson nickels. Consequently, we cannot really expect uniform results. That said, there is still a certain question as to just how well hoard coins have done in recent years, not when compared with each other, but perhaps when compared to other non-hoard dates of the same type.

One of the most famous hoards of all was the Randall Hoard. If you have collected large cents for more than three hours you have probably heard of the Randall Hoard. The story may not be quite in tune with the reality, but the fact remains that sometime in the late 1860s in Georgia there was a discovery of a significant number of large cents allegedly in a keg. The precise dates were debated as were an assortment of issues and the story over the years has evolved slightly but we have very solid evidence that five dates were found in some numbers in Mint State in the Randall Hoard.

The two most heavily represented dates were the 1818 and the 1820, with lesser numbers of the 1816, 1817 and 1819. We can say that with some certainty as the numbers of Mint State examples of the dates found at the grading services showed the 1818 having been seen 296 times at the Professional Coin Grading Service and 288 times at Numismatic Guaranty Corp. in Mint State, while the 1820 was seen 267 times at PCGS and 391 times at NGC. In comparison, the lowest numbers for any of the five dates were posted by the 1819, which appeared 81 times at each service. In the case of a date with a similar mintage from the period the combined total at the grading services was basically under 50.

Clearly the 1818 and 1820 are available in significantly higher numbers. Back in 1998 in MS-60 the 1818 was priced at $250 while the 1820 was $275. Today, in the same grade, the 1818 is $270 and the 1820 is at $300. It would appear that the dates are not doing well except for the fact that the large cents of the period in general have moved very little. The 1816 for example was $420 in 1998 and still is $420. Other dates have increased and usually more than the 1818 and 1820, so while perhaps increasing in price at a below average pace, it would be hard to say that the Randall Hoard dates are very different from other dates of the type.

The 1857-S double eagle found in such large numbers on the S.S. Central America, which sank in 1857 off the North Carolina coast, certainly has to be seen as an extreme test in terms of double eagles. It is not simply a case where the numbers are large, but it is also a case where the S.S. Central America is a relatively recent hoard.

The market has had very little time to really absorb what was over $100 million in sales. It is probably too early to expect the 1857-S, which was basically an available date in circulated grades but not a readily available date in Mint State, to show any signs of price increases. In fact, with very serious doubts that there are even 5,400 collectors of Mint State Coronet Head double eagles to absorb the supply, it would not be at all out of the question to expect the 1857-S to show some potentially serious price declines.

If you check the prices for the 1857-S back in 1998 in MS-60 it listed for $2,600 while an MS-63 was $10,000 with no price listed in higher grades. Today in MS-60 the 1857-S is at $4,500 while an MS-65 is at $7,250. It’s a very interesting situation and a somewhat volatile one as prices are all over the board depending on the price guide. The consensus, however, is that in MS-60 the 1857-S seems to have increased in price perhaps as publicity over the sale of the S.S. Central America coins encouraged some to want to acquire a lower cost example of a famous date.

The price decline in MS-63 may well be a case of this grade was actually hurt because there were suddenly significant numbers of higher grade examples. It is definitely an opposite trend from other Coronet Head double eagle dates. The question for the next few years is likely to be not what happens to the MS-60 or MS-63 prices, but rather how does an MS-65 or MS-66 fare at their current levels.

Another recent double eagle was one involving Saint-Gaudens double eagles. Called the Wells Fargo Hoard, the hoard involved 19,900 examples of the 1908 no motto double eagle. The number was extraordinary and so was the quality of the coins. The breakdown given to Q. David Bowers for his book A Guide Book of Double Eagle Gold Coins by Ron Gillio, who purchased the hoard, had 6,000+ in MS-66 with 1,700+ in MS-67.

These high grades were not just wishful thinking by the person buying the hoard. The coins have gone through the major grading services with stunning results. At PCGS, 793 Wells Fargo hoard coins were called MS-67 compared to 38 that were not from the hoard.

At NGC the number of Wells Fargo MS-67 coins was 941 compared to 94 not from the hoard. There were similar numbers in other high grades. The impact of so many top quality examples of a single date almost had to have an impact.

The MS-65 listing of the no motto 1908 back in 1998 was $1,350 and today in MS-65 the price is $2,350. This is the cheapest of the “No Motto” type.

If MS-65 were the top grade available, then there would be considerable pressure on buyers to find and buy an MS-65. The Wells Fargo Hoard, however, has made MS-65 an average grade for this one date. Combined NGC and PCGS have graded over 6,400 Wells Fargo coins as MS-66 and 1,700 more as MS-67. Under the circumstances, buyers will seek those upper grades and not the MS-65 so there are more than just numbers potentially working against the MS-65 price of the “No Motto” 1908.

A dramatically different situation involving gold coins would be the gold dollars of 1879, 1880 and 1881. The three were low mintage, with the 1879 having a mintage of 3,030 while the 1880 was just 1,636 and the 1881 was 7,707. The three should have all been tough dates, but back at the time they were released someone saved examples. In fact. they saved hundreds of each.

We can see evidence in hundreds of each in Mint State reported by both PCGS and NGC. The hoards of the three were not all that well known, although it is a case where relatively few study and collect gold dollars. While we do not know the details of the hoard, we know that hundreds of each of the three dates are known and the MS-60 price of the three back in 1998 saw the 1879 at $700 while the 1880 and 1881 were each at $400. Today in MS-60 the 1879 is $525, the 1880 is $425 and the 1881 is $410.

There is simply no good way to make sense of that change. Ironically, the 1879 which declined the most in price is the least often seen of the three in highest grades, while the 1881 which actually increased in price in the highest Mint State grades has been graded more often than either of the other dates. There is no good way of explaining the changes, but every so often strange things happen in the market and this would have to qualify as one of those times.

If there is such a thing as a blue chip hoard coin, it is ironically a pattern as the 1856 Flying Eagle cent could not have been a coin even though it circulated simply because the law authorizing the Flying Eagle cent was passed in 1857. Over the years, few coins have been hoarded like the 1856, which seemed to always inspire speculation or at minimum a hoarding instinct.

George Rice of Detroit probably won the prize for the largest hoard of the 1856 with his accumulation numbered 756 pieces while close behind was John Andrew Beck of Pittsburgh, whose total included some from the Rice collection, reached 531.

In the case of the 1856 the numbers are small, but the percentage of the total mintage is large. Produced both in proof and also with a small number of business strikes there is no certainty regarding the 1856 mintage although perhaps 1,500 to 2,500 pieces would be a good range. Back in 1998 the 1856 was at $4,000 in G-4 and today that price is $6,250. In MS-65, the 1998 price was $21,000 and today that price is $65,000. Clearly as hoard coins go, the 1856 Flying Eagle cent continues to defy the other patterns by surging strongly to higher prices and in all grades.

There was a great deal of hoarding during the Civil War and some of that even reached down to copper-nickel cents. As a result, small groups of the copper-nickel cent dates have been reported over the years. The largest was discussed by Q. David Bowers in his book American Coin Treasures and Hoards” The group of probably 1,000 Mint State specimens of the 1862 was offered in a Thomas Elder auction in 1918. The group was significant based on the fact that PCGS has seen about 675 Mint State examples of the 1862 while NGC is at roughly 850. The 1998 prices for the 1862 in Mint State were $80 for an MS-60 and $575 for an MS-65. Today those listings are the same for an MS-60 but $1,050 for an MS-65. For a hoard coin that is not heavily publicized, that’s a strong MS-65 increase, although in reality it reflects a general increase in copper-nickel Indian cents prices in MS-65 as all dates have done basically the same thing in terms of price.

One of the more interesting dates that was heavily hoarded was the 1883 without “CENTS” Liberty Head nickel. No particular hoard can be discussed although groups of 100 or more were known. The 1883 without “CENTS” was simply hoarded by many as a new design. It was an unusual time for hoarding, but people then also hoarded the last couple years of the Shield nickel series. We see the proof in the fact that there are thousands of Mint State 1883 without “CENTS” nickels reported at the grading services and that produced 1998 prices of $32 in MS-60 and $300 in MS-65. Today those prices are $25 in MS-60 and $260 in MS-65, so clearly the extremely large numbers reported by the grading services are keeping the price down.

In his book, Bowers reports on the mysterious appearance on the market of hundreds of Mint State 1877-CC quarters in Mint State. It was an odd situation as traditionally there was very little saving of new coins at Carson City and even if there had been, the 1877-CC quarter with a mintage of nearly 4.2 million would have been an odd choice. That said, the observation of Bowers is supported by grading service totals, which show hundreds of examples of the 1877-CC in Mint State.

Since 1998, the 1877-CC which was at $375 in MS-60 has dropped to $325. Interestingly enough, that is still a premium over the most available Mint State Seated Liberty quarter dates of the type. Realistically the 1877-CC is one of those most available dates, but it happens to have a “CC” mintmark, which may be the only thing stopping it from further declines.

There is no doubt there have been a few Lincoln cents that were hoarded. It was reported that John Zug had some 25,000 examples of the 1909-S VDB, although that hoard was allegedly broken up before 1920. There were at least 10 or more rolls that hit the market in the 1950s, but the demand for the 1909-S VDB is so great that such numbers were drops in the bucket when it came to meeting demand.

Since 1998 the 1909-S VDB has gone from $720 in MS-60 and $1,800 in MS-65 to a current $1,825 in MS-60 and $6,850 in MS-65, proving that with enough demand no hoard can keep prices from rising. The situation with the Philadelphia 1909 VDB is slightly different. Its total numbers hoarded were much, much larger. There is solid demand for the 1909 VDB, also. Its 1998 prices of $9 in MS-60 and $39 in MS-65, respectively, have risen to $25 in MS-60 and $195 in MS-65.

A final Lincoln cent worth noting is the 1931-S. With a mintage below 1 million we know the 1931-S was hoarded. We can dispute the numbers hoarded with a Walter Breen claim that the Maurice Scharlack hoard had 200,000 pieces, which would have been about 25 percent of the entire mintage, but there is no doubt the 1931-S was heavily hoarded in Mint State and upper circulated grades. Since 1998 in Mint State the 1931-S has moved from $53 in MS-60 and $215 in MS-65 to a current $163 in MS-60 and $685 in MS-65.

Probably the most famous hoard coin of all time would be the 1950-D Jefferson nickel. We frankly do not know what percentage of its 2,630,030 mintage was hoarded initially, but somewhere on the order of 50 percent or more would be in the ballpark. A.J. Mitula of Houston, Texas, reportedly had 1 million pieces while another 320,000 were reported in Wisconsin and there were others with larger numbers involved.

The 1950-D soared in price during the 1950s and 1960s probably in part because all were tied up in hoards. Then it simply went into a coma, not moving for decades. In 1998 the 1950-D was $6.50 in MS-60 and $9.50 in MS-65. Today it sits at $18 in MS-60 and $30 in MS-65.

It is certainly a mixed bag when it comes to prices of hoard coins. Greater numbers should hold prices down, but a good story or heavy demand for the whole series can still lift prices higher.

Will gold supply run out as Barrick Gold warns?

 By David Vaughn

Barrick Gold says the world gold supply has run out. Wow! Isn’t that what some have been predicting for the past 10 years? The president of the largest gold company in the world, Barrick Gold, has just recently announced that gold production peaked in the year 2,000.

It is becoming increasingly more and more difficult to find significant deposits of gold ore. And as the tide has turned the central banks have now become serious buyers of gold and no longer sellers. China has doubled its gold reserves these past 10 years. Asia is turning those worthless US dollars into gold.

Will someone please tell Sarah Palin to get a haircut and take a class in rhetoric?

Rhetoric is simply the art of learning to speak well. Persuasive speech without the mouthful of peanuts. And through the power of effective speech your life begins to develop a sense of purpose and you can influence the thoughts and dreams of a nation.

Sarah’s recent appearance on The Oprah Winfrey Show rocketed Oprah’s show to its best numbers in 2 years. Guess someone’s listening to her. The world awaits your destiny, Sarah.

Ever wonder why Adam decided to share with Eve that forbidden bite? Adam considered Gods wrath. He considered his wife’s wrath. It’s easy to conclude whose wrath he was most afraid of.

And what about investing in those mining companies producing gold and exploring for new deposits? A lot of money to be made here as long as you remember you’re dealing with speculation.

I like that word.

Let me say it again. Speculation. Has a soothing comfortable effect on the tongue. Technically, there is a difference between the term speculation and investment. Investment supposedly promises safety and speculation in the past has always been defined as risk. If there is any one thing investors have learned these past 10 years is that no investment is without substantial risk.

Remember Uncle Bernie?

Bernard Madoff? For years known as Wall Street’s most successful money manager. It is really best to classify any and all investing as speculation. There are no guarantees where ever you place your money. That’s a hard pill to swallow for 401K participants who were counting on 30% annual returns until retirement. And back to Uncle Bernie. I understand that about 50 billion still remains unaccounted for.

What about speculating in mining stocks?

There are those who promise significant profits in just a couple of weeks. Nostradamus couldn’t do better. Somehow I feel a chapter needs to be written about gold speculation. So here we go.

When you hear any one touting a particular gold or silver mining company as a sure thing then head for the hills. The following terms below are good warnings to look for. When you hear the following terms below run.

“the next big thing” “elephant country” “new improvements in mining technology” “enormous land position” “no cash” “no permits” “may prove up” “should” “…quick and cheap to drill exploration holes.” When you hear this kind of language it sure whets your greed.

And the following crap below is a favorite.

Someone touting an existing property having over 90 million ounces of gold before the first drill hole has been drilled. Give me a break. Or how about? “There’s no limit to the potential size of this deposit!” And the following is a good one. “Volume of ore is somewhere between huge and enormous.” “Past exploration confirms…”

And the best probably. “A great deal can be learned with just a FEW drill holes.”

A few drill holes? What a load of bull. A mining company can never drill too many holes. Who knows what’s under that ground? That’s what determines what’s under there…lots of drill holes.

There’s an old saying. Know how to make a quick 20,000 dollars? Invest 50,000 in a gold mine. There’s a lot of truth in that. Actually, a lot of truth.

If none of this makes sense then Google Bre-X. Bre-X provides a good education. And Bre-Ex is not a soap cleanser. The mining business is complicated. The geology of a site is always difficult for even professional geologists to interpret. Assay results often are not right on the money.

Precarious business.

The following names below are worth following. Lot of gurus out there worth reading. A few?

Doug Casey. John Doody is a master craftsman. Kenneth J.Gerbino has brains. Jon Nadler always has a grip on reality and emotions. Kind of like Spock. You’ve never heard of these? Well, you need to acquaint yourself with these guys. If you do you might just make money.

The following fellow below may just have been a successful speculator in gold mining stocks. And maybe not. Who knows? But the story sounds good.

”We talked about Gods grace and all the hell we raised” ”Then one sunny day, I saw the old mans face” “Front page Obituary, he was a millionaire” ”he left his fortune to some guy he barely knew, his kids were mad as hell” ”But me, I’m doing well” “And i drop by today, to just say thanks and pray, i left a six-pack right there on his grave…” Billy Currington

And back to good analysts to follow? Don’t forget Dennis Gartman. Brains there too and perspective and objectivity. There are others not mentioned, but in due course they make themselves heard. Information is always valuable. Almost forgot to mention Jim Sinclair! Been in this business for 30 plus years. The one and only gold prophet.

Is information important?

The founding father of international finance, Meyer Amschel Rothschild believed in information. Though born in a Frankfurt ghetto he had the ability to realize the importance of information. It was Meyer who put to the test that information can represent the difference between poverty and wealth.

What leads to poverty or wealth is volatility. What we are seeing today. Instability and volatility generally contribute a great deal to the direction of a share price…whether up or down. Jesse Livermore lost more money when the markets were “flat.” But with the depression of 1929 and volatility that went crazy. He went on to make 100 million dollars.

Volatility is always the friend of speculation.

Information is proving in the world markets today that gold is being recognized as real currency. More central banks around the world are increasing their gold reserves. Physical gold and physical silver represent insurance and shares in mining companies will always be speculation. Gold will probably continue its climb. 2,000 per ounce looking more like a reality down the road..Let’s change direction here and take a history lesson.

History always repeats itself. Lot to learn from the past. A lot of people often refer to the decline and death of the Roman Empire. Don’t think it ever really fell. Sure, the emperors all died and civilization collapsed. But Rome’s influence continues to endure and shapes the very foundation upon which our civilization exits. Its influence truly never died. Its influence still reigns today.

The ancient Roman world began around the 8th century BC. Just a humble little trading post that began its road to fantastic wealth by trading salt along the Tiber River. Officially, the last vestige of Rome, Constantinople, came to an end in 1453. What is that? From the 8th century to 1453 is over 2,000 years.

What does this have to do with anything, especially gold and current events? So much so that Rome created the blueprints for modern day society, modern finance and even the futures currency.

Nothing new under the sun.

Particularly economics and finance. Throughout history, the ancient Egyptians, Babylonians, Rome, the medieval era, France, Germany, the 20th century, the 21st century. Always a predictable pattern. Never ending economic cycles. A little variation here and there. But nothing new under the sun.

Pompeii had air conditioning…known as evaporative cooling. Modern day air conditioning was not re-invented until 1902. Romans also invented central heating, long forgotten, and not commonplace again until the mid 20th century. Indoor plumbing and running water was available in every major city in the empire. Both indoor plumbing and outside running water became a forgotten luxury by the 6th century. Not until the 18th century would common citizenry enjoy running water. And, oh, those flushed toilets I like so much.

Rome had the brains and engineering to build a great sewer system 2,600 years ago, the Cloaco Maxima and its still in use today. Rome’s engineers provided public toilets flushed with running water and elaborate fountains were every where.

Rome designed horse racing stadiums called hippodromes. The one in Rome held as many as 250,000 spectators. These hippodromes were scattered all over every major city in the empire. Chariot racing was as popular in that day as world soccer is today. The Blues (Venetii) and Greens (Prasinoi) chariot racing teams raced against the Reds (Rousioi) and the Whites (Leukoi).

Engineering marveled the age then.

Stretching from the Atlantic Ocean all the way to the western edge of Parthia, modern day Iran. Rome paved over 250,000 roads all over Europe, North Africa, and the Mid East. Just in Britain alone there were over 6,000 miles of paved road. And many of these roads are still being used today. Roman roads were often as straight as our modern expressways and even tunneled through solid rock where necessary. The only difference in modern day road systems and the Romans is that ours require more maintenance and are constantly in a state of deterioration. Contractors have learned to build things in our day that quickly fall apart so they can shortly be built again. More money made this way.

The US senate, the executive branch, all old ideas. Their Capitoline Hill we call today the Washington DC capital. All today’s classic buildings are patterned in the ancient Roman style. And the major building component was concrete. The secret of making concrete was lost and not rediscovered until 1756. Over a 1,000 years with out concrete until just 250 years ago.

The point in all of this?

We can see what our past forefathers did to ruin their economy and currency. And this understanding proves that what is happening today was learned long, long ago.

In an effort to attempt to deal with their increasing economic problems the rulers gradually began to devalue the currency beginning around 60AD and eventually became even worse when the silver content was substantially reduced in coins. And the economy only worsened. By the 3rd AD century the amount of silver content in a silver coin was only .02%.

One reason the economy began to fall apart in the roman world was because the existing currency was debased. Much as is happening again today. As the money became worth less and less people began spending even less money.

Always, through the ages, the middle class is eventually squeezed out of existence, economic opportunity ceases, and the majority becomes the poor masses dependant on the state. And as an economy worsens the middle class eventually became lower class.

And inflation ensued.

And of course inflation then was caused by the creation of more and more debased currency. Like the US pre 1964 coins made of silver and now made of some trash metal. The phenomenal rise in prices in the later empire followed the large increase of the amount of money in circulation just as today.

And in the later empire it became forbidden to hoard gold and silver coins and the penalty became death. Sounds like the United States under FDR in the 1930s when physical gold and silver was confiscated from the average man in the street. Inevitably, we are all just conduits for stupidity and avarice.

Jim Sinclair – “Be careful as gold is going to $1224-$1278, $1650 and then on to Alf [very, very high!] Numbers. Ask yourself if you are a speculator or an insurance holder?”

Summary

A major cycle is unraveling in the global financial economy today. And as this crisis cycle evolves the world as we know it will for ever change.

Every world cycle is about freedom and security. Some will want freedom and others will want to keep the security and the status quo. Some want to be free while others happily will wear a golden collar of servitude provided by a polite government.

Always look for the gold in the ground. “Proven & Probable” is always the superior classification for the best affirmed deposit. This is the term the banks like best before lending money.

Courtesy: http://goldletterdv.com

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