Why I Am A Coin Dealer

By Patrick A. Heller August 30, 2011

Someone recently asked me why I was a coin dealer. After giving a quick answer, I later thought about it in more depth. It turns out that there is a more to my choosing to be a coin dealer than simply trying to earn a decent living at something I find interesting.

I have always been an idealist, thinking that I could help improve the world one person at a time. This attitude largely came to me by observing both of my parents doing exactly this. They went above and beyond their job descriptions to improve people’s lives one small step at a time, with the result that many people benefitted far outside their circle of co-workers, friends, and families.

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Most people dream of improving their financial well-being and security. As a coin dealer, I provide value to people to help make their dream a reality. But it’s not only offering competitive buy and sell prices, the real value of a dealer comes from these activities:

• Doing constant research to understand what is really happening in financial circles, then trying to explain it in understandable terms. This research involves identifying those who know what they are talking about, those who doesn’t have a clue but pretend that they do, and those who just don’t understand. Part of this process is developing reliable contacts who will give you the straight scoop (for which you return the favors over time).
• Writing consumer protection articles, giving speeches, and becoming a customer advocate, even in circumstances where it does not generate any business for you, such as providing volunteer professional expert service for the state attorney general’s fraud investigators.
• Giving customers, readers, and listeners the straight scoop, and doing so in such a way that they understand and can better decide what is in their best interest.
• Becoming a trusted adviser for the customers’ best interest, where you are comfortable not getting a particular deal when they found an opportunity elsewhere.
• Publicly decrying some “less than honest” business practices committed by some in the industry.
• Working (and paying the bulk of the financial cost out of pocket) to achieve a statewide sales and use tax exemption on the retail sales of rare coins and precious metals.
• Aggressively cooperating with police departments and county sheriffs to prosecute the occasional crook that dares to sell stolen merchandise to you.
• Employing a deeply knowledgeable and experienced professional staff that can handle almost any question a customer may have.
• Realizing that customers don’t have any “stupid” questions. Instead, perceive that they are doing an intelligent thing by seeking information on something where they have inadequate knowledge
• Providing a friendly and safe environment to visit.
• Avoiding cold calls to customers to badger them to buy “the next great thing.”
• Offering free education to the visitors at your “museum.” There is so much fascinating history involving coins, paper money, and exonumia.
• Sharing the fascination of numismatics with schools, fraternal organizations, senior citizens groups, and the like, making sure to pass around actual treasures that listeners can touch.
• Assisting fellow dealers and collectors for the mutual benefit on the hobby and industry. Supporting organizations and trade associations both financially and with a commitment of time.
• Helping student employees develop an entrepreneurial spirit. This has been one of the greatest satisfactions in my 30 years as a coin dealer.

Maybe you thought that all you had to do to be a coin dealer was figure out how to acquire merchandise at prices below what you could sell it. While that is certainly necessary, I think you will find that the coin dealers who engage in providing some of these extra values will derive greater enjoyment in their career. And, guess what, if you treat your customers like they are the most important people in the world, you will also likely get a greater financial return.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for The Greater Lansing Business Monthly (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

Gold and Silver Demand Expands

By Patrick A. Heller April 12, 2011

Thus far in 2011, I am seeing an expansion in demand for purchasing physical gold and silver. I expect this will have a significant impact on prices in the coming months.

The Michigan State Numismatic Society Spring Convention was held in Dearborn this past weekend. With gold settling last Friday at an all-time high price (ignoring inflation) and silver closing at its highest price since early 1980, there was still not an onslaught of sellers liquidating their holdings. Yes, the amount of gold and silver my company purchased at its booth was significantly higher than we experienced in the past few years. Still, that jump in liquidation was completely offset by equally strong buying demand from customers, especially for silver.

The last time there was a general public clamor to purchase precious metals was in the 30 months leading up to Jan. 1, 2000, (Y2K). That surge in demand was for protection against possible calamities if there were widespread computer crashes after Dec. 31, 1999. Once that day passed with comparatively few problems, there was extensive liquidation of gold and silver by “weak hands” buyers that continued until about the first week of May 2000.

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My companies are not yet experiencing the surge in demand that we handled in late 2009. However, we are definitely becoming busier as the year progresses.

Last week, our staff probably served about 10 times the number of first-time customers as we have in a typical week during 2010. The behavior of these first- time customers is also changing. In the past, most typical potential customers would do a fair amount of due diligence. They would do research online and in newsletters and ask lots of questions of our staff. Frequently, they would make their first purchase on their second visit or call to our business.

Now, a noticeable number of visitors are stopping in our stores or calling on the phone to conduct a prompt transaction. Generally, such first-time customers have either been given strong specific instructions when referred by existing customers or they are literally led to our premises by a satisfied customer.

There is also another change I detect. We are enjoying what I would describe as “institutional” demand such as we have never seen before. The management of for-profit and even non-profit organizations that have excess cash flow are unhappy accepting almost 0 percent return on certificates of deposit, Treasury debt and savings accounts. At the same time, it seems as if one or more members of top management have done well in recent years through owning gold and silver. When this person brings up the idea of the organization owning precious metals, they are now finding their fellow decision-makers receptive to the idea. In the past few months, we have made several sizable sales to organizations that have never before considered ownership of physical gold or silver.

Let me give you some examples of news reaching the general public that I think is partly behind this growth of interest in owning precious metals. The number one reason is apparently greater awareness of rising consumer prices. Even though the U.S. Bureau of Labor Statistics in its latest report still claims that consumer prices have increased barely 2 percent from one year earlier levels, most people realize that statistic is far lower than what they are personally experiencing.

Last Saturday, the local Lansing, Mich., newspaper featured an article on the front page of one of its sections titled “Stock Up On It: A guide to stockpiling 9 pantry items.” The first sentence of the article states, “Grocery prices are on the rise again.” The essay then goes on to identify several products that are non-perishable or have long lives that can be acquired in quantity when stores periodically put them on sale.

On Monday morning, the most widely quoted stockbroker in the Lansing area was interviewed on a Lansing talk radio program. He covered several subjects including a statement that the federal government’s inflation of the money supply (quantitative easing) has had the effect of supporting stock market prices. He also specifically mentioned the “Plunge Protection Team” (formally known as the President’s Working Group on Financial Markets) as artificially supporting (i.e., manipulating) stock prices, a practice he did not endorse. While the stockbroker did present other reasons why he considered selected stocks as good values, the first things listeners heard was that stock market prices are being propped up by the U.S. government. The speaker also acknowledged that the U.S. government is now the largest buyer of U.S. Treasury debt. In effect, what the speaker said would shake the confidence of the general public in the strength of the stock market.

The March 19 issue of The Economist contains a Buttonwood column titled “Stopping quantitative easing may be harder than starting it.” The article starts off describing Bill Gross as the most famous and experienced bond fund manager in the world. Then the author asserts that when Gross’s PIMCO funds avoid owning Treasury debt, investors should take notice.

The second paragraph of this column is especially damning, “Mr. Gross is particularly worried about the effect of quantitative easing (QE) by the Federal Reserve, the second round of which is due to expire in June. He has described this process, whereby the Fed creates money to buy both mortgage-backed securities and Treasury bonds, as a form of pyramid or Ponzi scheme.”

Later on, the article quotes Gross as asking, “Who will buy Treasuries when the Fed doesn’t?” Gross is also concerned about the danger of a spike in bond yields as investors demand a higher return to compensate for the risks of inflation or dollar depreciation.

I have previously listed two indicators that would portend an above average likelihood of sharply higher gold and silver prices in the short term. The first of these is that the U.S. Dollar Index (a measurement of the value of the dollar against a market basket of other major currencies) would fall below 77. This index has been below 77 almost constantly for several weeks. Last Friday, the Index settled at 75.06, its lowest level since late 2009.

The second indicator is that the 10-year U.S. Treasury debt interest rate rises above 3.5 percent. The rate has mostly ranged from 3.2 percent to just under 3.5 percent over the past few weeks. However, the 10-year rate rose above 3.5 percent both last Thursday and Friday, ending the week at 3.58 percent. Should this interest rate remain above 3.5 percent for at least three or four consecutive days, there is a good possibility it may quickly jump significantly higher.

As the general public becomes exposed to more stories talking about rising consumer prices, or comparing the U.S. government’s program of quantitative easing to a “Ponzi scheme,” or revealing that the U.S. government is artificially propping up stock market prices, even more people will step forward to buy gold and silver as safe haven assets. Although we are noticing a definite increase in the number of bullion buyers, we are nowhere near to the widespread demand that would be a signal of a market top.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes “Liberty’s Outlook”, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

Is U.S. Terrorized by Gold?

By Patrick A. Heller March 22, 2011

Last Friday, Bernard von NotHaus was convicted of four charges of issuing, passing, selling and possessing privately manufactured Liberty Dollars, including the intent to use them as current money and of conspiracy against the United States.

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The trial was held in Statesville, N.C., and lasted eight days. The jury deliberated for only two hours before returning a guilty decision on all charges. Von NotHaus is currently free on bond awaiting sentencing.

In the Department of Justice press release issued March 18 on the conclusion of this trial, the U.S. Attorney for the Western District of North Carolina, Anne M. Tompkins, said, “Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.”

Von NotHaus was charged and convicted for the act of issuing silver and gold private barter currency which listed a face value on them. At the times they were issued, the pieces were stamped with a value and traded at prices above the intrinsic metal value.

During the trial, the prosecution’s witnesses admitted that the pieces were of full weight and purity as stated on the pieces, which is why there were no charges for fraudulent description of the merchandise being bartered.

Is it true, as Tompkins’ asserts, that selling gold and silver is an act of “terrorism” that “represents a clear and present danger to the economic stability of this country?” This contention contradicts the U.S. government’s past inaction on this issue.

For example, Christopher Bechtler and his son August of Rutherford County, North Carolina issued $1, $2.50 and $5-denominated gold pieces from 1830 to 1852. It happened that at least some of the issues contained about 1 percent more gold content than coins of the same denomination struck by the U.S. Mint in Philadelphia. Despite this long period of operation, the U.S. government never once prosecuted the Bechtler’s for the same charges pressed against von NotHaus. There are reports that the Bechtler coins were so popular that they were readily accepted at par by banks in North Carolina into the early 20th century.

The March 20 issue of “The New York Sun” carries a great editorial. It begins:

“Here is a thought experiment concerning two men who have issued money. One issued gold and silver coins that will today bring more in dollars than he charged for them. The other issued paper notes that are today worth but a fraction of the gold or silver they were worth at the time they were issued. One man is facing the possibility of years in prison after a federal jury found his issuing of money to have been a crime. The other man is walking around free and being treated by the authorities with great deference. Which is which?”

“It turns out that the man walking free is Ben Bernanke, the chairman of the Federal Reserve. A $1 note that his bank issued used to be worth – as recently as, say, the start of President Bush’s first term – a 265th of an ounce of gold; today it’s value has plunged to less than 1,400th of an ounce of gold. The man who issued the coins that will fetch more dollars today than when he issued them is Bernard von NotHaus, 67.”

You can read the complete editorial at http://www.nysun.com/editorials/a-unique-form-of-terrorism/87269/.

If selling (and, by implication) buying gold and silver coins is an act of domestic terrorism that needs to be prosecuted, is the Department of Justice going to go after “terrorist organizations” that are major manufacturers and sellers of gold and silver such as the United States Mint, Royal Canadian Mint, Perth Mint, Royal Mint, Austrian Mint, South African Mint, Casa de Moneda, and others? They all produce large quantities of gold and silver issues sold to people who are not purchasing them for their numismatic value but rather for their status as safe haven alternatives to owning Federal Reserve Notes. Then is the Department of Justice going to go after every “domestic terrorist” who owns any gold or silver bullion-priced coins and ingots?

The sales of Liberty Dollars barely totaled $10 million before it was shut down by the U.S. government. Does this comparatively modest amount really “represent a clear and present danger to the economic stability of this country?” If so, shouldn’t the Department of Justice aggressively go after those responsible for the major damage to the economic stability of the U.S. – the President, members of Congress, the Federal Reserve and officials at the U.S. Treasury Department?

Think about it. If the U.S. government issued a sound currency, then actions such as the issuing of Liberty Dollars would have no impact on the economic stability of the U.S. It is only by the actions and inactions of U.S. government officials that the stability of the U.S. dollar ever comes into question. The depreciation of the U.S. dollar is now wreaking havoc among American citizens.

As the value of the U.S. dollar continues to fall (now at a 15-month low) the wealth of Americans is being stolen by the U.S. government as a result of the inflation of the money supply. Von NotHaus is not responsible for this condition, but he has just been convicted of contributing to this problem.

Where is the justice in the von NotHaus conviction?

Contrast that story to the U.S. Supreme Court decision announced March 21 that confirmed a trial judge’s order to the Federal Reserve to release 231 pages of documents related to emergency bank loans made in April and May 2008, along with the loan amounts made by the Fed. These documents are to be released within five days.

This is the second time that the Fed has been ordered to disclose information that it sought to shield from the public. One of the Fed’s objections to the disclosure is that it could affect the future operations of the Fed and banks in pursuing, for instance, economic stability. Should the Department of Justice add the Supreme Court to a list of “terrorists?”

Sacramento ANA Report

The American Numismatic Association National Money Show was held in Sacramento, Calif., this past week. When this show was last held in Sacramento in 1999, it set an all-time attendance record.

Activity was much livelier than I observed at the show in Long Beach six weeks earlier. Still, attendance was significantly less than the prior Sacramento show. The public attendance was well down. As a result, most of the activity was dealer to dealer. As I asked around the floor, dealers told me that they generally had an acceptably good show. Nobody told me they were having a spectacular show and only one dealer considered the show to be not worth his time and cost.

Dealers were willing to step up to purchase inventory, with Morgan dollars probably being the strongest area of interest. During the course of the show, dealer bids for common MS-63 and MS-64 Morgans rose about 5 percent. Mint State rolls and even circulated issues were in demand. There was also some interest in picking up U.S. gold coins, though prices remained relatively static.

A number of dealers told me that it continues to get ever more difficult to find new material to acquire. That was also my experience. My numismatic purchases at the show were the lowest of any show in at least a year, despite my willingness to stretch to buy coins I sought. Still, my surprisingly high sales made the overall result satisfying.

In the previous 10 days, my own company had seen the demand for precious metals fall about 80 percent toward silver and 20 percent to gold. When I asked several dealers around the country about the experience in their shops, they all agreed that demand for silver has been strong – several times the amount they have been selling in gold bullion-priced items. The strongest demand, relative to available supply, seems to be for 1- and 10-ounce size silver rounds and ingots.

One California dealer lamented that he appreciated doing so much bullion business, but he really missed doing as much numismatic volume (with its higher profit margins) as he used to do. Among areas of special demand right now, beyond Morgan and Peace dollars, are U.S. Civil War-dated coinage, Chinese Panda and other issues and ancient coins. There continues to be interest in the classic commemorative half dollars with Civil War-related themes.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

Thinking Of Buying Gold Or Silver? Now What?

By Patrick A. Heller on August 24th, 2010
Categories: Featured Articles, Gold and Silver Commentary, Precious Metals

By Patrick A. Heller May 11, 2010

With all the financial turmoil in Europe over the past week, the U.S. dollar has risen in value against almost all other world currencies.  Even with the $1+ trillion rescue package (including significant assistance from the U.S. government – meaning U.S. taxpayers) set up to assist Greece and other European countries with their sovereign debt crises, currencies like the euro are shaky enough that investors are scurrying to get out of it.

Most mainstream investors think in terms of which currency into which they will park their investments. Generally, they don’t think of gold (or silver) as representing an alternative currency at all. Among all the paper currencies, the U.S. dollar looks to be the “least bad” right now.  Therefore, in the past few days, investors are flooding into U.S. Treasury debt and other dollar-denominated paper assets

All of this positive news for the value of the U.S. dollar is just temporary. In reality, the U.S. government has grown the size of its debt and budget deficits past the point of no return. According to David M. Walker, the former comptroller general (chief accounting officer) of the federal government, and others, the U.S. government’s actuarial liabilities and debt now exceeds $100 trillion. This is so large, more than six times the size of the U.S. economy, that it can never be paid off except through hyperinflation of the U.S. dollar into becoming worthless.

The size of the “official” federal government budget deficit for the 2010 fiscal year is forecast to be $1.4 trillion dollars.  This is the much smaller “cash-flow” figure rather than the correct “actuarial” deficit which would include all the commitments that the U.S. government is now incurring but postponing payment into the future. Even using the smaller number, the size of the deficit is so huge that, at current gold prices, the deficit could purchase more than 30 percent of all gold mined worldwide over the past 5,000 years.

Keep in mind that this is just the “smaller” deficit figure for just one nation for just one fiscal year. Future federal budget deficits are projected by President Obama and his staff to continue on this scale for at least the next several years (which I consider to be hopelessly optimistic).

As more investors realize that the U.S. dollar is no more stable in the long run than other currencies, the demand for physical precious metals will inevitably continue to rise. So, even though the dollar may look somewhat strong at the moment, it is destined to collapse in value. Unfortunately, as we saw with the Dow Jones Industrial Average last Thursday, the value of the dollar could suddenly plummet so quickly that the average investor has no opportunity to get out “just in time.” With such a high risk of being hit with a sudden loss for holding U.S. dollars and dollar-denominated paper assets like stocks and bonds, the sensible step is to get out of the dollar right now – at a time when it looks to be temporarily overvalued.

In years past, value of the U.S. dollar typically had an inverse relationship with the price of gold. If one was rising, the other was declining. That has not been true for the past week or two. It is entirely possible that the current temporary jump in the value of the dollar could lead into a much higher gold price in the coming weeks.

Other news notes:

1.  The investigation into JPMorgan Chase’s silver trading practices is expanding. Commodity Futures Trading Commission officials have unofficially announced they are conducting a civil investigation of JPMorgan Chase. The Anti-Trust Division of the Department of Justice has now sent e-mails stating that it has started a criminal investigation against the company. The investigations would include trading conducted on the London Bullion Market Association by the bank’s London office. JPMorgan Chase does not yet face any charges from either agency.

In the fourth quarter of 2009, JPMorgan Chase’s derivatives position in the silver market increased by 220 million ounces.  I am confident that most of this was unleashed to help hold down the price of silver.

As JPMorgan Chase is the lead trading partner executing the orders of the Federal Reserve, it is hard for me to think that the ultimate results of these investigations will severely cripple the bank. However, just the existence of the investigations could be enough for the price of silver (then gold) to shoot upwards.

2.  Most major international financial conferences are arranged a year or more in advance.  On May 11, the International Monetary Fund and the Swiss National Bank will be co-hosting a meeting of a number of the world’s major central banks, financial companies, and market analysts to discuss the current global currency crisis. That this meeting was only announced on April 23 is a sign of the urgency and depth of the crisis that is now affecting global markets. I’m not sure how it will be possible to come to any kind of agreement on such short notice that would reassure investors in stocks, bonds and currencies. If this meeting completely fails, you know, I suspect that there will be a lot of pressure for the media to not even report on it. In my judgment, the results of this meeting will give a good indication of where paper asset and precious metals markets are heading in the next couple of weeks.

3. With the nearly panicked reaction in European and other markets late last week, and the loss of trillions of dollars in the value of paper assets, it was almost certain there would be a major effort to prop up European currencies and all stock markets on Monday.  That is just what has happened, with European stock markets up 5-9 percent on May 10, and almost all other stock markets up by a lesser degree.  The market manipulation required to pull off this accomplishment almost looks like it cost more than $1 trillion dollars. These amounts are so large that the central banks simply cannot afford to commit to this level of resources very long. Even with stronger markets for paper assets, gold and silver are not retreating. I think that any sign of weakness in any paper assets could be sufficient impetus to start a flood of investor money into precious metals, accompanied by quickly rising prices.

4.  I constantly complain that the mainstream media is totally ignoring what has really gone on in the world financial markets in general, and in the precious metals markets in particular. That is changing.  “The New York Post” is the source of the inside information on the CFTC’s investigation of JPMorgan Chase. Last Friday, the “Los Angeles Times” included a glowing story on the prospects for owning gold. It even included the fresh information that European demand for physical gold is so strong that it is already almost impossible to find any to purchase (which I consider a sign of what is likely to occur in the U.S. within two weeks).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 www.libertycoinservice.com.  Other commentaries are available at Coin Update (www.coinupdate.com) and Financial Sense University (www.financialsense.com).

Gold Volatility Whips Market

By Patrick A. Heller February 23, 2010

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The gold market suffered but overcame two major onslaughts last week.

After U.S. markets closed last Wednesday, the International Monetary Fund announced that it would offer the remaining 191.3 metric tons of gold from its planned gold sales onto “the market” rather than central banks. By making it appear that more than six million ounces of gold might be dumped onto retail channels over time, some investors panicked into selling, which pushed down the gold price.

Gold eventually fell more than two percent but then recovered all lost ground within 24 hours of the announcement.

The nature of the IMF announcement indicated that it was done to drive down the price of gold. Revealing such plans is a tactic that guarantees that the IMF sells the gold for the lowest possible price. If the IMF was really trying to raise the maximum funds for its own operations, it would not sell its gold by this process.

The quick recovery in gold prices meant that another tactic was needed. Late on Thursday afternoon, the Federal Reserve announced that it had increased the interest rate banks would have to pay the Fed for overnight borrowings. This was meant to be a signal that interest rates might rise in the near future, which again knocked down precious metals prices.

Still, gold came right back the next day. Over the weekend, Asian markets climbed as high at $1,130. When the U.S. markets opened Monday, the price was immediately taken down to the $1,110-$1,115 range.

There is a huge incentive to hold down gold prices this week. Gold options expire Tuesday, with more than 5,000 call contracts (over 500,000 ounces) that could be exercised at a price of $1,100. Should the COMEX close Tuesday above $1,100, these contracts for immediate delivery would be called. That would put a supply squeeze on the dwindling COMEX gold dealer inventories, which are down 25 percent in the past three months to only 1.65 million ounces.

Also this week, Fed chair Ben Bernanke will be testifying before the House Financial Services Committee and Senate Banking Committee. There is an effort under way to encourage a member of one of these committees to ask Bernanke the very same questions about admitted Federal Reserve gold swap arrangements that the Fed has refused to disclose in response to the Gold Anti Trust Action Committee’s Freedom of Information Act Request. If ever there was a week that Bernanke needed to appear competent, this is the week.

The U.S. government, the member nation with the largest voting power in the IMF, leaned on the IMF to make it appear that some of its gold might be sold to the public (which, if it occurs, I think will at most be only a token percentage of the total), then risked crashing stock and bond markets by raising one of the key interest rates. To me, these actions were obviously taken solely to try to suppress the price of gold.

Such extreme measures worry me that there are some horrendous financial developments about to break. There are so many potential crises waiting to collapse that I cannot discern just which ones they might be.

In the short term, I expect extremely volatile gold and silver markets. I expect to see more extreme efforts made to hold down prices at the same time that demand for physical metals soars. Daily swings of 5-10% are possible. I expect that the result of all this volatility will be significantly higher prices than we see today.

The safest way to participate in the continuing long-term bull markets for gold and silver is to buy physical metals, not paper contracts, and avoid trading on margin. As prices are whipsawed, those with margin accounts could actually lose money despite prices eventually reaching new highs.

In the 1979-1980 bullion boom, I worked as a certified public accountant. One client was a commodity broker who personally bought several thousands of ounces of silver on margin. The day before the price of silver rose almost consecutively until it reached the January 1980 peak, it dipped about five percent. This client was unable to cover the margin call and saw his silver position closed out. If you don’t buy on margin, you won’t have this risk. At that time, I owned significant positions in gold and silver coins, almost all of which I sold in early 1980 for sizable profits.

The idea of purchasing precious metals on margin is to multiply the hoped-for profits. However, in volatile markets, the strategy could backfire. Buy physical gold and silver with your own funds, then relax and sit back to watch the coming fireworks.

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

Gold Ready for New Highs?

By Patrick A. Heller February 16, 2010

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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.

Buy Bullion Coins Now if You Need Immediate Delivery

By Patrick A. Heller  November 2, 2009 

I have heard several anecdotal stories reinforcing my belief that there is developing a huge shortage of physical gold and silver. Multiple sources have told me that owners of maturing commodity contracts who give notice that they want delivery are either getting very slow delivery or are being offered cash payments in lieu of metal at prices significantly above the spot prices.

In my mind, this reflects a looming risk of defaults in paper contracts for gold (and silver). Should this occur, “paper precious metals” may soon be worth a significant discount to physical goods. For now, most forms of physical gold and silver bullion-priced products are readily available at reasonable premiums. These reasonable premiums and ready availability could evaporate on short notice. If you need to add some precious metals to your holdings, I recommend doing so sooner rather than later – even this week.

Ever since the introduction of HR 1207, Rep. Ron Paul’s bill that calls for an audit of the Federal Reserve System that has 308 co-sponsors in the House of Representatives, Federal Reserve officials have tried a variety of tactics to prevent passage. As of this moment, they may have succeeded.

Such an audit, if it gains congressional approval, would almost certainly include auditing the U.S. government’s gold reserves and trading activities.

The Financial Services Committee began hearings on this bill in late September. Committee Chairman Barney Frank assigned it to the Domestic Monetary Policy and Technology Subcommittee. The subcommittee chair, Rep. Mel Watt, D-NC,, whose district includes the headquarters of Bank of America (the largest U.S. lender regulated by the Federal Reserve), has amended the bill, according to Rep. Paul, to eliminate “just about everything.”

A spokesman for Rep. Watt declined to comment on this development and explained that the congressman would not be available for interviews on this issue. Rep. Paul said he intends to introduce an amendment when the bill is being considered on the House floor to restore the bill’s original language. In light of the number of co-sponsors in the House, this might save the bill, at least until it gets to the Senate.

The Senate version is S. 604. It has only 30 co-sponsors, so Senate support of Rep. Paul’s legislation is not as strong as it is in the House. There is a competing bill in the Senate called the Federal Reserve Accountability Act, which was probably sponsored by Fed allies. This bill, S. 1803, could be maneuvered to displace H.R. 1207 should it be restored to its original language as it comes out of the House.

Last week, I stuck my neck out to make a short-term prediction. I explained that the recent pattern of gold trading in a week when options expired and the U.S. Treasury sold a large quantity of debt was for gold prices to be driven down until Thursday afternoon. Once the final Treasury auction closed on Thursday, I reasoned, the pattern was for gold to quickly climb back up to its pre-suppression levels. In my mind, I expected the price of gold to start climbing Thursday afternoon and get back to its level of a week earlier on Friday.

Making short-term predictions is fraught with danger, though the pattern in the past week has pretty much repeated the experience of recent months. The price of gold got all the way down to $1,023 at the low point last week. The price actually started to climb Thursday morning, rebounding all the way to $1,049 in Asian markets overnight. The gold market was poised to rise again Friday morning, but was sidetracked by investors worried by the significant drop in the U.S. stock market. The U.S. price closed about $1,040 that day.

On Nov. 2, however, the recovery finally got back up to levels I expected last Friday. The U.S. markets are still open as I write this, but gold has been over $1,060 several times today. I think there is a substantial prospect for gold to finally breech and hold the $1,070 level in the near term, maybe even this week. Once this occurs, it should be easy for the price to climb above $1,100.

CIT Group, Inc., filed for Chapter 11 bankruptcy reorganization on Nov. 1. One notable loser from this event is the U.S. taxpayer, with all $2.3 billion of the federal bailout money previously advanced to the company expected to be wiped out. CIT is not exactly a household name, but it provides financing to almost a million small- to medium-sized businesses. There are thousands of U.S. wholesalers and retailers who depend on CIT every year to finance their inventory for the Christmas selling season. This bankruptcy filing could jeopardize retail operations for the rest of 2009 and beyond.

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, on the Korelin Economic Report at http://www.kereport.com, and on Coin Chat Radio at www.coinchatradio.com.

Above is a picture of Rep. Paul enjoying a casual moment with the author last month at the New Orleans Investment Conference