GrtWhiteBuffalo
04-02-2003, 12:21 AM
"You have to choose (as a voter) between trusting the natural stability of gold and the honesty and intelligence of members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."
George Bernard Shaw
INTRODUCTION
Tyrants, dictators, globalists, and socialists have always hated gold. It represents financial discipline behind the financial system, it represents financial privacy and independence for the person owning gold, and it frustrates an all powerful government's ability to control the financial dealings (and hence, the lives) of its subjects.
Gold knows no borders - ask the Vietnamese boat people, or the White Russians of the pre-revolutionary Soviet Union, or the Jews who escaped form Nazi Germany - who bought their way to freedom and a new life with gold. Gold is the most liquid financial asset in the world; it is the most portable (except for diamonds); it is the most hideable (or lowest profile); and it is the most widely recognizable and widely accepted form of money in the world.
Politicians and monetary authorities can debauch the currency (by running the government printing presses, inflating, and currency devaluations) but they cannot debauch gold.
A U.S. $20 gold coin in 1933 would buy a first class, tailor made men's suit of clothes, and in 1998 at about $500, the same gold coin would buy a comparable tailor made men's suit of clothes.
On the other hand, a paper $20 bill (which would have also bought that suit of clothes in 1933) has since lost about 95% of its purchasing power through consistent debasement (inflation) of the U.S. currency by the political and monetary authorities. Which is the honest money - the gold coin or the U.S. currency?
There is a widespread belief among gold analysts that the price of gold has been manipulated for years. In an attempt to project an image of financial stability the U.S. Government has had tremendous motivation to keep the price of gold below $400/oz. This gives the world a false impression that all is well with the U.S. Dollar. However, the current administration has done much to erode the world's confidence in the dollar. And the effort to keep the price of gold down is becoming ever more difficult.
A. GOLD'S PRICE ACTION - A HISTORICAL PERSPECTIVE
Long Term Perspective - In 1933, after confiscating Americans' gold at about $20 per ounce, the Roosevelt Administration devalued the U.S. dollar and officially increased the price of gold to $35 an ounce, where it stayed until the late 1960s. On August 15, 1971, President Nixon eliminated the last vestige of gold backing from the U.S. dollar, devalued the U.S. dollar, and declared the dollar to be 100% fiat (i.e., unbacked, paper-only currency). From 1971, gold began to rise from the $35-40 range to $197.50 by December 1974.
On January 1, 1975, through the stellar efforts of Senator Jesse Helms, gold was legalized - so that Americans could once again own it. However, the U.S. government immediately launched a campaign to sink gold - via an anti-gold media propaganda blitz and a series of U.S. Treasury and IMF auctions. Gold dropped for the next 20 months from $197.50 to $102 (almost 50%). (This government manipulation of the gold market was well documented in Tony Sutton's excellent 1976 book, The War On Gold.)
From August '76, gold began an inexorable 3-1/2 year 8-1/2 fold rise to a peak at $850 in January 1980. (Silver, platinum, and metals mining shares rose 1,000% or more during the same period.)
After the vertical price blow-off in late '79 and early '80, gold prices declined from $850 to $287 in 1982. Since then, gold has traded between $300-$500 per ounce. It is upon this well-established base that the next bull market in gold will be built.
B. PHASES OF A BULL MARKET
1. The first phase of a bull market - is the one where only the most far-sighted professionals accumulate the item - and they accumulate early, at bargain prices. In the first phase, the public remains very disinterested and the item remains very much out of favor.
2. The second phase of a bull market - is usually the longest phase, and is when professionals move in and assume large positions. In this phase, the public begins to gradually turn bullish.
3. In the third (and final) phase of a bull market - speculation and greed become rampant, rumors begin to circulate, and the public jumps in with both feet. The 1979-80 speculative blow-off in precious metals, when even Merrill Lynch and the Wall Street gold-phobes jumped into the market (at or near the top), was a classic illustration of the third, speculative, blow-off phase in a bull market.
It is a moot point as to whether we are in the first or second phase of a long-term bull market in the metals - the point is, we are in a bull market and in the strongest price upsurge in gold, silver and metals shares since the mid-1980s; and the move should last for several years - perhaps well into the next century.
C. MAJOR FACTORS IMPACTING THE PRICE OF GOLD
1. Shortages of Gold Coins Are Already Developing - In spite of the present bearish sentiment and depressed prices in the gold market, the global demand for certain popular globally traded gold coins is extremely high, while available supplies are very low. U.S. $20 double eagles are in the shortest supply seen in 25 years. Sophisticated investors are aggressively accumulating these coins. When the crowd finally comes rushing in (probably in '98 or '99) supplies of these coins could become virtually non-existent and prices could explode.
2. Gold Has A Global Supply/Demand Deficit - The Wall Street Journal recently reported that global demand for gold was outstripping supply by 1300 tons a year. Even with larger than average central bank sales in 1997, there was a 6% shortfall of supply versus demand for gold for the entire year.
1993 was the last year that world gold production exceeded demand. Since then, demand versus supply has been steadily growing - a situation typically seen at major gold (or silver) market bottoms and turning points. Gold demand is very elastic - meaning that lower prices attract more physical buyers.
3. World Mine Production Continues to Decline - Many South African and Australian gold mines (the world's largest and third largest gold producers, respectively) cannot maintain production at current levels unless gold rises to $500 per ounce. They cannot increase production unless it rises to $600 per ounce. Half of the mines in the world today are unprofitable on a full cost basis. On a cash basis, a quarter to a third of them are unprofitable at current prices. This has not only resulted in a deferral of higher cost projects, but in many cases, has accelerated mine closings.
In the U.S., stringent environmental laws are bringing exploration to a halt.
4. Japan Is a Major Consumer of Gold - "I hope the U.S. will engage in efforts and cooperate to maintain exchange stability so that we would not succumb to the temptation to sell off Treasury bills and switch our foreign reserves to gold." -- Japanese prime minister Ryutaro Hashimoto (in a 6/23/97 speech in New York).
More recently a prominent Japanese political leader, Mr. Nakayama, said: "Japan's gold reserve levels are so small given our economic strength compared to other nations, I believe that Japan should boost those reserves. It's risky to depend heavily on the U.S. dollar. Holding more gold should be considered."
At some point Japan will realize that their paper money is backed almost entirely by U.S. paper money, and will eventually switch heavily into gold. It is estimated that Japan
until recently held up to $510 billion in U.S. Treasury paper (about half held by the government).
With Japan currently holding less than 5% of its reserves in gold, and the lion's share in U.S. Treasury paper, it is logical that at a point they would begin selling U.S. Treasury paper and buying gold. That point seems to have arrived. Japan has begun to sell U.S. dollars and U.S. Treasuries and to buy gold. That shift should accelerate throughout 1998.
5. Jewelry Demand For Gold All Over The World is Very Strong -making up 80% of total gold demand. Jewelry is rarely sold or melted down. Jewelry demand is very strong in America, Europe, Latin America and India. In recent years, jewelry demand for gold alone has exceeded total global mine production.
6. The Other Precious Metals (Silver, Platinum and Palladium) which, Unlike Gold, Are Not Considered To Be Politically Incorrect, Are Already In A Strong Uptrend. - Warren Buffett, reputed to be the wealthiest, most sophisticated investor in America, has purchased 20% of the world's silver supply (approximately 130 million ounces). Buffet searches for and purchases genuine value -- apparently he believes that silver is currently undervalued. Compounding the situation is the fact that silver inventories are the lowest they have been in 12 years.
D. GOLD PROVIDES SECURITY
In a depression or time of financial crisis (such as the 1930s and the one predicted for the late '90s) people will seek security for their assets. They will begin to diversify out of many traditional financial institutions and financial obligations and into assets which represent more than just a paper promise to pay. In past depressions, massive funds have switched to gold and cash. Remember: During the Great Depression cash was "king" because cash was backed by gold. Therefore, it was actually gold that was "king". For example, in the 1930s, while most assets were dropping in value like the proverbial rock, gold rose 75%.
One must be a contrarian or maverick at this point to consider the possibility of a strong return of inflation over the next few years - but never forget the power of the Fed's printing presses or a collapsing dollar, or a flight from the dollar which could force the Fed to again monetize billions of dollars of our annual deficits. There's only one "answer" to a collapsing world debt pyramid - run the printing presses faster and faster.
It is possible that both a severe recession (or depression) and inflation will eventuate in the U.S. between 1998-2002, just as much of the Third World and Latin America now suffer with inflationary depressions. A spastic economy, with elements of both inflation and depression could make more traditional investment strategies obsolete. We are entering the biggest financial crisis since 1929-1933, but are far more overextended and vulnerable than at that time - and with far greater investor apathy and complacency.
Greater liquidity, reduced debt and a sharply increased reliance on precious metals as an insurance hedge and profitable investment vehicle seem to be in order. Highly liquid gold coins should be a major part of every investor's portfolio over the next few turbulent years.
The U.S. government hates gold and will hate the emerging bull market in gold. Since rising gold is a very highly visible barometer of rising inflation and economic/financial fears, the government can be expected to attack gold as it did during the '70s with words, with warnings, with manipulation, and by getting foreign central banks to periodically dump gold. This will cause periodic price sell-offs that will not alter the uptrend. The U.S. government fought the gold market in the 1970s and the more they did so, the higher the price rose.
There are 3 categories of gold coins:
• GOLD BULLION COINS
- such as Krugerrands, Canadian Maple Leafs, Austrian 100 Coronas, American Eagles.
• SEMI-NUMISMATIC GOLD COINS
- such as $20 Double Eagles: St. Gaudens and Libertys.
• NUMISMATIC GOLD COINS
- such as very rare gold coins.
Gold bullion and semi-numismatic coins are very liquid; numismatic coins are quite illiquid and in recent years have been subject to excessive overpricing, overgrading and overpromoting.
In a rising gold market, which we anticipate over the next 2 to 4 years, gold bullion and semi-numismatic coins should out-perform very rare gold coins as they did during the giant bull market of 1976-1980. In addition, they are far more liquid and have substantially lower markups than the more highly promoted rare gold coins.
The $20 Liberty and St. Gaudens Gold Coins
There are two gold bullion coins which are almost totally overlooked by most investors and coin dealers -- the semi-numismatic Liberty and St. Gaudens gold coins. These are gold bullion coins, minted by the U.S. Government from 1866 to 1933.
1. No Dealer Reporting Requirements.
All gold bullion liquidations are reportable (by law) on Form 1099 by coin dealers. Coins with a premium above 15% do not have to be reported by dealers. The semi-numismatic Liberty has a premium above 15% and is, therefore, a gold bullion coin which does not have dealer reporting requirements.
Why is Anonymity essential?
Virtually every asset or investment which we own is highly visible, trackable, reportable, and under the watchful, scrutinizing eyes of the government. Everyone should own an asset which no one else knows about -- a low profile bearer-type investment which leaves no tracks when bought or sold. The 4th Amendment to the Constitution still guarantees us freedom of privacy; however, in all but a few investment vehicles (such as the $20 semi-numismatic Liberty gold coin) that privacy is now gone. Frenchmen, Latins and people living in communist countries certainly believe in and practice anonymous gold ownership. In fact, gold and cash are about the only private assets which the watchful eye of "big brother" cannot regularly scrutinize. Now, however, with the new cash and metals transaction reporting laws and regulations, even cash, cashiers checks, money orders and most forms of gold transactions are reportable. Because numismatic and semi-numismatic coins are not dealer reportable, the $20 Liberty is a non-reportable gold bullion coin. The popularity of "quiet" (anonymous) ownership of gold is growing.
Note: Any profit generated from the sale of U.S. $20 Gold Pieces is indeed taxable, as any capital gain would be, but they are not dealer reportable.
2.Double Play on the Bullion Content and the Scarcity.
Semi-numismatic Libertys are no longer minted, are in very short supply and are very difficult to find in quantity. They tend to rise with a rising gold market, but even faster than gold or other bullion coins because of their scarcity.
3. Greater Upside Potential Than Gold or Other Bullion Coins.
The semi-numismatic Liberty currently has a 40-50% premium over bullion. (Numismatic coins have 500-5000% premiums over their bullion content.) The premium on the Liberty coin has expanded to 60% in recent years, and under certain bullish gold market conditions, could rise even higher. So, in a rising gold market, the semi-numismatic Liberty coin has a substantially greater upside potential than a normal gold bullion coin.
4. No Fear of Confiscation.
Some investors fear that under some future crisis, politicians looking for a scapegoat would reconfiscate gold -- as they did in 1933. (Collectibles were excluded from this government "theft.") In the event of another "government gold grab" (and it should be remembered that prior to 1975 Americans could not own gold
bullion), the semi-numismatic Liberty is a collectible and is likely to be excluded from such a confiscation. (See important insert below.)
5. International Investment Vehicle.
The semi-numismatic Liberty, a legal tender U.S. coin, is widely recognized and traded internationally (unlike many of the foreign coins hyped by certain U.S. coin dealers which do not have a wide market or any true numismatic value).
6. Low Commissions.
The commissions are very low compared to numismatic coins -- that is why very few coin dealers in America place these coins in their clients' portfolios.
"By virtue of the authority vested in me by Section 5(B) of the Act of Oct. 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled "An Act to Provide Relief In the Existing National Emergency in Banking, and For Other Purposes", in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coins, gold bullion, and gold certificates within the continental United States by individuals, partnerships, association and corporations...
All persons are hereby required to deliver on or before May 1, 1933, to a Federal reserve bank or branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:
(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins...
Section 9. Whoever willfully violates any provision of this Executive Order or of these regulations or of any rule, regulations, or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agency of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE
April 5, 1933"
So went the order of April 5, 1933, prohibiting the selling, buying or owning of gold or silver. In so doing, the government of the U.S. ordered its citizens to turn in their precious metals for "legal tender" paper. Violation of this order carried penalties of 10-years in prison and a $100,000 fine. Even greater penalties would likely be meted out for future violations of any government confiscation order (i.e., probably 10-20 years in prison and a $250,000-$500,000 fine -- comparable to current money laundering and structuring laws).
In wording included in the above quote, "collectible coins" were excluded from the confiscation (i.e., Exceptions from the confiscation: "...and gold coins having a recognized special value to collectors of rare and unusual coins.") Since 1984, the U.S. government has defined collectibles as coins with a 15% or more premium over their bullion content. People concerned about the potential of government confiscation of precious metals, and who wish to reduce that risk, should acquire semi-numismatic coins and should consider swapping their bullion coins for semi-numismatics.
Another thought:
XAU divided by grams = profits
Turk's indicator for the relative value of gold mining stocks also is pointing toward higher ground -- even as mining stocks have become stuck in the mud. Turk, who founded payment system GoldMoney.com, uses as a model the amount of gold grams it takes to buy shares in the XAU, the Philadelphia Gold & Silver Index (XAU: news, chart, profile). There are 31.1034 grams in a troy ounce of gold. If it takes 6 gold grams to buy the index, that's cheap in Turk's view of the world. Ten grams is expensive. (On Wednesday, with the XAU rising 3.5 percent and spot gold's price rising $7, it took 7 gold grams to buy the index. A day earlier, Tuesday morning, it took 6.9 gold grams to buy the XAU, which was at 77.) Turk sees as a "reasonable target" the level of 128.60 for the XAU, which is 64 percent ahead of the current price. That's what the XAU should trade at when gold reaches $400 an ounce, Turk says. For more, see Freemarket Gold & Money Report.
***I have some questions of my own:
Is Japan still accelerating its rate of gold purchasing?
Is it fair to say that we are currently in the beginning of the second phase of the bull market?
George Bernard Shaw
INTRODUCTION
Tyrants, dictators, globalists, and socialists have always hated gold. It represents financial discipline behind the financial system, it represents financial privacy and independence for the person owning gold, and it frustrates an all powerful government's ability to control the financial dealings (and hence, the lives) of its subjects.
Gold knows no borders - ask the Vietnamese boat people, or the White Russians of the pre-revolutionary Soviet Union, or the Jews who escaped form Nazi Germany - who bought their way to freedom and a new life with gold. Gold is the most liquid financial asset in the world; it is the most portable (except for diamonds); it is the most hideable (or lowest profile); and it is the most widely recognizable and widely accepted form of money in the world.
Politicians and monetary authorities can debauch the currency (by running the government printing presses, inflating, and currency devaluations) but they cannot debauch gold.
A U.S. $20 gold coin in 1933 would buy a first class, tailor made men's suit of clothes, and in 1998 at about $500, the same gold coin would buy a comparable tailor made men's suit of clothes.
On the other hand, a paper $20 bill (which would have also bought that suit of clothes in 1933) has since lost about 95% of its purchasing power through consistent debasement (inflation) of the U.S. currency by the political and monetary authorities. Which is the honest money - the gold coin or the U.S. currency?
There is a widespread belief among gold analysts that the price of gold has been manipulated for years. In an attempt to project an image of financial stability the U.S. Government has had tremendous motivation to keep the price of gold below $400/oz. This gives the world a false impression that all is well with the U.S. Dollar. However, the current administration has done much to erode the world's confidence in the dollar. And the effort to keep the price of gold down is becoming ever more difficult.
A. GOLD'S PRICE ACTION - A HISTORICAL PERSPECTIVE
Long Term Perspective - In 1933, after confiscating Americans' gold at about $20 per ounce, the Roosevelt Administration devalued the U.S. dollar and officially increased the price of gold to $35 an ounce, where it stayed until the late 1960s. On August 15, 1971, President Nixon eliminated the last vestige of gold backing from the U.S. dollar, devalued the U.S. dollar, and declared the dollar to be 100% fiat (i.e., unbacked, paper-only currency). From 1971, gold began to rise from the $35-40 range to $197.50 by December 1974.
On January 1, 1975, through the stellar efforts of Senator Jesse Helms, gold was legalized - so that Americans could once again own it. However, the U.S. government immediately launched a campaign to sink gold - via an anti-gold media propaganda blitz and a series of U.S. Treasury and IMF auctions. Gold dropped for the next 20 months from $197.50 to $102 (almost 50%). (This government manipulation of the gold market was well documented in Tony Sutton's excellent 1976 book, The War On Gold.)
From August '76, gold began an inexorable 3-1/2 year 8-1/2 fold rise to a peak at $850 in January 1980. (Silver, platinum, and metals mining shares rose 1,000% or more during the same period.)
After the vertical price blow-off in late '79 and early '80, gold prices declined from $850 to $287 in 1982. Since then, gold has traded between $300-$500 per ounce. It is upon this well-established base that the next bull market in gold will be built.
B. PHASES OF A BULL MARKET
1. The first phase of a bull market - is the one where only the most far-sighted professionals accumulate the item - and they accumulate early, at bargain prices. In the first phase, the public remains very disinterested and the item remains very much out of favor.
2. The second phase of a bull market - is usually the longest phase, and is when professionals move in and assume large positions. In this phase, the public begins to gradually turn bullish.
3. In the third (and final) phase of a bull market - speculation and greed become rampant, rumors begin to circulate, and the public jumps in with both feet. The 1979-80 speculative blow-off in precious metals, when even Merrill Lynch and the Wall Street gold-phobes jumped into the market (at or near the top), was a classic illustration of the third, speculative, blow-off phase in a bull market.
It is a moot point as to whether we are in the first or second phase of a long-term bull market in the metals - the point is, we are in a bull market and in the strongest price upsurge in gold, silver and metals shares since the mid-1980s; and the move should last for several years - perhaps well into the next century.
C. MAJOR FACTORS IMPACTING THE PRICE OF GOLD
1. Shortages of Gold Coins Are Already Developing - In spite of the present bearish sentiment and depressed prices in the gold market, the global demand for certain popular globally traded gold coins is extremely high, while available supplies are very low. U.S. $20 double eagles are in the shortest supply seen in 25 years. Sophisticated investors are aggressively accumulating these coins. When the crowd finally comes rushing in (probably in '98 or '99) supplies of these coins could become virtually non-existent and prices could explode.
2. Gold Has A Global Supply/Demand Deficit - The Wall Street Journal recently reported that global demand for gold was outstripping supply by 1300 tons a year. Even with larger than average central bank sales in 1997, there was a 6% shortfall of supply versus demand for gold for the entire year.
1993 was the last year that world gold production exceeded demand. Since then, demand versus supply has been steadily growing - a situation typically seen at major gold (or silver) market bottoms and turning points. Gold demand is very elastic - meaning that lower prices attract more physical buyers.
3. World Mine Production Continues to Decline - Many South African and Australian gold mines (the world's largest and third largest gold producers, respectively) cannot maintain production at current levels unless gold rises to $500 per ounce. They cannot increase production unless it rises to $600 per ounce. Half of the mines in the world today are unprofitable on a full cost basis. On a cash basis, a quarter to a third of them are unprofitable at current prices. This has not only resulted in a deferral of higher cost projects, but in many cases, has accelerated mine closings.
In the U.S., stringent environmental laws are bringing exploration to a halt.
4. Japan Is a Major Consumer of Gold - "I hope the U.S. will engage in efforts and cooperate to maintain exchange stability so that we would not succumb to the temptation to sell off Treasury bills and switch our foreign reserves to gold." -- Japanese prime minister Ryutaro Hashimoto (in a 6/23/97 speech in New York).
More recently a prominent Japanese political leader, Mr. Nakayama, said: "Japan's gold reserve levels are so small given our economic strength compared to other nations, I believe that Japan should boost those reserves. It's risky to depend heavily on the U.S. dollar. Holding more gold should be considered."
At some point Japan will realize that their paper money is backed almost entirely by U.S. paper money, and will eventually switch heavily into gold. It is estimated that Japan
until recently held up to $510 billion in U.S. Treasury paper (about half held by the government).
With Japan currently holding less than 5% of its reserves in gold, and the lion's share in U.S. Treasury paper, it is logical that at a point they would begin selling U.S. Treasury paper and buying gold. That point seems to have arrived. Japan has begun to sell U.S. dollars and U.S. Treasuries and to buy gold. That shift should accelerate throughout 1998.
5. Jewelry Demand For Gold All Over The World is Very Strong -making up 80% of total gold demand. Jewelry is rarely sold or melted down. Jewelry demand is very strong in America, Europe, Latin America and India. In recent years, jewelry demand for gold alone has exceeded total global mine production.
6. The Other Precious Metals (Silver, Platinum and Palladium) which, Unlike Gold, Are Not Considered To Be Politically Incorrect, Are Already In A Strong Uptrend. - Warren Buffett, reputed to be the wealthiest, most sophisticated investor in America, has purchased 20% of the world's silver supply (approximately 130 million ounces). Buffet searches for and purchases genuine value -- apparently he believes that silver is currently undervalued. Compounding the situation is the fact that silver inventories are the lowest they have been in 12 years.
D. GOLD PROVIDES SECURITY
In a depression or time of financial crisis (such as the 1930s and the one predicted for the late '90s) people will seek security for their assets. They will begin to diversify out of many traditional financial institutions and financial obligations and into assets which represent more than just a paper promise to pay. In past depressions, massive funds have switched to gold and cash. Remember: During the Great Depression cash was "king" because cash was backed by gold. Therefore, it was actually gold that was "king". For example, in the 1930s, while most assets were dropping in value like the proverbial rock, gold rose 75%.
One must be a contrarian or maverick at this point to consider the possibility of a strong return of inflation over the next few years - but never forget the power of the Fed's printing presses or a collapsing dollar, or a flight from the dollar which could force the Fed to again monetize billions of dollars of our annual deficits. There's only one "answer" to a collapsing world debt pyramid - run the printing presses faster and faster.
It is possible that both a severe recession (or depression) and inflation will eventuate in the U.S. between 1998-2002, just as much of the Third World and Latin America now suffer with inflationary depressions. A spastic economy, with elements of both inflation and depression could make more traditional investment strategies obsolete. We are entering the biggest financial crisis since 1929-1933, but are far more overextended and vulnerable than at that time - and with far greater investor apathy and complacency.
Greater liquidity, reduced debt and a sharply increased reliance on precious metals as an insurance hedge and profitable investment vehicle seem to be in order. Highly liquid gold coins should be a major part of every investor's portfolio over the next few turbulent years.
The U.S. government hates gold and will hate the emerging bull market in gold. Since rising gold is a very highly visible barometer of rising inflation and economic/financial fears, the government can be expected to attack gold as it did during the '70s with words, with warnings, with manipulation, and by getting foreign central banks to periodically dump gold. This will cause periodic price sell-offs that will not alter the uptrend. The U.S. government fought the gold market in the 1970s and the more they did so, the higher the price rose.
There are 3 categories of gold coins:
• GOLD BULLION COINS
- such as Krugerrands, Canadian Maple Leafs, Austrian 100 Coronas, American Eagles.
• SEMI-NUMISMATIC GOLD COINS
- such as $20 Double Eagles: St. Gaudens and Libertys.
• NUMISMATIC GOLD COINS
- such as very rare gold coins.
Gold bullion and semi-numismatic coins are very liquid; numismatic coins are quite illiquid and in recent years have been subject to excessive overpricing, overgrading and overpromoting.
In a rising gold market, which we anticipate over the next 2 to 4 years, gold bullion and semi-numismatic coins should out-perform very rare gold coins as they did during the giant bull market of 1976-1980. In addition, they are far more liquid and have substantially lower markups than the more highly promoted rare gold coins.
The $20 Liberty and St. Gaudens Gold Coins
There are two gold bullion coins which are almost totally overlooked by most investors and coin dealers -- the semi-numismatic Liberty and St. Gaudens gold coins. These are gold bullion coins, minted by the U.S. Government from 1866 to 1933.
1. No Dealer Reporting Requirements.
All gold bullion liquidations are reportable (by law) on Form 1099 by coin dealers. Coins with a premium above 15% do not have to be reported by dealers. The semi-numismatic Liberty has a premium above 15% and is, therefore, a gold bullion coin which does not have dealer reporting requirements.
Why is Anonymity essential?
Virtually every asset or investment which we own is highly visible, trackable, reportable, and under the watchful, scrutinizing eyes of the government. Everyone should own an asset which no one else knows about -- a low profile bearer-type investment which leaves no tracks when bought or sold. The 4th Amendment to the Constitution still guarantees us freedom of privacy; however, in all but a few investment vehicles (such as the $20 semi-numismatic Liberty gold coin) that privacy is now gone. Frenchmen, Latins and people living in communist countries certainly believe in and practice anonymous gold ownership. In fact, gold and cash are about the only private assets which the watchful eye of "big brother" cannot regularly scrutinize. Now, however, with the new cash and metals transaction reporting laws and regulations, even cash, cashiers checks, money orders and most forms of gold transactions are reportable. Because numismatic and semi-numismatic coins are not dealer reportable, the $20 Liberty is a non-reportable gold bullion coin. The popularity of "quiet" (anonymous) ownership of gold is growing.
Note: Any profit generated from the sale of U.S. $20 Gold Pieces is indeed taxable, as any capital gain would be, but they are not dealer reportable.
2.Double Play on the Bullion Content and the Scarcity.
Semi-numismatic Libertys are no longer minted, are in very short supply and are very difficult to find in quantity. They tend to rise with a rising gold market, but even faster than gold or other bullion coins because of their scarcity.
3. Greater Upside Potential Than Gold or Other Bullion Coins.
The semi-numismatic Liberty currently has a 40-50% premium over bullion. (Numismatic coins have 500-5000% premiums over their bullion content.) The premium on the Liberty coin has expanded to 60% in recent years, and under certain bullish gold market conditions, could rise even higher. So, in a rising gold market, the semi-numismatic Liberty coin has a substantially greater upside potential than a normal gold bullion coin.
4. No Fear of Confiscation.
Some investors fear that under some future crisis, politicians looking for a scapegoat would reconfiscate gold -- as they did in 1933. (Collectibles were excluded from this government "theft.") In the event of another "government gold grab" (and it should be remembered that prior to 1975 Americans could not own gold
bullion), the semi-numismatic Liberty is a collectible and is likely to be excluded from such a confiscation. (See important insert below.)
5. International Investment Vehicle.
The semi-numismatic Liberty, a legal tender U.S. coin, is widely recognized and traded internationally (unlike many of the foreign coins hyped by certain U.S. coin dealers which do not have a wide market or any true numismatic value).
6. Low Commissions.
The commissions are very low compared to numismatic coins -- that is why very few coin dealers in America place these coins in their clients' portfolios.
"By virtue of the authority vested in me by Section 5(B) of the Act of Oct. 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled "An Act to Provide Relief In the Existing National Emergency in Banking, and For Other Purposes", in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coins, gold bullion, and gold certificates within the continental United States by individuals, partnerships, association and corporations...
All persons are hereby required to deliver on or before May 1, 1933, to a Federal reserve bank or branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:
(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins...
Section 9. Whoever willfully violates any provision of this Executive Order or of these regulations or of any rule, regulations, or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agency of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE
April 5, 1933"
So went the order of April 5, 1933, prohibiting the selling, buying or owning of gold or silver. In so doing, the government of the U.S. ordered its citizens to turn in their precious metals for "legal tender" paper. Violation of this order carried penalties of 10-years in prison and a $100,000 fine. Even greater penalties would likely be meted out for future violations of any government confiscation order (i.e., probably 10-20 years in prison and a $250,000-$500,000 fine -- comparable to current money laundering and structuring laws).
In wording included in the above quote, "collectible coins" were excluded from the confiscation (i.e., Exceptions from the confiscation: "...and gold coins having a recognized special value to collectors of rare and unusual coins.") Since 1984, the U.S. government has defined collectibles as coins with a 15% or more premium over their bullion content. People concerned about the potential of government confiscation of precious metals, and who wish to reduce that risk, should acquire semi-numismatic coins and should consider swapping their bullion coins for semi-numismatics.
Another thought:
XAU divided by grams = profits
Turk's indicator for the relative value of gold mining stocks also is pointing toward higher ground -- even as mining stocks have become stuck in the mud. Turk, who founded payment system GoldMoney.com, uses as a model the amount of gold grams it takes to buy shares in the XAU, the Philadelphia Gold & Silver Index (XAU: news, chart, profile). There are 31.1034 grams in a troy ounce of gold. If it takes 6 gold grams to buy the index, that's cheap in Turk's view of the world. Ten grams is expensive. (On Wednesday, with the XAU rising 3.5 percent and spot gold's price rising $7, it took 7 gold grams to buy the index. A day earlier, Tuesday morning, it took 6.9 gold grams to buy the XAU, which was at 77.) Turk sees as a "reasonable target" the level of 128.60 for the XAU, which is 64 percent ahead of the current price. That's what the XAU should trade at when gold reaches $400 an ounce, Turk says. For more, see Freemarket Gold & Money Report.
***I have some questions of my own:
Is Japan still accelerating its rate of gold purchasing?
Is it fair to say that we are currently in the beginning of the second phase of the bull market?