Swiss America Special Alert:
Think You've Missed The 21st Century Gold and Silver Rush?
Huge Opportunities Exist in Investment Grade Coins
Dec 1, 2010

Introduction

gold Generic gold, silver and better date pre-1933 coins are at bargain basement levels, but not for long. Economists and experts worldwide agree, gold will continue its meteoric rise for years. These coins significantly outpaced bullion for years, but have lagged this year. History says this sale won't last long!

2010 marked the 30th Anniversary of gold's earth-shaking 1980 surge to $850 per ounce, equivalent in today's dollars to more than $2,300 per ounce.

When gold hit $850 the Standard and Poor's 500 Index was at about 145. It fluctuated from 120-150 that year. So at its peak gold was trading for six times the S&P.

Today, with the S&P trading at 1,201, if we were to use the same multiple gold would be well over $7,100. Thus the opportunity for much more growth in gold. This addresses the concerns that the bull run in gold is over. Many people say gold is at an all-time high. They are incorrect.

In nominal terms it is, but when looking at investment return you always must adjust for inflation to arrive at the true value. That value would be around $2,300, again providing plenty of room for growth.

Precious metals are soaring again with gold bullion approaching $1,400/oz. and silver bullion nearing $30/oz. Clearly bullion is leading this phase of a secular (long-term) bull market in precious metals and numismatic coins that began in 2001. This current price surge reflects an unprecedented worldwide currency debasement event.

Amid these dramatic bullion price increases some investors have expressed concern that the prices of their U.S. $20 generic gold coins and/or Proof American Eagle gold coins have not risen as fast as bullion prices. Therefore, we want to bring you up to date on the latest developments affecting the bullion and coin markets.

Secular bull markets in commodities and collectibles can be volatile, as we have told our clients for nearly three decades. We have always recommended buying gold coins for safety first as "wealth insurance." Economist Doug Casey of Casey Research confirms our advice, saying, "Gold, especially at these levels, is NOT something to make money, it is something to preserve the wealth you have."

Back in 2002 Swiss America Chairman Craig R. Smith told CNNfn that the “premiums” (price above a coin's bullion melt value) on collectible U.S. gold coins fluctuate, depending upon supply and demand fundamentals at the time. Mr. Smith warned investors that prices are subject to decline if the supply suddenly rises (See our “Rare Opportunity” DVD).

With that in mind, here are the answers to three frequently-asked questions this year:

1. WHY ARE $20 U.S. GOLD COINS NOT RISING AS FAST AS BULLION PRICES?

One major reason for the lagging price performance of $20 gold coins in 2010 is European bank liquidations of large numbers of $20 Liberty and Saint-Gaudens coins. These coins, which originally fled from the U.S. to Europe (in 1933 to escape FDR’s melting pots, and again in the late 1970s and early 1980s as an inflation hedge), are now returning home to the U.S., but this limited supply will not last.

The global financial and debt crises of the last two years have forced many banks to come up with cash to pay down their debts, or risk losing their credit ratings overseas. Because all markets are governed by supply and demand, this liquidation has caused a temporary boost in the supply, a softening of premiums and a seeming disconnect from rising bullion prices. But fluctuations of numismatic premiums represent an opportunity for a classic “gold double-play” because their premiums typically return.

MS-63 The chart above illustrates the wisdom of buying during the dips. $20 Liberty gold coins (MS-63) dipped this year following the supply spike, but prices are now rebounding. Prices are now up 380% since 2002, yet they are still 30% below the recent price peak, making them an excellent value right now.

2. WILL PRICES OF NUMISMATIC COINS "CATCH UP" WITH BULLION INCREASES?

Today the demand for U.S. collectible coins is almost entirely driven by U.S. citizens. But the international demand for classic U.S. $20 generic gold coins is also growing daily. With a finite (or fixed) supply of these coins available, it would only take a few major investors to soak up this limited supply, given the excellent track record of U.S $20 gold coins over the long term.

History has shown that U.S. numismatic and generic $20 gold coin prices trailed the great bullion run of 1979-80 substantially, but later prices rallied as much as 500% more than bullion! In 1980-81, when bullion prices fell sharply, the generic $20 gold coin market continued to rally, allowing investors time to liquidate near the highs.

Over the last three years we have seen periods where the premiums for $20 gold coins were substantially higher than bullion. Historically, generic gold coin premiums skyrocketed as the stability of numismatics became more attractive than the volatile bullion markets.

3. ARE AMERICAN EAGLE "PROOF" GOLD COINS ALSO UNDERVALUED?

In September 2010 the U.S. Mint surprised coin investors and collectors by announcing plans to produce an additional 111,350 ounces of gold in 2010 and to issue Proof condition coins in 1 oz, 1/2 oz, 1/4 oz, and 1/10 oz. coins starting in October 2010. This news of rising supply caused Proof Gold Eagle premiums to fall sharply, despite bullion advances.

$20 Conversely, in 2009 the Mint canceled production of Proof Gold Eagles as a result of the increasing demand for bullion coins. This lack of production caused premiums to rise sharply. The 5-year chart illustrates the jump in the premium was as much as $1,200 per coin over bullion prices. Today that premium has shrunk by half, to $600 per coin. So the U.S. Mint’s announcement of increasing or decreasing production can temporarily affect premiums.

Currently Proof Eagles are over 30% below their recent peak. With limited supply and consistent high demand this sale may end quickly.

We anticipate that the 20% per year price growth since 2005 of Proof Eagle gold coins will continue, * but, as with all collectibles, prices fluctuate, at times outperforming and underperforming bullion. We recommend a minimum 3-5 year holding strategy.

Conclusion: $20 Double-Eagles are the Buy of the 21st Century

Market cycles produce ups and downs on various types of U.S. gold and silver coins. For example, even within the bullion market gold has led the rally with silver prices sometimes lagging 1-2 years behind. This explains why silver bullion prices have recently grown twice as fast as gold prices. We expect this anomaly will also correct itself over time as the cycle again changes.

Large-scale bullion purchases by Wall Street hedge funds via gold electronically traded funds (ETFs), along with mega-buying by foreign central banks, have helped to propel gold prices in recent years. Like 800-pound gorillas stomping into calm waters, these mega-buyers have helped splash bullion prices skyward. But, if and when they decide to take short-term profits, watch out! Gold bullion prices could temporarily come down quickly!

Meanwhile $20 generic prices are likely to remain stable because speculators were not responsible for artificially lifting generic gold coin demand as they have bullion demand. Beware of all paper gold promises. We feel strongly that physical delivery of your gold is always safer and more rewarding over the long term compared to speculative paper gold investments.

“The national economy has fallen so far that it could take years to climb back,” reports The New York Times. The U.S. middle and lower classes are running scared. Sadly, massive investments are being driven into what could prove to be the worst place of all, the “not so safe haven” of Treasury Bonds and Bills. When inflation hits (and it most certainly will) these investors will be running for the exits and into a very limited supply of hard assets.

Presently the amount of money going into U.S. bond funds is about to exceed the amount that went into stock funds during the Dotcom bubble, stoking concern that fixed-income markets are ripe for collapse. Much of that smart money is now on the lookout for the best values in the gold market, i.e., undervalued market niches such as $20 generic gold coins.

The premium price lag between $20 gold pieces and bullion is a short term phenomenon. As the PCGS chart below illustrates, this present price dip is the 7th dip over the last decade, with each rebound taking prices to higher highs and higher lows.

If your reason for holding U.S. gold coins is as a long-term insurance policy against a collapsing currency system, then stay the course and you will be rewarded.

Historically, numismatic coins have also provided the maximum privacy of ownership. Under current law, numismatic and generic $20 gold coins are private and non-confiscatable. The Federal Government left numismatic and generic coins in owner hands when it confiscated gold bullion in 1933.

Your Swiss America representative can explain a “ratio-trading” strategy that can help increase your total ounce gold holdings over time without new investment capital. Call today to discuss this strategy at 1-800-289-2646.


P.S. "Gold Investment Still Not in the Mainstream" -Mineweb (10.13.10) -- "Total net investment in gold in the first 7 months of 2010 was $2.7 billion. Yet, during the same period, investors poured $22 billion into emerging markets mutual funds, and some $155 billion into bond funds." The Casey Research chart below shows investment gold holdings as a percentage of global financial assets. Yes, diversification into gold has doubled over the last five years - from one-quarter percent to over one-half percent! But that is still a long way from the 1980 level of 2.77%, which was 500% higher than 2010.

global


we FURTHER STUDY
WATCH: 5 Steps Before Buying Gold or Silver
READ:
$20 Gold Coin Investments
Introduction to Morgan Silver Dollars
Brief History of Coins and Precious Metals
Rare Coin and Precious Metal Glossary
Rare Coin and Precious Metal Weights and Measures
Coin Grading Information
Fineness and Karat Weight Chart

* Past performance is no guarantee of future performance. All investments have risk.

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