By Dr. Fred Goldstein
Sr. Broker, Swiss America
Jan. 15, 2008
A proactive investor is an individual whom is able to assess current economic trends and subsequently take advantage of probable outcomes. A recent example would be wealthy investors like Warren Buffet diversifying out of US dollars and moving into foreign currencies. Our strategy at Swiss America is helping proactive investors acquire quality tangible gold coins while the gold price is in a major uptrend.
Our strategy at Swiss America is helping proactive investors acquire quality tangible gold coins while the gold price is in a major uptrend.
While owning gold in the form of commodity options, ETFs, and mining shares may be beneficial, taking possession of gold coins is unique. The benefits of physical ownership include intergenerational wealth transfer, personal control, privacy and non-exchange (Wall Street and Comex) dependency. For some, taking physical ownership is awkward. I will make the case that the benefits of owning certain gold coins will outweigh the minor difficulties of storage.
Many economists are predicting a recession in 2008 but this does not preclude good investment opportunities for astute investors. The probability is high that the upward trend in commodities will continue as the US dollar weakens.
Adding to this is the growing demand for oil and base metals from Asia’s largest growing economies in China and India. As these two countries, especially China, continue to increase their exports to the West, they accumulate large amounts of US dollars. As they move these dollars into commodities this exacerbates the price action of gold and the US dollar.
With total world gold mine production around 2,500 tons and total world gold consumption at 4,000 tons, gold should continue to rise and catch up to other commodities, such as oil and platinum. In nominal terms, oil has more than doubled from the 1979 high and platinum is 50% above its 1980 high. Gold has just broken its 1980 high of $850/oz. Many analysts contend that $100/barrel oil and $1,550/oz platinum should correspond to $1,500/oz gold.
Classic $20 U.S. gold coins undervalued!
If you have not yet taken action in acquiring a position in gold, you now have a golden opportunity to buy high quality U.S. gold coins at a historically low collectible (or extrinsic) premium, relative to gold's melt (or intrinsic) value.
Although the gold price moved up over 30% in 2007 and is presently at all time highs (relative to Jan 1980), numismatic or generic “Double Eagles” are below their 2006 highs, and well below their all time highs in 1988-89. Following gold correction in May/June 2006, many Double Eagles fell over 30%. Due to the public’s lackluster interest in gold coins as well as some negative sentiment expressed in the media, Double Eagle prices have been slow to recover.
We have seen the beginnings of a turnaround since August 2007 as dealer inventories are being pared down and prices are beginning to rise. Although some Double Eagle numismatic coins have more than tripled since 2001, we believe prices are too low relative to gold bullion.
Richard Maybury writes in his Sept 2007 Early Warning Report, p.8, “After gold punches above $850 and stays there, numismatics will catch up with and eventually far surpass what the precious metals and most other non-dollar assets have done so far. Numismatics are probably the least expensive non-dollar asset out there at this time-the most extreme laggards- and, therefore the best bargains, the ones with the most potential”.
What he fails to mention is the benchmark the US Government established in the 2001 Patriot Act. Numismatic coins with a 50% collectible value are now recognized as a “non-covered” product; while bullion coins are a covered product. Based on this benchmark, I believe it is fair to conclude that high quality Double Eagles are a more private way to own gold than bullion coins.
At Swiss America we often refer to the phrase “the ratio”. This is the number of ounces of gold it takes to buy a high quality $20 Double Eagle. Today the ratio is under 3:1 to acquire an MS-65 $20 Double Eagle; the lowest it has been since we opened our doors for business in May 1982. (Note: the ratio topped 13:1 in the summer of 1988).
It is our belief that as the gold price continues to rise the public will get more involved and once again Double Eagle premiums and prices will skyrocket. With premiums at or near record lows, we believe the downside risk is limited while the upside potential is enormous.
If you have not yet gotten involved in the gold bull market and feel you have missed the boat, think again. Over the next several years, we could see a gold coin buying panic such as the world has never seen before.