Archive for April, 2010
Dr. Marc Faber on CNBC
Dr. Marc Faber was recently seen on CNBC in a piece they called “Governments will Bankrupt Us.” Dr. Faber is editor and publisher of The Gloom, Boom and Doom Report and is a frequent contributor to CNBC. He states that he is extremely bearish on the world. The governments around the world are taking over in conjunction with inflating the monetary supply. The printing of money is a temporary patch to the economy which is giving us a bull market in stocks.
He further states that the bull market in stocks will continue for a while due to all of the stimulus, but in the end will ultimately bankrupt the sovereign nations. “If you print money like in Zimbabwe… the purchasing power of money goes down, and the standards of living go down, and eventually, you have a civil war,” he added.
Dr. Faber says that instead of holding cash people should gradually accumulate physical gold and silver. “Paper money will go down relative to precious metals. So in that environment, I think you…should all accumulate some gold.”
This is what I have been telling people all along. Whether the world collapses or not, everyone should own physical gold. Gold protects people from the effects of inflation and hyperinflation. Currencies, especially fiat currencies, fail. It is a matter of time before the U.S. Dollar will suffer the same fate. Dr. Faber is sometimes dubbed Dr. Doom, but he points to things that we should all be concerned about… Money Printing!
We have watched nation after nation throughout history take on this strategy and it always eventually ends in failure. Look at Germany from 1919 to 1923. The government was printing money like crazy. In 1919 one ounce of gold was worth 170 Deutsche Marks. By the end of it all in November of 1923 one ounce of gold was worth 87 trillion Deutsche Marks. So if you buried an ounce of gold and 170 Marks in 1919 by 1923 your gold would have maintained its purchasing power and your Marks would be worthless.
This type of money printing is disastrous for people with savings, and the U.S. government has increased the money supply by 2.5 times in the past 18 months. Buying gold is a great strategy to protect what you have spent years accumulating. If you do not own any start accumulating before it is too late. Get in while gold is still cheap.
http://www.cnbc.com/id/36704832/Governments_Will_Bankrupt_Us_Marc_Faber
Is Gold Bullion a Good Investment?
Gold bullion is a great investment. It has averaged a rate of return of 17.1% over the last 9 years. It has fulfilled its role as a financial insurance for those that have owned it during the 9/11 crisis, banking failures and stock market correction during that same time frame. So not only did gold bullion appreciate dramatically (over 340%) but it also kept people safer. But where is gold headed?
Ask yourself the following questions: Is the U.S. economy is on its way to recovery? Is the dollar going to continue to be the world’s reserve currency for the next 20 years? Is our national debt here in the U.S. repayable? Is the government going to continue to print money? If you answered yes to any of these questions then gold is a good fit for your portfolio. Gold is first and foremost a financial insurance. It should be used to protect the paper assets you have accumulated throughout the years. If you don’t have any, you are vulnerable.
But where is gold headed. Many experts would say it is going much higher from here. Spot price predictions are all over the board. From $1,300 to $47,000 per ounce before this bull market is all over. No one has a crystal ball, so take predictions with a grain of salt. Look at underlying trends and understand how bull markets work. We are currently experiencing a full fledged second phase. Very few people in the U.S. actually own gold and this will change. We will eventually reach the third and final phase where gold will reach higher and higher highs. This run up will typically be dramatic because everyone will want to own gold at any price. In my opinion gold bullion is a great investment.
What are better than gold bullion are numismatic/rare gold coins. They have consistently proven over the years to offer better protection and performance for their owners. The most common $20 Liberties and $20 Saint Gaudens have achieved an average rate of return over the past 9 years of 27.01%. Nearly double gold bullion. These coins are private and confidential and offer protection from gold confiscation. They have a higher cost of doing business so you need to be able to hold them long enough to allow them to do what they need to do. Most companies will recommend 3 to 7 years, but this will depend on the trend cycle. If gold takes off watch for rare gold coins to do the same.
Ron Paul Predicts a Currency Crisis is Coming
Ron Paul spoke with Fox news about another crisis that is coming. He states that we have a debt monster that is growing and that the U.S. is much worse off than it’s ever been. He also states that we are headed down the path that a lot of the countries in Europe are on. He believes that the foundation has been built for a currency crisis within the next 2-3 years, and that we will see massive amounts of inflation and disruption in the U.S. What does he do to plan for the coming crisis? He buys gold to protect his family.
Ron Paul has long been known for his candidness with his beliefs. He is thought of by many as the man that this countries needs to get us back on the right track. When he speaks people listen. He has been an advocate for 10 plus years of not passing any bills unless we have the money to pay for it. If this thinking was spread across congress we would not be in the predicament that we are in today. Our debt is over $12 trillion and growing rapidly. Bernanke has increased the nation’s monetary base from September 10, 2008 to March 10 of this year, from $850 billion to $2.1 trillion. That is 2.5 times in 18 months. This has never been done in U.S. history.
Jim Rickards recently wrote in a piece called Debt Denial, “The sovereign debt crisis has
crossed a threshold. It’s no longer about economics. It’s about math and a complex system whose dynamics tell us there is little time to avoid catastrophe and almost no exit. Going forward, elections and policies will matter less as the debt plague takes hold and dictates hard outcomes. It is the case that real debt cannot be repaid through any feasible combination of growth and taxes.”
Between the words of Ron Paul and Jim Rickards we are in a dire situation that quite possibly cannot be reversed. Inflation, hyperinflation and collapse of the U.S. dollar are possibilities that loom over us everyday. They both endorse gold as an individual’s solution to protect oneself. The time to own gold is now. Many experts believe gold is going much higher before this bull market is over. But that is not the main reason anyone should own it. Gold is first and foremost a form of financial insurance, and should be treated as so. Read more on the different types of gold and how to acquire them and get yourself protected.
The Derivative Bubble
The derivatives market is a looming omen whose default could collapse the entire world’s economy. They are so dangerous that Warren Buffett once declared them as weapons of economic mass destruction and stated that he would never be involved in them. Here are some of the main categories:
1. Credit default swaps
2. Interest rate derivatives
3. Commodities derivatives
4. Equity linked derivatives
5. Over-the Counter derivatives
Derivatives are securities whose value depends on the underlying value of other basic securities and associated risks. They are essentially leveraged bets. A buyer of a derivatives contract only needs to put up a fraction of the value of the contract in order to purchase it. Because of this, the dollar amount that currently exists in the derivatives market has been allowed to mushroom unchecked for decades. It is currently estimated by the Bank for International Settlements that the amount outstanding in the derivatives market is $1.144 Quadrillion USD. ($1,140,000,000,000,000) That is $1,144 trillion! Let’s put this number into perspective by looking at the outstanding value of some other assets.
1. GDP of the entire world is $50 trillion $50,000,000,000 (derivatives market is 22 times larger)
2. Real estate market for the entire world is estimated at $75 trillion (derivatives market is 15.25 times larger)
3. The world stock and bond markets combined are valued at $100 trillion (derivatives market is 11.44 times larger)
What is scary about this market is that it is unregulated, it has no universal standards, deals are made with private contracts and it is not transparent. A collapse in the derivatives market would make the housing collapse look miniscule in comparison and yet it continues to go on unchecked. A collapse in this market could occur because of catastrophic events like cascades of bankruptcies and nationalizations, or geo-political or geo-physical events. If the party who accepts this “contract/bet” goes bankrupt this would make the synthetic value of the contract/bet become real money, therefore any large OTC derivative financial firm or brokerage house must be bailed out or taken over by another similar company. Didn’t we just see this happen with AIG and Bear Sterns? Just imagine if all the bettors at the Kentucky Derby went to the cashier’s window after the race and they were told that the track is bankrupt.
The derivative market needs to be reigned in. It is very dangerous to not only the financial markets here in the U.S. but its tentacles have stretched to financial markets all over the world. Its value is about $190,000 for every man woman and child on the planet. Regulations need to be put in place, and even then it will still be a dangerous market. Just another reason why everyone needs to own gold in their portfolio.
Performance of Bullion and Numismatic Coins
No one can deny that we are currently experiencing a gold bull market. The spot price of gold has been increasing for the past nine years. It came off a low of $272 per ounce in 2001 to where it sits today at $1,158 per ounce. The following graph depicts the percentage increases per year for the last nine years and gives an average. The average gain for the last nine years is 17.1%. Not bad at all. Anyone would be happy to get 17.1% per year for nine years straight. Since this blog is about owning rare gold coins let’s look at what numismatic/U.S. rare gold coins have done in that same time frame.
|
|
USD |
|
2001 |
2.5% |
|
2002 |
24.7% |
|
2003 |
19.6% |
|
2004 |
5.2% |
|
2005 |
18.2% |
|
2006 |
22.8% |
|
2007 |
31.4% |
|
2008 |
5.8% |
|
2009 |
23.9% |
|
Average |
17.1% |
I took the most common mint state 64 grade $20 Saint Gaudens to achieve a very easy to understand baseline figure. Over the past nine years that coin has achieved an average appreciation of 31.8% per year. This is almost twice what bullion did over the same time frame. Who wouldn’t love to get 31.8% per year return on their money? In addition, most better dated coins have performed even better.
For a better dated coin I randomly chose a 1903P $20 Liberty in mint state 64 condition, and found that over the same time frame it had appreciated an average of 39.8%. That is 8% better per year on average for the last nine years. That is great.
What this has shown is that during this bull market thus far, it is better to own numismatic gold coins than it is to own bullion based strictly on performance. It is even better to own rarer issues as displayed by performance. It is commonly known in the industry that the rarer the issue the more potential for growth there is. It should be noted that past performance is no indication of future performance and that you should do your own due diligence when investing in anything.
Gold is Rising Again
Gold is rising on strong technical momentum and a lower U.S. dollar index. Gold is trading up for the 9th day in a row as of this writing. After hovering around $1,100 per ounce for months gold is finally making its move towards the $1,200 mark that we saw in December of last year. There is a lot of fresh speculative buying interest ahead of quarter two earnings season which starts on Monday.
After the breaking news about the manipulation of the gold and silver markets at the CFTC hearings many traders are pushing their positions from paper to physical. This is largely due to the 100 to 1 leveraging in the paper metals market, meaning that there is only 1 ounce of physical metal for every 100 ounces of existing contracts. These naked positions have traders concerned that when they call for their gold instead of dollars, that these requests will be defaulted on; if this happens watch for gold and silver prices to rise dramatically on the short squeeze.
David Morgan founder of Silver-Investor, said that if he sees gold trade above $1,150 per ounce for 3 consecutive trading sessions he feels the trend will continue and will likely breach the $1,200 mark soon. There is a major psychological barrier for investors at $1,200 per ounce. Achieving new highs is always tough.
Look for the bull market trend in gold and silver to continue for a few years. The markets have not yet seen the third and final phase of this bull market. This occurs when everyone wants in and money is pouring into the gold and silver markets like it did into the real estate market in 2004 and 2005. This will create a massive run up in prices with no support levels being built underneath.
Types of US Mint Gold Coins
When people talk about types of gold coins, the word “type” can have a wide range of meanings. It may mean a U.S. coin or a foreign gold coin, or a rare gold coin versus a bullion coin. Or they may be talking about the specific design of a coin.
The broadest meaning of “types of gold coins” may be coins minted by the United States government or coins minted by foreign governments. Thanks to the size and depth of the U.S. market, the gold coins minted by the U.S. government are by far the most popular “types” of collector and investor coins in the world. Our nation’s pre-1933 gold coins, which were recalled and melted in the mid-1930s, are in great demand from domestic and international collectors and investors. Likewise, our government’s high-mintage post-1985 American Eagle gold bullion coins are the most popular gold bullion coins in the world.
More On Each Individual Gold Coin
1. Liberty $20 Gold Coin
2. St. Gaudens $20 Gold Coin
3. Eight Piece Gold Set
4. American Eagle Gold Bullion
Collecting by Type
Collectors may organize their coins by Type, which in this case means “design.” That means they seek to build a collection with one representative example (or more) of each design in their series. For example, if they collect U.S. $20 gold coins, they may have a basic collection of two coins: one representing the Liberty Head series minted from 1849 to 1907 and one coin from the Saint Gaudens Type minted from 1907 to 1933.
An advanced collection of $20 gold coins might also own all five Type coins representing the design changes within the series. This Type Set of U.S. $20 gold coins would include examples of the following five designs:
Liberty Head Type I Without “In God We Trust” 1849-1866
Liberty Head Type II “In God We Trust” on reverse 1866-1876
Liberty Head Type III Value expressed as “Twenty Dollars” 1877-1907
St. Gaudens Type I Without “In God We Trust,” 1907-1908
St. Gaudens Type II “In God We Trust” on reverse 1908-1933
Another kind of “Type” collection is composed of multiple denominations. A Type collector who is focused on U.S. gold coins might start with one representative coin of each of the following basic denominations: $1, $2.50, $5, $10, and $20. He might then expand the number of designs (Types) to include two examples of each denomination. The Liberty Head design was used on all of our gold coins in the second half of the 19th century and into the first decade of the 20th century. That’s when newly elected President Theodore “Teddy” Roosevelt ordered the designs of our nation’s gold coins to be updated. That’s why Type collectors now seek the Indian Head $2.50 and $5 and $10 gold coins, as well as the Striding Liberty $20 coins struck from 1907 or 1908 into the late-1920s or early 1930s.
A more advanced collector of U.S. Type gold would also add examples of the $1 (which had three distinct Types) and $3 gold coins. Unlike most other denominations in the U.S. gold coins series, the design of our nation’s $3 coins was unchanged throughout the 1854-1889 series.
There are many types of gold coins: U.S, foreign, rare, and bullion. There are even Types of gold coins within each denomination. Because they’re made of gold, all types of gold coins are highly desirable!