GOOD MARKETS GONE BAD

With all due respect to the bullion heads among us, nothing goes straight up. Except the national debt and the money supply. Although my love for rare American coins as a primary tangible for most portfolios is well known, my disdain for the bullion markets is boundless. The manipulations are well documented. At any given time, options and contracts, those so-called derivatives, make up 3 times the physical supply of all the gold or silver in the world. The limited supply of these metals is what made them a good indicator of the value of money. If people are allowed to buy and sell metal that they do not own, then the very fundamental property of supply and demand ceases to be functional. People can’t sell rare coins which they do not own. In fact, one would have to be nuts to sell a rare coin which they did not own. Furthermore, leverage is virtually unheard of. When $7.5 million was paid for the 1933 $20 Saint Gaudens gold piece, no borrowing was involved. The $200 million plus, involved in the SS Central America shipwreck deal, was also all cash. This is a pure supply and demand market, just as gold and silver bullion used to be. Many people remember the last bull market in gold and silver bullion in the early 1980s. $800 gold and $50 silver was largely the result of a pure unleveraged market. This new market is something as foreign to a pure market as one can imagine. Countless millions in gold options, futures, contracts, and leases, have skewed the bullion markets beyond belief. As I write this, the bullion market is off its unnatural high. Many are panicking and figure it is time to sell their bullion. I fully agree. Rare coins provide all of the protection which gold does, plus the extra added benefit of supply and demand. The demand for coins can only be met by the sale of coins for cash immediate delivery. The demand for gold can be dampened, even driven down, as recent events prove without the possession of a single ounce of gold. I predict the whipsaws will get worse. Look for wide trading swings in the metals markets with weak players being flung out at both ends. If this kind of volatility is for you, then buy gold options. But if you prefer the steady compounding growth provided by a stable asset, then rare American coins are the only logical choice. If gold goes up, it stands to reason that a coin made of gold must go up. It is the extra push that rarity provides which makes the difference. The Wall street firm of Salomon Brothers, used to keep an index of rare coins which had shown an average return of over 25% per year, compounded for decades. Unfortunately, this index was discontinued after its contents were inadvertently leaked to a reporter. It is time for another reliable rare coin indicator such as this. However, given the fact that many large, institutional investors are expressing an interest in this market, (General Electric (GE) acquired its own coin company!), it shouldn’t be very long before one is created.

 

 

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