Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Buying Gold Coins, What You Need to Know

Commodities / Gold and Silver 2011 Apr 13, 2011 - 07:44 AM GMT

By: Gary_North

Commodities

Best Financial Markets Analysis ArticleIf you did what Bill Bonner and I have been recommending for a decade, you own gold. Bonner began promoting the purchase of gold in the year 2000. I strongly promoted this for my subscribers after September 11, 2001, when the Federal Reserve began pumping up the monetary base in earnest. Neither of us has ever stopped recommending holding money in gold.


I have stressed holding coins, especially tenth-ounce American gold eagles.

I am writing this for those readers who did what I recommended, have quadrupled their money (on paper and in digits), but who may be getting cold feet.

There are good reasons for buying gold. But you should have an exit strategy in mind. You need to consider this.

We are told by the mainstream financial media, which never told investors to buy gold over the last decade, that gold is in the final phase of a bubble market. But how can any market be a bubble market when the mainstream financial media are not running report after report on the bubble, telling readers and viewers about how much money people are making.

What mainstream financial outlet warned investors loud and clear, issue after issue, in 1999 that the dot.com market was a bubble? I told my subscribers in February and March of 2000 that it was, and that they should get out. But I published a newsletter. I was not mainstream.

What major outlet warned people in 2006-2007 that the real estate market was a bubble, that wise investors were getting out? I did in November 2005.

Bubbles always continue for months or even years after old timers say they will pop. Old timers have trouble estimating the fear of the buyers at being left out and the fear of lenders at being left out. The two sides – debtors and lenders – keep the dance of doom going much longer than old timers can imagine possible. But eventually the dance ends.

I spoke at Lew Rockwell's conference. One of the speakers is a banker. He lives in Las Vegas. He was taught by Austrian School economist Murray Rothbard. He earned a masters degree in economics. Then he went into banking.

As an Austrian School economist, he understands the business cycle. He understands that the Federal Reserve system has pumped money into the economy, creating a housing bubble since 1996. He knows this boom will bust.

He has no illusions about this housing market. Compared to him, I have been Pollyanna. He spoke of the mental outlook of the builders in Las Vegas. They all know it can't go on, but they are determined to party until it does. "Then they will declare bankruptcy and start over," he said. This is their exit strategy.

He was correct. It happened. He lost his job as a Las Vegas banker. He is now the president at the Mises Institute.

I went on to write the following:

I think a squeeze is coming that will affect the entire banking system. The madness of bankers has become unprecedented. They have forgotten about loan diversification. They have been caught up in Greenspan's counter-cyclical policy of lowering the federal funds rate. Now this policy is being reversed. Rates are climbing. This will contract the loan market. Banks will wind up sitting on top of bad loans of all kinds because the American economy is now housing-sale driven.

But I was on the fringes of the investment community. The bubble was about to burst, but the media attracted viewers and readers by staying on the bandwagon. To call attention to what should have been obvious would have reduced the audience. The editors knew better.

So, when I read articles about gold in a true bubble market, I know it isn't. The salaried reporters with no savings, underwater in their homes, and in a dying industry are merely writing what their editors think will sell.

What sells? Articles that confirm what conventional viewers and readers want to hear, namely, that they were not really losers by staying out of the gold market (they were), and that those who buy good now will lose everything (they won't), and that now is a good time to buy stocks and bonds (it hasn't been ever since March 2000).

Mark Faber, who recommends owning gold as a hedge against a declining dollar, recently wrote this: "In my opinion the Fed funds rate should be at 5% . . . That will provide real interest rates. I don't think the Fed will increase interest rates to a positive real rate. So, I'd say to an investor, he should have at least 20 to 30 percent of his money in precious metals."

When asked about his opinion about renewed fears of a bubble forming in the gold market, the student of the Austrian School of economics theory scoffed at the pundits who say the gold trade has become crowded.

Faber said he routinely sees less than 5% of attendees at his speaking engagements raise their hands during his casual sentiment polls regarding the precious metals. Sometimes he sees no hands raised, he said.

There are many ways to own gold. The ones that most investors choose, and which most investors will rush into during the final phase of the bubble, is in fact not gold. It is a promise to invest in gold. It could be an ETF, which is a form of derivative. It may be a commodity futures contract – another promise.

But what about gold, in contrast to a promise – "cross my leveraged heart and hope to die" – to invest in gold on your behalf?

Gold coins are gold.

WHY GOLD COINS?

The problem with today's economy is that it is built on promises and trust. It is therefore built on debt.

In the United States, the financial promises always come back to these:

  1. The Federal Reserve System will remain the lender of last resort.
  2. The Federal Deposit Insurance Corporation (FDIC) will pay off all bank accounts up to $250,000.
  3. The U.S government stands behind the FDIC's promise with a $600 billion line of credit.
  4. The government can get this money from the Federal Reserve System, if necessary.

The problem with these promises is this: the ultimate insurer – the FED – can fulfill its obligations in a deflationary crisis only by hyperinflation. That means that the only sure guarantee against the systemic failure of the American banking system is the destruction of the dollar.

If we get the latter, do you want promises to pay gold, which can be settled legally by the payment of digital dollars? Or do you want coins where you can get your hands on them?

On the other hand, if the FED ever refuses to create money, and if the banking system then begins to implode, do you want promises to pay that were issued by a limited liability corporation, such as a futures exchange?

In between hyperinflation and a deflationary banking collapse, people can buy and sell promises to pay gold. They can pay 28% on all profits (no capital gains protection). They can become self-conscious speculators. There is nothing wrong with this.

But what if you are speculating against long-term price deflation? Then you want paper money. But paper money leaves you at the mercy of the Federal Reserve System and the commercial banking system. Mass inflation could appear rapidly (up to 20% price increases), followed by hyperinflation (anything from 20% to infinity).

What if you want an asset that will do well in mass inflation or hyperinflation, but which will not do as badly as most other leveraged capital assets in a banking collapse?

I keep getting this answer: gold coins.

BUT WHICH GOLD COINS?

That depends on what you are trying to hedge against.

If you are a national living in a country whose mint produces gold coins, buy those gold coins. If you are ever in an emergency situation where you need gold fast, and you want to barter it for something you really need, the person on the other side of the transaction will recognize the mint's stamp. He will be more likely to barter.

Do you want a one-ounce coin? Not if you are bartering for small items. You want the smallest-weight coin that your national mint produces.

On the other hand, if you want gold as an investment, for which you plan to exchange your coins for digits in a bank, you should buy the most common one-ounce coin with the lowest premium: the Krugerrand. This low premium is consistent. You buy low; you sell low.

If you want something in between, buy a one-ounce coin from your national mint.

The tenth-ounce American eagle commands a premium above the one-ounce eagle these days. This could go away in a selling panic. Be aware of this investment threat.

Americans do not have a true free market with coins produced by the U.S. Mint. Ron Paul held hearings on this issue recently. The Mint keeps getting back-logged with orders during panic-driven periods. It sells only to coin dealers. This creates a premium for coins when these logjams occur. You can read about the problems here.

PROCRASTINATORS PAY PREMIUMS

Most people listen to a story for years before taking action. This has surely been true of the story of gold. When Gordon Brown, as Chancellor of the Exchequer, sold off half of Britain's gold, 1999-2002, he depressed the world price. He sold it at an average price of $276 per ounce.

This was a massive transfer of wealth from the British government to other central banks, which bought most of the gold. This kept down the market price, as central banks shifted demand from the private markets to the Bank of England's bars of gold.

This was the last chance for gold speculators to get in on the deal cheap. Not many people did, of course, because not many people ever buy close to the bottom of any market.

So, gold has steadily moved higher over the last decade. Still, the procrastinators procrastinate.

I don't mean Joe Lunchbucket and Tom Temp. The vast majority of Americans have no liquid savings above a few thousand dollars in the bank. Fewer than 50% have pensions of any size, and the money in these tax-deferred accounts are not at their disposal. The funds they can invest in are not related to gold. They are categories that will keep the fund managers from a lawsuit when markets collapse: American stocks, American bonds, and Treasury debt.

Gold is an investment asset. It therefore will not become popular short of an economic collapse – hyperinflation followed by a depression. The average person owns no gold coins, nor will he anytime soon.

Where would he buy them? How could 100 million households buy a single gold coin per household? This would be impossible. There are only a few small coin stores in any community. They are mostly mom-and-pop outfits. The U.S. Mint could not meet the demand.

When Wal-Mart has a gold coin section in the jewelry department, then we can start talking about a possible bubble in gold. Not until then.

As more people on the fringe of the Tea Party find out about American gold eagles, they will start buying. This will force up the coins' premiums.

As word gets out about the scarcity of small-weight gold coins, there will be more interest in owning them.

As word gets out that the Federal Reserve's exit plan is a myth, they will start looking for hedges. Gold is a hedge against serious price inflation.

The government is working hard for existing gold coin owners. The government clearly cannot bring the budget deficit under control. Congress has no intention of doing so. When the government can borrow $1.6 trillion a year at rates as low as four-one-hundredths of a percent (90-day) to under 3% (7 years), why should we expect Congress to cut spending?

CONCLUSION

If you have yet to buy a single gold coin, buy a tenth-ounce American eagle to get started. That will not bankrupt you. It will get you over the hump.

Most Americans will never take this initial step. Those who procrastinate will pay a high premium when they at last think: "Maybe I really do need some gold." If you don't know where to start looking, start here.

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

© 2011 Copyright Gary North / LewRockwell.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Onc' Scrooge
14 Apr 11, 02:16
Gold coins sold in supermarkets!?

Hi Gary,

you wrote:

"When Wal-Mart has a gold coin section in the jewelry department, then we can start talking about a possible bubble in gold. Not until then."

Are we in a gold bubble ? I don't think so even if in Germany the supermarkets begin to sell goldcoins see

http://www.lidl.de/de/Goldmuenzen

LIDL is a multi-national (at least Germany and France) supermarket chain. They are selling gold and silver coins in their stores and via internet.

Cheers


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules