Saturday, December 7, 2013

Review Of American Hard Assets -- Issue No. 6

Now that we are free from traveling (again) and free of entertaining visitors, I have no excuses (not even the Bitcoin frenzy is a valid excuse)..., it's back to work!

American Hard Assets ("AHA" from here, this newest issue (reviewed now), comes out every other month) is focused on coins, precious metals coins of course.  Five US coins (Au, Pt and Ag) are about half of the front cover.  Gold coin sellers APMEX and Provident Metals have prominent ads featuring pictures of gold & silver coins.

Managing Editor Ryan Kasmiersky introduces the articles in this issue with a couple of comments each.  Of particular note is the whole issue of buying gold coins for bullion value alone (what I do, US Eagles) or for numismatic (coin collector scarcity value) too.  This is an important question for prospective gold coin collectors, I know people in both camps.  The US $5.00 gold coins, for example, are a beautiful coin (actually at least three designs), and can be bought in many years and many conditions (how worn they are for example).

Coin collecting (numismatics) has a long and honored history here in the USA.  When I was a kid I collected pennies, nickles and dimes in the Whitman coin books.  My father had collected coins when he was very young, and I believe that he still has much of his coin collection.  Being familiar with US coins almost makes you familiar with our history.

***

In the "World News Update" section there is an short article on a $4.00 (four) US gold coin that went for $2.5 million at a recent auction, only some 15 or fewer were ever made.  Another (interesting!) short piece mentions that platinum has seen strong growth in India because of India's recent restrictions (a near-ban actually) on imports of gold.  The third article describes record numbers of orders of silver from the US and Canadian Mints.  The other two articles are on China overtaking India as No. 1 gold buyer (remember, this magazine comes out every two months) and news of a $1.6 million heist of gold bars stolen from an Air France flight.

***

Mike Woodcock authors up the first detailed article, this one on the Gold/Silver Ratio.  I have seen a number of comments in various places on playing (trading off of) the Au:Ag ratio. The current ration is roughly 64: 1 (64 oz of silver to get 1 oz of gold, in dollars).  A lot of comments I have seen for YEARS have suggested that the ratio "ought to" follow the approximately 15:1 ratio that would represent how scarce the two metals are to each other in the Earth's crust (about 15 times as much silver).  I have seen references ("tmosley" at Zero Hedge) that in ancient times the ration was 1:1!  And it has been as high as 100:1.

Woodcock mentions that there is some seasonality in gold and silver pricing (gold tends to be relatively high around the Winter holidays for example, while near bottoms in August or so).  But, he careful to mention (correctly) that volatility and investor sentiment often far outweigh short-term seasonal effects.

He then goes on to mention two strategies that traders can undertake to buy the "cheaper" metal vs. selling the more "expensive".  I do not have the experience or capacity to judge these strategies, as I just buy and hold...

***

Mark O'Byrne writes a great article on how and why some bullion coins have higher premiums (premia for you sticklers) than others.

But first let me introduce him, I have seen his name before, but never put it into place here at these AHA reviews.  Mr. O'Byrne runs GoldCore, you can see his contributed pieces at zerohedge.com (almost daily) as well as at 24hgold.com (where I get a lot of my gold information).

There are various reasons why premiums vary:

-- size of coin (1/10th oz coins have higher premiums)
-- special situations ("Y2K" caused very high premiums on US silver vs. Canadian)
-- changes in demand (Krugerrands became less popular in the US when Eagles came online)
-- perceived liquidity issues (I buy American Eagles because I see them as more liquid)

An excellent article, highly recommended.

***

Numistatist Fred Reed writes a great article ("Coins & Inheritances") on what to do if you (or, say, a loved one) inherit a coin collection...

Apparently something still happens here in America that I thought might have died out: that people sometimes sell their inherited coins at far under their value!  This can result in receiving (say) just 10% of what those coins might be worth!

To get maximum value for inherited coin collections, one must either do the work to learn their value (that can be difficult and a lot of work if you do not enjoy it) or have a professional (maybe two or even three) come by and carefully value the collection.

***

"The Bullion Baron" writes about the new Lunar Horse Coins, these will be various (but a lot of Canadian and Australian) gold and silver coins to be released soon (although some are out now) to celebrate the Chinese "Year of the Horse".  The Baron also wrote last year's article on similar coins for 2013 the "Year of the Snake".  Some of these are "legal tender" proofs (struck by PAMP of Switzerland), and most of these commemorative coins will sell at very high premiums to their metal value.

Other mints (Singapore, China, and New Zealand) are joining the fun (I would so guess that Chinese collectors are among the major buyers, but The Baron mentions that there is a lively trade on eBay Germany as well).  The pictures he provides of various of these coins are magnificent.  But, the premiums for almost all of these are very high.

I think I am beginning to see that there are three types of bullion coin collectors...  "Bullion nada mas" (like me), collectibles collectors (like those who collect US pre-1933 gold coins) and now collectors of premium & dazzling bullion coins that The Baron describes so well.  Collectors of Proof bullion coins and similar would fall into the category as well, IMO.

***

Author Louis Golino writes "Collecting vs Investing in Modern World Coins".  He touches on some of the same themes as The Bullion Baron in regards to bullion value, beauty of the coin, and scarcity...

But, Golino's article is about ALL world coins as candidates for collection and for the possibility of making money.  He cautions that trying to make money bu buying modern world coins is not easy.  There are a LOT to choose from.

He includes pictures of unusual silver coins put out by private mints as well.

An interesting article, but I just want the (US) bullion...

***

Michael Haynes, CEO of APMEX (a major seller of precious metal coins and bars, his company did the famous deal with Donald Trump of paying their first month's rent (IIRC) in one of Trump's NYC buildings for 3 one kilo gold bars; also, I personally know someone who is a very happy customer of APMEX) writes about the "Other One Ounce" gold coins: Twenty Dollar Gold coins (pre-1933), titled "How to Find Gold With an Extra Measure of Demand".

There are two major variations of the Twenty Dollar Gold piece: the "Liberty Head" design (1850 - 1907) and the "Saint-Gaudens" design (named after the sculptor who designed it, 1907 - 1933).

Both of these types are in very high demand by high-end coin collectors.  There were about 174,000,000 (total) of these coins struck by our mints.  Each "Gold Double Eagle" (the popular term in the coin community for these) are 90% gold and 10% copper with a total gold weight of 0.9675 troy ounces, so they contain almost one full ounce of gold.  When gold backed our money, the official (fixed) price of gold was $20.75 per oz, so the 0.9675 oz coin was worth $20.00.  How quaint!  (smile)

In 1933, FDR confiscated our gold, many (but the exact figures are NOT KNOWN) of these and other US gold coins were taken and then melted down into 90% pure gold bars (reflecting the coins, so they were NOT further refined) and are reportedly (and probably) stored at Ft. Knox in Kentucky.

Mr. Haynes mentions an "extra measure of demand" in that many collectors want an example of ALL mintages, and that even some of the common dates (almost interchangeable in price with each other, fairly low in many cases -- relatively speaking!).

But, his major contribution to our knowledge (to those of us who are not experts) is that there are TWO major factors in individual prices of Gold Double Eagles:

-- Current condition (how imperfect the coin is)

and

-- Scarcity of each coin by year and mint

[Ed. Comment: You had better know what you are doing in collecting these or have someone advising you that you really trust!]

He then goes on to analyze different coins and conditions which seem to offer more upside (in other words, they seem to be attractive values at current prices).  He goes into a lot of detail, having clearly done his homework for this article.  But, I will offer up his punch-line now (his two recommendations):

BUY common date (any) $20 Liberty Head Gold Double Eagles in MS61 condition.
BUY common date (any) $20 Saint-Gaudens Gold Double Eagles in MS 62 or MS 64.

***

Jonathan Kosares (USAGold) nicely complimemts Mr. Haynes' article by discussing grading the $20 US gold coins ("Understanding the Graded U.S. $20 Gold Piece Market").

The major point of his article (also well-researched) is that the premiums of $20 gold pieces rise and fall depending on things (especially under systemic  financial stress...).  He uses and index of five $20 gold coins in his study to smooth out variations in prices/demand for any one coin, although all five coins are in MS63 - MS65 condition.

An important conclusion he draws is that premiums (over spot gold price) are now near all-time lows...

But, I repeat my Editor's Comment from above: you better know what you are doing or have a trusted adviser...

***

The pawn shop business is something I know next to nothing about (although a friend of a friend is in the business and I will have to talk sometime with him).

"Beverly Loan Company Q & A" is interview with Jordan Tabach-Bank (third generation owner/operator of two high-end pawnshops, one in NYC the other in Beverly Hills).  By"high-end" I mean people who come in with $25,000 Patek-Phillippe watches or $90,000 diamond rings...  They opened their NYC location because of demand, and they chose to be in the famous "Diamond District" (47th St. between Fifth and Sixth Avenues).

The bulk of the items they pawn are jewelry, watches and diamonds, but they do loan out against sports memorabilia, artwork (inc. contemporary) and other items of high value.

Tabach-Bank mentions that his business, like more run-of-the-mill pawnshops does well in all types of economies, including in recessions...

***

Well, well, well.  The wholesale gold market had an interesting change.  Elemetal Capital (apparently privately owned) is the parent company of NTR Metals as well as Ohio Precious Metals ("OPM").  But, they will NOT sell their OPM 1 kg gold bars to the public...  In case you wanted to know.

elemetalcapital.com

***

Moving on to articles for the Very Rich, Nicolle Monico writes about wine tours of Europe, especially more unusual ones (wine-blending class in the M├ędoc, Spanish vineyards by horseback, etc.).

"Million Dollar Listing" writes about America's most expensive residential real-estate markets.  California, New York, Connecticut and Hawaii.

***

Watch expert Ed Estlow writes "The State of the American Watch Industry".  America's watch makers lost their way in the 1970s or so, either went under or were bought up by foreigners.  But. there are some watch makers (high-end) who make watches (but with imported parts!!!) now...  Brands include Shinola (!, and made in Detroit of all places), Towson, Montana, Bozeman (two from Montana?), Sedona, RGM and Kobold.

***

Dan Denning (who used to, maybe still does, write for Agora / Daily Reckoning) writes and article about how gold fits into all sorts of plots of James Bond movies, Vietnam, Nixon, etc.  Looks like Nixon making our gold non-convertible in 1971 reverberated more than I noticed back then (of course I was 15 years old then...).

***

Gabriel Benson writes "Baseball Cards: Childhood Dreams can be a Strong Investment".  Baseball cards?  Yes, there is a demand for "slabbed" baseball cards: a high quality Honus Wagner (Pittsburgh Pirates) is worth some $2,800,000...    I guess there is always something you can buy if you are too rich.

***

Short special interest articles include "To Clean or Not to Clean" (artwork, generally speaking no, let the experts do it), "war nickels" (1943, when they used some silver in then that year), and "The Four D's of Selling (Death, Debt, Divorce and Desire).

***

The Mining News section contained an important item I had missed: Anglo-American has given up on its efforts to develop the apparently very large prospective Pebble Mine in Alaska.  Gold has continued to drift lower in the past few weeks, so my guess would be that it will be a LONG time before this one ever starts producing.  Environmental groups (etc., "the usual suspects") were an important factor in stopping the project.

Also in Mining News are short articles on Newcrest and Glencore Xstrata both taking a beating on lower gold prices.  Another article mentions Barrick (a company with never-ending problems it seems) selling Australian Mines to Gold Fields.

But, the interesting gem for me in Mining News was the article describing how Ontario has ruled against Cliffs Natural Resources project to build a road into Ontario's "Ring of Fire" (a set of old geological formations thought to contain huge amounts of valuable minerals, including gold, but very remote...) to exploit a chromite project..  I had earlier read that Ontario had as a priority to develop the Ring of Fire area because it would provide jobs, etc.  Well, I guess not.  Again, the locals did not want it after all...

[Ed. Comment: I sure am starting to see almost universal revulsion by locals re new mines in their backyards..., I think FOFOA is right, buy the METALS not the MINERS]

***

"Last Word" is the name for John Garibald's editorial, this edition is about Obama's choice of Fed Chairman.  He wrote it before Obama chose Janet Yellen.  Garibald showed his approval of Yellen, and he further hopes that the Fed will maintain us on the QE drug we crave, that she not cut us off too soon (almost his exact words, my edit to be a bit shorter).

Well, I don't know...  My inclination has always been to "take our medicine" as soon as possible, and (we hope) the financial markets would recover relatively quickly vs. the QE-to-Infinity camp of keeping us on QE ever-longer (risking a bigger catastrophe later).

Maybe it's just as well that I am not in charge of anything now...  Janet Yellen may go down as the fall-gal when this all blows up...

***

Conclusion:

Yes, if these subjects interest you, particularly if you are thinking of COLLECTING items of value or want more insights into gold coins, then buy this magazine.

(Disclosure: I received a one year subscription from them, this is the last free issue by my count...)

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