cnpcoins

The calm before the.....

The coin market is active, yet calm.  Increased media attention to the possibility of massive future inflation has driven attention toward gold, silver and gold coins like the investment worthy $20 St. Gaudens in MS-65.   Currently, there is a good balance between buyers and sellers in all areas.   As a result, premiums on gold and silver bullion have narrowed a bit, and for the moment, there is good supply of most numismatic items.

The balance is delicate and could easily be upset.  This is because the supply is essentially thin, barely meeting demand, which is why in recent months, prices on bellwether coins like the MS-65 St. Gaudens spiked upward as much as 30% in a month before giving back half of their gain, and are now stabilized and trading near a retail price of $2350.   Gold and silver bullion remain available, but in recent months they too had periods where demand suddenly wiped out all available supply, driving premiums upward, and making those coins extremely hard, if not (in some cases) impossible to find. 

When the inflation monster arrives, pure collectibles such as Pattern coins and banknotes – which are less active at the moment - stand to be big gainers.  These delightful collector favorites – along with key date coins especially type coins and Morgan Silver Dollars – are not garnering the attention of gold and silver.  Yet, their prices remain relatively firm as dealers have no desire to sell at discount today what will likely generate large profits tomorrow. 

Speaking of which, signs of pending inflation are starting to show.  Gasoline prices are up $.25 per gallon in recent weeks, and all indications are that those prices will be pushing higher in the future.  The stock market has shown a recovery of close to one-third of its loss and perhaps even more telling, many banks that received TARP money are jumping through hoops to pay that money back.  They are receiving tremendous resistance from the Federal Government in paying that money back.  Apparently, the Federal Government likes the control they can exert through their TARP loans.   All that aside, the fact that banks feel healthy enough to want to pay back those TARP funds point to a heating up of economic activity in the future, which is also a major indicator of future inflation.  That “future” may not be long from now.

The US savings rate continues high – around 6% - which means the over $8 trillion in US cash accounts continues to grow.  It also means that US consumers are keeping expenses and spending down, unquestionably due to uncertainty about what the future holds.

Those funds are earning interest in the low single digits, so the owners of those funds will be happy to move them to areas which can generate either more security or more increase in value when they are convinced that such moves are warranted.  When inflation is part of the equation, as it appears will happen, more of those funds should flow into precious metals and coins which are the best inflation hedges in an economic climate with so much uncertainty surrounding real estate, which has long been a haven against inflation. 
 
Because the precious metals and coin markets are so small by comparison in terms of total volume, even a relatively small percentage move of those dollars into metals and coins will cause massive valuation increases.  Unlike the late 1980’s when the last huge rally in coins occurred, the coin market – with certified grading and internet trading - is now well organized to effectively handle such an influx.

Inflation is not the only possible catalyst for a rising valuation in precious metals and coins.  War in the middle east, the fall of Pakistan, a severe setback in Iraq, cutting off of oil by Iran and any one of a number of international crisis could also trigger demand for precious metals.

I believe the “calm” we are now experiencing is very temporary, and could disappear at any time.  That makes now an outstanding time to take advantage of those slight discounts especially for high quality collector coins such as patterns, which, after all is said and done, will likely be the biggest gainers. 

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Putting Precious Metals into your Individual Retirement Account.

    Stock market losses, uncertainty about the future and dissatisfaction with government policy have driven thousands to use this vehicle for hard asset preservation.

    This has been possible since 1986, but is just now really gaining widespread popularity. There are however serious limits and requirements to putting precious metals in your IRA.

• First, the kinds of metals you can put into an IRA are strictly limited, including gold, silver and platinum, but only using certain types of bullion bars or coins. Numismatic and PCGS/NGC certified bullion coins are not permitted for IRAs.

• Second, only self-directed IRA’s are eligible to contain precious metals. You must also have a qualified administrator and storage facility, as well as a dealer (like Customized Numismatic Portfolios) connected with certified storage facilities and qualified Administrators so that the entire process will be seamless. Each transfer is transacted according to all legal requirements, from the time you make the commitment to put precious metals into your IRA, all the way to having those metals sitting in your name at a certified storage facility.

    There is one exception to this.  If you have a self-directed 401K and you are the trustee, you can physically hold the precious metals.  Be sure to check the legal details of your IRA before you withdraw funds, as a mistake in this area could lead to potentially serious tax penalties.

    If done correctly, initial and annual costs can be minimal. 

Lawrence D. Goldberg's Tip of the Week:

"A one kilo bar, 32.15 oz. of gold (about $30,000 value) is one of the most cost effective forms of gold to put into an IRA"

Two Kinds of Inflation Impact Coin Market

   

It is no secret that inflation results in higher prices for gold and rare coins.  Massive inflation will result in massively higher prices.

    Last Rare Coin Report (January 2009, and viewable at www.CNPcoins.com) I recommended  5-10% of assets in gold and rare coins.  I now recommend 10-20%.  The reason is simple: inflation may not now show statistically, but it is here, will likely become much worse, and might start showing in statistics any time now.

    In a nutshell, it is because there are two types of inflation: “Monetary” and “Price.”

    “Monetary” inflation refers to changes in the number of dollars in the money supply. When government prints “fiat” money (dollars not backed by gold or silver) the money supply increases, and the value of each dollar drops.  This has occurred since the founding of the Federal Reserve in 1913 and continues to this day.  “Monetary” inflation is worsening.  Some sources claim more than Ten Trillion Dollars has been pumped into the money supply within the last year, with more on the way, as government tries to shore up undercapitalized banks struggling under the weight of toxic assets.

    “Price” inflation refers to the actual price of goods. Thus, if demand for gasoline increases, and oil supply remains constant, gas prices will rise.  That is “price” inflation. The problem with inflation statistics is that they only reflect price inflation, which is now actually price deflation because the recession reduced demand for goods and services, and prices on so many items have been lowered.  An interesting exception to this is the COLA (cost of living increase) for Social Security which went up 5.8%, but overall, prices on the full basket of goods, which include automobiles, houses, rent, and so forth is actually lower.

    This condition is unsustainable.

    Basic economics says trillions in new dollars pushed into the economy through massive Federal spending and borrowing will result in increasing demand for goods and services.  Adding to this will be more manufacturing and sales as inventories are depleted, and consumers replace and repair broken and consumed items and supplies.
   
    This makes price inflation virtually certain, triggering corresponding increases in hard asset prices. But there is more. The US savings rate is near 6% - a record. Over $8 Trillion sit in savings in the US.  As inflation worsens, expect an ever increasing flow of dollars into hard assets.  Already this year, we saw how even small increases in demand sent prices of coins dramatically upward.  If such demand becomes inflation triggered (which I believe it will), expect precious metals and coin prices to erupt explosively from current levels, sending values to record highs.   This is why coins and precious metals have retained and increased value, and why they are poised for an astronomical price increase over the next few years.

    The Fed traditionally fights inflation by raising interest rates.  To do so now could double already huge interest on the $12 Trillion and growing National Debt, which promises to increase under increased Federal borrowing and pressure from unfunded Federal Government liabilities like Social Security and Medicare. Nor can the Fed reduce money supply without undermining the liquidity of banks already staggered under tens of trillions in toxic credit default contracts, derivatives, consumer credit card debt and the still unresolved mortgage crisis.

     Price inflation could start tomorrow, or in a few months, but it will start soon. Once triggered,  events could move rapidly, which is why it is far better to buy a couple months early than even a day too late. It won’t get as bad as Germany’s Weimar Republic, or in today’s  Zimbabwe, where printing of dollars has topped the ridiculous with a $100 Trillion dollar bank note, but it will get bad.  Possibly very bad.

    And in this time of “hope and change,” probably the best policy is to make sure that you are protected.  What do you have in hard assets now?  How are you protecting yourself and your family from what could well be the most serious bout of inflation since the creation of the Federal Reserve in 1913? 

Note:  $10 Trillion Zimbabwe bank note…retail value about $8 US.