silver coins

All posts tagged silver coins

Thanks to a link on ZeroHedge, I read this report by Project Mayhem Research Inc. According to the report, the iShares SLV and London-based ETFS physical silver funds both have inaccurate records regarding the levels of physical silver inventory. The report states that there is significant duplication of silver  and the actual amounts are lower than reported. This indicates a high statistical likelihood of “systematic fraud or gross neligence” in the accounting of both silver ETFs. Since silver ETFs are now accepted forms of delivery on the COMEX (futures trading exchange) proper accounting is the only way establish proper silver price discovery. No wonder prices of silver are so low! There’s fraud everywhere!

Silveretfs 1 PDF

If you’re buying silver or gold as an insurance policy against financial disaster, it makes sense to hold the actual commodity in its physical form rather than a piece of paper. If you’re buying such humongous quantities that you  must buy paper, buy the Perth Mint Silver Certificates instead.

For the rest of you regular folk, just buy silver coins like peace silver dollars or silver bars.  And if you like to collect pretty shiny objects, silver coins are the way to go! Collecting American silver coins is a great way to introduce your kids to the value of money and savings!

Last week, an 1804 Adams-Carter Silver dollar sold at auction for a whopping $2.3 million.  That’s a pretty good amount for  1 ounce of silver worth about $12! There are only 15 such coins known to exist and they’re quite popular.

1804_silver_dollar_adams_carter

The buyer was New Jersey dealer John Albanese, who said that the price was “basically a half-million down from last year because of the recession. It was a good opportunity. These don’t come around all the time.” The coin, the finest Class III 1804 dollar outside museums and available to collectors, had been expected to fetch $2 million.

The varieties of 1804 silver dollars are known as Class I, Class II, and Class III. The Class I pieces are sometimes called Originals, although that name is inaccurate, since they were struck in 1834 rather than 1804. The Class II and Class III pieces are sometimes called Restrikes, also an inaccurate name since there were technically no Originals.

1804_silver_dollar_adams_carter2

A single obverse die and two reverse dies were created for all of the 1804 dollars, and it is virtually certain that the dies were all made at the same time, certainly no later than 1834. The dies were also produced by the same engraver. The two reverse dies have been designated as Reverse X and Reverse Y, following past literature on the subject.

Assuming these were minted in 1834 and are thus 175 years ago, that means the coin appreciated 8.731% a year. Not a bad rate of return!  Hopefully, someday my collection of Morgan Silver Dollars and Peace Silver Dollars will be worth something too.

May be I’ve been posting too much doom and gloom in the recent past. Do I really think we’re on the cusp of a global financial meltdown? No, I do not. But Telegraph does. Here’s an excerpt from an article which says the meltdown has already started:

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

“A failure rate of 10pc would lead to the collapse of the Austrian financial sector,” reported Der Standard in Vienna. Unfortunately, that is about to happen.

Europeon banks may face write-downs of $25 Trillion dollars! In compaison, Nouriel Roubini’s estimate of $1.8 Trillion in write-downs for US banks seems like chump change.

Whether it takes months, or just weeks, the world is going to discover that Europe’s financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

Under a “Taylor Rule” analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.

But I digress. It is East Europe that is blowing up right now.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

This doesn’t sound very encouraging. If there was ever a time to start investing in gold coins, it’s now! If you can’t afford gold, you might want to consider silver coins. Silver prices have been on a tear over the past 3 months. The graph’s been up linearly over 40%!

Looks like I’m not alone in my enthusiasm for gold. For the first time ever, annual demand for gold exceeded $100 billion! According to the WSJ:

Demand for gold surpassed $100 billion last year for the first time ever, amid increased industrial and jewelry consumption and investors’ purchase of the metal as a safe haven, the World Gold Council reported Wednesday.

Gold demand — including jewelry consumption, industrial demand and identifiable investments such as bars, gold coins and gold exchange-traded funds — hit $102 billion in 2008, up 29% from a year ago.

In tonnage terms, gold demand rose 4% to 3,659 tons, the WGC said. Gold holdings in SPDR Gold Shares, the largest gold exchange-traded fund, rose to 1,008.80 tons Tuesday, surpassing the 1,000 ton level for the first time, according to the latest data from the fund. The total was up more than 200 tons from a month ago.

Gold is now about $26 below its all-time high above $1,003 an ounce, hit in March 2008. Talk of “gunning for the $1,000 level” should keep buyers at the helm, said Jon Nadler, senior analyst at Kitco Bullion Dealers.

Helping gold prices hold firm Wednesday was more gloomy news from the U.S. economy.

Doesn’t seem like the market has any faith in Obama’s economic recovery plan. Gold and silver prices have spiked and the stock market’s declined.

I’ve been an avid collector of gold and silver coins and have been following the prices for a years.

Gold is supposed to have a negative correlation with the stock market. This year has proved otherwise. Of course, as we’ve seen repeatedly in the past, all asset classes correlate to the downside.

Gold which peaked at $1030/oz earlier this year, has been trading in the $700 range for a few months. There has been a flight to safety, which for most people means buying US Treasuries. Indeed, the flight has been so large that it has pushed the yields down to absurdly low levels. The yield on the 3-month Treasury was almost zero at 0.4% and the 10 year is 3.52%. (The yield on the S&P500 was 3.55% this week, higher than the 10 year Treasuries rate for the first time since 1958).

The way that demand affects interest rates is that as people clamor for T-bills, they push up the prices for these bonds. Since the bonds pay out a fixed interest rate, the effective yield (also called yield-to-maturity or YTM) drops. So it’s the demand for stability in the current globally volatile economic environment that is pushing up bond prices and pushing down yields to almost nothing.

On the flip side, prices for a product fall as the demand drops off. So we’d expect the decrease in demand for gold as the cause of it’s low price. However, there have been several news reports stating that demand for gold is 50% higher than it was last year.

Demand For Gold Hits A Record Even As Institutions Head For Exits (November 19th, 2008)

The US Government Mint had to suspended retail selling gold coins and silver eagles earlier this year, and the Perth Mint just announced suspending production of gold coins.

So even though there is an increased demand for Gold, the prices haven’t been increasing proportionately. There have been several articles speculating on the reason for this.

According to:

The Disconnect Between Supply and Demand in Gold & Silver Markets (August 18th, 2008)

Obviously, enough people are willing to pay for gold and silver, at the previous $978 and $19.50 per troy ounce price, because the U.S. Mint could not source enough metal at those price, and had to suspend coin production.

This proves that people are more than willing to fork over, in whatever currency they are using, the previous prices for gold and silver, in such quantities, that a shortage was already existing, before the price collapse, especially in the silver market.  It is true that people in poorer countries like India, might have back on their consumption.

But, while they were cutting back, demand and consumption of gold in North America, including Canada and the USA, was soaring.  For example, before it suspended production of bullion coins, due to shortages, the U.S. Mint’s statistics show that it was printing 2.5 times as many gold coins, and almost 4 times as many silver bullion coins, this year, compared to last year.  Gold and silver bullion, in bar form, was also flying off North American retail shelves.

Bottom line: Enough people were buying, when the price was high, to exhaust the supply. Basic economics says that, in a free market, this means the price must rise.

Seems like somethings fishy in Denmark! The author further adds that

We have a disconnect between reality markets and fantasy markets.  The COMEX and London Metals Exchange are fantasy markets controlled by the big bullion banks.  They must be engaged in market manipulation, because nothing can explain a big price collapse, in the midst of widespread shortages and robust demand.  A group of big financial institutions, deeply enmeshed in the global trading system, and heavily involved in the gold and silver market, must be deliberately inducing temporary panic, for their own purposes.  These malevolent characters will eventually be able to buy back their short positions at low prices, and, possibly, also, even collect a significant long position.

I definitely think the prices are being manipulated, even though I’m not entirely sure why. One thing I do know is that you cannot manipulate prices indefinitely. Especially in the face of rising demand. Here’s an interesting snippet from the Standard.

(The Standard, Nov 14) Hong Kong: The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing’s reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

That article was published last week when gold was trading under $720/oz. Since then, its jumped to almost $800/oz, with most of the move occurring yesterday.

Gold Prices for November 21, 2008

The bright green line is yesterday’s movement. Gold moved from under $750 to nearly $800. Looks like gold has become strongly correlated to the stock market after all!

I think the price of gold will continue to rise over the long term. It’s just a matter of how long it takes.