Buy On the Dip

December 14, 2011

Dennis Gartman announces he sold all his personal gold.

Santa came early! Gold has dropped into a very buyer friendly zone below $1,600 today.  Yesterday, gold-bug Dennis Gartman let the world know he emptied his personal account of all gold holdings. He is considering a similar move in his funds. Due to regulations he can make no moves in these funds until month end. Expect more sell off at that time from the Gartman managed funds.

Gartman told the Fast Money reporters on CNBC,  During a bearish time like this there are only three positions to hold in gold, very long term, long term & neutral. I have taken a neutral position at this time. Gartman views gold more as a commodity to be traded rather than our position of a long term hold.

For those of you who view gold in the similar manner as we do now through the end of the year is the time to buy and rake in the savings. The negative economic out-look for Europe and the US  should have long-term upward pressure on gold over the next cycle.

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Forbes: Central Bank Appetite And The Monetary Case For $10,000 Gold

December 13, 2011

Fed Chairman Ben Bernanke

Great Speculations
Buys, holds, and hopes
Investing |12/12/2011 @ 10:36AM

What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks?

An exceptionally potent formula for higher gold prices that could send gold to the unimaginable level of $10,000 an ounce. Negative real interest rates and strong money supply growth are two key factors of what I refer to as the Fear Trade.

Negative real interest rates occur when the inflationary rate, or CPI, is greater than the current interest rate. A quick account of the G-7 and E-7 countries shows that the majority have negative real interest rates.

Across the developed G-7 countries, British citizens are the worst off with real interest rates in the U.K. sitting at negative 4.5 percent. U.S investors aren’t doing much better with rates at negative 3.25 percent and the Fed has all but guaranteed rates will remain there. Only Japan has a positive real interest rate among the G-7 and that rate is barely above zero.

Conversely, the most populous nations making up the E-7 have mostly positive real interest rates. However, the grouping’s grandest economic powerhouses, China and India, have negative real interest rates sitting around negative 2 percent.

Simply put, investors in those countries who have parked their savings in cash and low-yielding investments, such as Treasury bills and money market accounts in the U.S., are actually losing money due to inflation.

That can be tough for any investor, but when you’re the central bank of a country with millions of dollars in reserves, it can be catastrophic. This is why central banks around the globe have sought protection by diversifying their foreign-exchange reserves into gold bullion this year.

VTB Capital’s Andrey Kryuchenkov told the Wall Street Journal last week that, “Central banks are diversifying, and it has intensified to a rate that nobody had expected.” Latest estimates predict global central banks will purchase between 475-500 tons of gold in 2011.

This amount of capital flowing into gold has the potential to push prices up a level in 2012. John Mendelson from ISI Group sees gold prices reaching $2,200 an ounce during the first six months of 2012.

continued on pg. 2

Gold Outperforms S&P 500 Again in 2011

December 12, 2011

Short of a total collapse of  Gold to levels in the last quarter of 2010 Gold will see gains of over 18% for the year. The S&P 500 current retraction is right at -1.80% making it the first decline since the bottom of the Great Recession in early 2009.

This is not to say Gold has enjoyed smooth sailing in 2011, as the final 2 quarters of this year have born out. Gold reached an all-time high in Dollars on Aug 23, 2011 of $1,920 then quickly pulled back to $1609.70 a 19% drop in a little more than a month. The high was just dollars short of our estimate of $1927 in June. (Gold Out Performs S&P 500) Since then Gold has been trading more like a equity stock than the safe-haven currency it traditionally has held.

Gold’s traditional position of 1.5 time the price of the S&P 500 it would place the price near $1,850. With the current spot at $1,658 Gold has the potential for another 11.5% run before the traditional January sell off.  Gold should return to a safe haven status with in the next 3 months allowing investors to continue earnings that should out perform the S&P 500 for the near & mid term.


Wall-Street Bears are Rummaging for Food

December 5, 2011

Wall Street has been in the precious metals markets for over two decades, assisting clients in bolstering their retirement accounts with bullion. Morgan Stanley, among others offers clients the opportunity to own SEC approved bullion in Gold, Silver, Platinum, & Palladium. These can be acquired in various products including bullion bars, American Eagles, American Buffaloes, South African Krugerrands, Austrian Philharmonics & Canadian Maple Leafs.

The catch is the client never takes physical possession of the bullion: it is held in SEC-approved vaults. These vaults are regulated to hold a one-to-one ratio of metals to client holdings. In 2007, Morgan Stanley had to make restitution to clients for not keeping this agreement with their clients despite still charging clients storage fees. (read further here)

Two decades ago a number of major Wall Street firms entered the rare coin market. Merrill Lynch, Kidder, Peabody & Co. Inc and Shearson Lehman Hutton, each took root during the heady days of Wall Streets’ bull-run in the late 80’s. Each one had a slightly different approach to rare coins.

The first two started funds that ended in well documented failure. Shearson Lehman Hutton actually sold PCGS & NGC rare coins in their 11,000 locations. Yet, shortly after the previous two folded, Lehman down-played this investment, stopping altogether when the company filed bankruptcy for involvement in the sub-prime loan scandal.

Wall Street once again is looking at the rare coin market as an investment. They have watched the decade-long rise in prices and feel that now is the time to re-enter. One fund has recently announced it will pour upwards to a half-billion dollars into four separate funds with holdings exclusively in rare coins & precious metals.

This fund involves a major player in the coin market with previous, all though dubious, experience in coin funds joining forces with a known Wall Street fund manager. They hope to finally perfect the elusive formula of melding coins and Wall Street money into a winning fund.

While this has a great potential for success it has a previous track record of failure and decimating the rare coin markets. The PCGS 3000 Index is a method of tracking the price fluctuations in 3000 rare coins as determined by experts in the rare coin industry. This index has grown by 6667.25% since 1970 when they started keeping track.

As shown by this chart there is two very distinct peaks. The first is during the gold & silver runs in 1979 & 1980. This is a time prior to third-party grading services entering into the rare coin market and was driven exclusively on the price of metals.

While an impressive spike at the time, it pales in comparison to the run made in 1989 and 1990 fueled by Wall Street entering the rare coin markets based on the promise of standardized grading. This is not to say these grading services were responsible or at fault. In fact, to the contrary, these services have added a much needed standardization to this market; protecting clients & investors from acquiring counterfeit or doctored coins potentially costing thousands of dollars in investments.

The second spike took prices on most coins to levels still not seen today. If you can find a 1989 Whitman Red Book Price Guide you will find prices at the height of the rare coin bubble. Try getting those prices today.

There were a number of factors in this spike, the search by Wall Street to find alternate investing after the 1987 crash along with the aforementioned entry into the market of third-party grading. Another factor was the short term success of the funds developed in the latter part of 1986. It was a rush to rare coins similar to what we saw 10 years later with tech stocks in the Dot.Com bubble. Wall Street saw the past returns on rare coins and jumped in with both feet.

 A couple of other charts also confirm to varying degrees the similar results to both spikes. As shown below:

The above chart shows all coins tracked by the PCGS 3000 that are in Mint State (MS60 to MS70) according to the grading services. These coins are the cream of the numismatic world, while not all are showing tremendous gain individually. We see the same profile as the entire market.

The above index follows a smaller segment of rare Gold Coins in MS60 to MS70. (Although, there are no rare coins that qualify for MS70) It basically mirrors the previous charts with similar results. These coins while rare by grade may not actually be rare by type or year.

There is one final chart that stands out from the rest. It is the Key Dates & Rarities chart (see below). This is comprised of all key dates for each coin type in all metals. It also includes those coins that are truly rare or scarce based on actual limited supplies.

One of these key series is the Carson City Mint $20 Double Eagles. It has a number of scarce coins including the king of rarities in this set, the 1870 Carson City $20. This coin is estimated to only have 45 to 55 survivors most of which are in the VF to XF grades. Only a handful are in the AU grades and can command upwards of $400,000 plus.

As you see these coins have the two spikes in 1979-80 & 1989-90 but what you don’t see is the dramatic drop off. Instead you have steady growth over the last two decades with a small retraction after the Great Recession of 2008.

This segment of the rare coin market shows the least volatility returning consistent gains over the last two decades. Many investors have enjoyed these type returns over the years as they have invested in this segment of the rare coin market.  It is these coins that we see the greatest potential to preserve your wealth for the long term with the best potential for gains.

Conclusion:

With Wall Street heading back into the rare coin market now is the best time to acquire before the prices are run up, removing hundreds of millions of dollars in rare coins from circulation. Will there be a spike and retraction as in the past? No one can tell the future. Yet, if Wall Street holds true to form, you will see an initial frenzy driving up prices then at minimum a retraction as they settle into this market for the long term.

You as the savvy investor can take advantage of this trend by getting in before the rest of Wall Street gears up and enters. Making solid acquisition in Key Dates & Rarities should allow you an investment that can bring years of returns and the security your investment will be protected.


Central Banks Crank Up the Printing Press

December 1, 2011

If you follow this blog, and you should follow us, this story will be no surprise. As we blogged in September the major central banks (European Central Bank, Federal Reserve, the Bank of England, the Bank of Japan & Swiss National Bank) are making available currency at a greatly reduced rate. This policy will take effect on December 5th and is driving Gold prices back towards the $1,800 mark.

We don’t often talk about the futures prices on Gold but in this case it is warranted. The futures options on Gold heading into 2012 is settling into the $2,000 mark. This is a little later than we anticipated but according to Jim Rogers on CNBC, If you adjust for inflation Gold should be at the $2,400 but I expect it to go much much higher. He also related that he is holding onto his gold and looking to buy on the retractions.

For the rare coin buyer there are a few things on the horizon that will impact this market. We anticipate this will cause upward pressures on prices & supply of rare coins. Now is the time to check your Tangible Asset Portfolio and see what you need to do to strengthen your position from a conservative 10% to aggressive 20% of total net worth.