This is the first issue of Hard Money Investor, a publication sent to our premier clients. If you are reading this, most likely you have allocated a meaningful portion of your investment portfolio to physical precious metals or are considering doing so in the future. Perhaps you share our views about the importance of gold.
“Gold is the only viable investment asset that allows a person to remove wealth from the financial system per se.” 1 It is, quite simply, taking part of one’s assets off the grid and storing it privately. Being financial insurance, gold has not been vital during history’s lengthiest, deepest stock and bond market boom which began in 1980; the boom, which took real estate and other asset classes along the way, endures to this day despite several financial crises that proved transitory, difficult as they were.
However, since 1970 for every year in which the S&P 500 has declined by 10% or more, gold has risen in value. And going back to 1990, the precious metal has outperformed stocks in 13 out of 27 years. 2
But gold’s financially defensive trait—that it rises when the stock market falters—does not detract from the more meaningful, forgotten historical fact about the metal, which is offensive. Because history has shown that gold is the best vehicle for actually shorting government; that is, betting on our leaders’ failure to maintain our confidence in their ability to meet the ever-climbing liabilities they continue to incur (on our behalf) with money the world believes in. Expressed differently, gold is a bet on the historical consequences of government profligacy—an eventual rise in inflation, which has been a losing wager in recent years. 3
But what does the present tell us about the long term? If inflation is down in these times, as we are told, why is gold up?
Gold Rises on Declining Confidence in Government
“Come the end of September, my magic, super Treasury powers will run out, and we need to raise the debt limit.”
—Treasury Secretary Steven Mnuchin, August 21, 2017
Many stock market investors surely judged this statement—expressed by the man whose signature marks our currency bills—positively, considering the short-term potential upside for stocks: they know Democrats and Republicans will always unite in pushing us further into debt to avert a short-term crisis. Fiscal can kicking has become a decades-old, well-rehearsed and seemingly inconsequential government activity.
Super powers of the borrowing sort will be preserved, at least until the next faux political crisis, which is scheduled for December. But a hard money investor, focused on the longer term implications of the statement, considers it like a faltering friend’s logic: “Buddy, if I don’t take out another 7 credit cards, I’m going broke.”
Gold, at least in present times, is an investment that often rises in value due to disaster—war, recession, and other events that upset the social and
The timeless Saint-Gaudens Double Eagle of 1907 is widely regarded as the most beautiful coin ever minted in the United States. Its design was also used for the American Eagle gold bullion coins minted today.
economic order, most of which are completely unpredictable. A war with North Korea, even if odds have risen somewhat, has always been a remote possibility, as well as any number of other international confrontations. If something terrible happened, investors holding more gold than others would luckily—considering its unpredictability—have a better investment outcome. But our thesis for today rests primarily on what is happening in government finance, something that is actually unfolding.
Gold’s price, historically speaking, reflects society’s confidence that government can meet its obligations; that it will remain solvent; and that the money it backs will preserve its value. That gold has risen roughly five million percent in Mexican pesos since 1975 speaks of that nation’s economic leadership with stark clarity. Our country has been far more fortunate, but although the federal government meets its obligations today, it is well known that leaders have not prepared our nation for the future: “their biggest sin is the failure to account for the magnitude of a huge government deficit crisis,” as Yale University professor Robert Shiller observed when commenting on an appropriately titled book, The Coming Generational Storm. 4
The conventional wisdom, the hopeful idea implied in much of what we read and hear, is that our leaders will somehow steer us clear of this generational storm—the stark fact that we lack the resources to pay the bills of the future: the accelerating unfunded liabilities of the federal government exceed $100 trillion.
Somehow, we will figure things out. But the enemy of the conventional wisdom, wrote economist John Kenneth Galbraith (who coined the term), is not ideas but the “march of events,” what is actually coming down the road. 5 Compare our Treasury secretary’s lighthearted words about increasing our national debt to solve problems with the true-to-life, prudent thoughts of a president preparing the nation for tough times:
“Revenue must cover expenditures by one means or another. Any government, like any family, can for a year spend a little more than it earns. But you and I know that a continuation of that habit means the poorhouse.”
—President Franklin D. Roosevelt, inaugural address in 1932
Ironically, the man who spoke these words increased the deficit and spent freely on social programs to diminish the terrible economic pain the Great Depression caused for the nation: “Nobody is going to starve in this country.” 6 Though successful in important ways, one could argue that FDR’s dramatic change in U.S. fiscal policy was the first can kick in a long road to our present, unprecedented quandary—an approaching crisis in government finance.
The Depression era government expansion precedent has led influential economist Paul Krugman and others to claim, based on present low interest rates and inflation, that it makes sense for governments to increase debt much more; to take advantage of present benevolent financial conditions to invest in infrastructure and other programs that promote economic growth, as FDR’s New Deal did. The present economic expansion, in Krugman’s view, has been sluggish in part because the government did not borrow and spend enough. Krugman has also ridiculed gold and perhaps some economists would agree that it makes no sense as an investment. 7 (A reader should note that he criticized gold not when the financial system was imploding in 2008, but in 2013, when gold was finally losing height after a 600% rally since 2000.)
Our gold optimism stems from the simple view that accelerating government debt—on the verge of a dramatic increase in spending needed to cover welfare distributions to the millions of baby boomers retiring—will have consequences boosting the price of financial insurance. Krugman, like the federal government due to its actions, is in the “Let’s think about today and worry about debt later” camp. Gold investors are planning today for that financial later that our leaders continue to ignore.
In considering today’s unique situation, Hard Money Investor aims to provide a serious approach to discussing precious metals investment partly by pushing aside noise and financial childishness. Perhaps most importantly, the gold bug-promoted notion that investing in anything other than gold—stocks, bonds, real estate, our private businesses—is a mistake. Gold, like these alternatives, has investment merits and demerits, as well as a time and a place for each to outperform the others.
Gold optimism does not necessarily imply economic pessimism. It stems from our belief that we are in a years-long return to normal for gold’s position in financial society and what this implies for the investment. A return to normal for gold means that the metal becomes a core portfolio component, small or large, for mainstream investors.
Today, gold represents less than one percent of total investment assets in the world following years in which investments in stocks, bonds and others increased dramatically in good times for financial markets.
This is the lowest percentage in U.S. financial history and reflects the present financial culture. It is ironic to consider that perhaps the biggest driver for gold is the fact that, largely speaking, nobody owns it. Being a gold investor today means feeling a bit uneasy, not something expressed in polite society. Why is that?
It is important to consider that regarding gold as an Armageddon asset, a reflection of economic pessimism, is a completely modern notion. If you had asked Pierpont Morgan—father of J.P. and a man who almost singlehandedly saved the federal government from bankruptcy in 1893—‘Why do you own gold? Do you think the world is going to end?’ he would not understand what you were talking about. Gold was another way to hold wealth, and like railroad stocks and utility bonds, owning the metal had its own risks and rewards. That was normal.
Stock market declines or crashes and war are invariably beneficial to the gold price as increased investor demand for the safe haven asset strains the metal’s limited supply. But professional investors understand that up to now these have been, very fortunately, relatively brief episodes in the span of history where traditional asset classes, most notably stocks, rise. Today’s bull case for gold, absent these events, is mostly about a significant change in asset allocation among the world’s most important investors—very large funds that manage trillions in wealth—after the biggest financial boom the world has ever experienced.
Considering what we have just lived through, driven in large part by government borrowing and central bank actions to boost economic activity, it is well understood that market returns will most likely be low over the next few years. Furthermore, the debt boom and central banking largesse that helped perpetuate the boom are reaching limitations, which is the talk of Wall Street. Gold works when traditional financial assets do not.
Hard Money Investor Is About Wealth You Can Hold In Your Hand
“Gold still represents the ultimate form of payment in the world…Fiat paper money in extremis is accepted by nobody. Gold is always accepted.” —Alan Greenspan, 1999
Another reason gold is no longer a mainstream investment asset is that the metal is mostly for the minority of Americans who have savings. Unlike real estate and stocks, physical gold can generally only be bought with cash.
There are a number of ways of owning gold, which are displayed on page 4, showing the pros and cons of holding each. Gold at its most fundamental level is an element found in nature that became a store of wealth in human civilization thousands of years ago. Today, one can own physical gold in bars or coins, in virtual form via the stock market or via hybrid instruments. Each of the instruments have varying degrees of investment safety and potential. (For a full discussion, you can read the source, which is Shayne McGuire’s book, Hard Money.)
We deal in physical precious metals, which have a unique position among investment assets since they do not depend on others to preserve value. Clearly their worth will reflect market prices for gold and silver, but being completely under your personal control they do not display counterparty risk. A bond depends on the borrower to make payments; a stock depends on management (and economic drivers) to continue delivering earnings (and not engage in fraud); an exchange traded gold product depends on management for proper handling of the underlying assets (which are outside of your control); and these and many other investments depend on properly functioning financial markets.
Austin Rare Coins is a gold dealer that only works with physical precious metals, mostly coins. This includes coins minted over thousands of years, from the Roman Empire to this year’s offerings by the U.S. Mint and others from around the world.
In each publication we will discuss what we are seeing in each of three markets: the bullion market, where one finds mintage primarily from the United States, Canada, Australia and other countries; the semi-rare market, which offers a wide array of fine coins; and the rare coin market, where an investor can find unique investment opportunities, the absolute finest precious coins available in the world today.
1 Shayne McGuire, Hard Money: Taking Gold to a Higher Investment Level (John Wiley & Sons, Hoboken: 2010), p. 5.
2 Ira Iosebashvili and Amrith Ramkumar, “Bull Market in Uncertainty Propels the Gold Market”, The Wall Street Journal, Aug. 24, 2017.
3 McGuire, p. 6.
4 Robert Shiller in his comment on Laurence Kotlikoff and Scott Burns’ book, The Coming Generational Storm (Cambridge, Mass.: MIT Press, 2004), dust jacket.
5 John K. Galbraith, The Affluent Society (Cambridge, Mass.: The Riverside Press, 1958), p. 13
6 Franklin D. Roosevelt, On Our Way (New York: John Day Company, 1934), p. 98.
7 Paul Krugman, “Lust for Gold”, The New York Times, April 11, 2013.
Scale: 1-5, 5 is highest.
These numbers are based on the judgment of the author. We would not suggest buying gold based on the best score, but rather based on what fits individual needs. For example, if you do not believe “government risk” is a concern, then bullion, commodity futures and bullion bank accounts would be more attractive than the score above implies.
Investment Safety refers to “ultimate” safety, meaning which is safest in conditions of extreme financial stress. Hence, this is not an issue in normal conditions. Safety is low for mining stocks because of equity market and operational risks. It is high for physical gold, being “outside” of paper financial markets, yet it has lower liquidity.
Investment Potential: 3 means the asset will rise or fall in line with the market price of gold. 4 or 5 indicates the probability that the asset would rise more than gold or silver (or fall more in a precious metals bear market). Jewelry was rated 2 because it will typically be bought at or below “melt” (the price of gold in the market).
Liquidity refers to the ease of buying and selling the asset. Rare and “common date” coins score poorly because it is difficult to sell in a hurry. Jewelry might be easy to sell quickly, but at a very low price.
Government Risk: risk that government could change the rules of the game in gold ownership. 5 means virtually no risk and 1 means high risk if the government decided (once again) to interfere with the private ownership of gold. Mining stocks receive a 4 because, in periods of financial stress, their corporate tax rate could be raised, especially if gold prices are rising rapidly. Gold Money is based away from the United States to prevent the possibility of government intervention in its management. Rare coins, gold and silver coins with numismatic value, have never been confiscated.
Score is based on a simple addition of the four factors.
Source: Shayne McGuire, Hard Money: Taking Gold to a Higher Investment Level (John Wiley & Sons, 2010).
How We Think About Precious Metals Investment
At Austin Rare Coins, our experts focus entirely on physical precious metals, mostly gold and silver, which have been part of human civilization for thousands of years. There is a very broad investment horizon of bars and coins available spanning from basic bullion products (like the ones shown on this page) to rare, one-of-a-kind masterpieces, such as the two shown on the back page.
Considering the scale and diversity of the market, as well as the investment objectives of our clients, we think of precious metals in three tiers. Serious gold and silver investors tend to have investments in all three tiers.
Tier One: Bullion
The first Tier encompasses physical bullion, consisting of four major precious metals: gold, silver, platinum and palladium. Regardless of the size of your investment, we recommend building a foundation of wealth in bullion coins or bars. The best approach is having a combination of the most private and highest quality products available, such as the ones shown in this image.
The goal in Tier 1 is security and maintaining maximum liquidity at all times. Prices fluctuate daily, dollar for dollar, with the prevailing spot prices on the world market. In certain time frames, gold will be underpriced; at others, silver will be a bargain relative to gold. We recommend diversifying within the bullion market and advise holding a combination of precious metals to ensure maximum upside and proper portfolio diversification.
Tier Two: Certified Pre-1933 United States Gold Coins
The second area we specialize in is the certified Pre-1933 precious coin market, which we refer to as Tier 2. One way to leverage and add privacy to your bullion position is to acquire certified Pre-1933 United States gold and silver coins. By moving beyond ordinary, common bullion, you can add privacy and leverage to your precious metals portfolio.
We generally focus on Pre-1933 U.S. Gold Coins certified authentic, in higher Mint State quality. The goal is to find gold coins temporarily overlooked and underpriced in the marketplace. As the price of gold rises, Pre-1933 gold should soon follow.
Common date Pre-1933 U.S. gold coins are frequently included in addition to gold and silver bullion. Common date coins occupy a unique place in the precious metals market due to several favorable features such as fixed and limited supplies that make them an excellent option for many clients.
While most of these coins are 100+ years old, we are not referring to truly rare coins—these are more of a bridge between the bullion market and the classic rare coin market. This area of the market, however, shouldn’t be overlooked in a well-balanced precious metals portfolio.
Tier Three: Classic U.S. and Ancient Rare Coins
The final tier of the physical marketplace consists of certified, truly rare United States or Ancient coins. We view Tier 3 much like we do other fine collectibles such as rare artwork, classic automobiles, or high-end real estate.
Being unique coins, these have a fixed limited supply, while there is an ever-increasing group of wealthy collectors and high-end investors who invariably seek the absolute finest coins available.
Gold Market Insights
Whether you want to hear about opportunities our specialists are seeing in the bullion market or if you are seeking to own a museum-quality rare coin, in this section of the Hard Money Investor we aim to provide insights that can help guide your hard asset investments.
Rules of thumb: don’t overpay, own items that are universally recognizable & liquid, and make acquisitions at the most opportune times possible.
The best opportunity we are seeing in the gold bullion arena at present is in Proof Gold American Eagle coins. Every year since 1986 the U.S. Mint has produced two distinct versions of the Gold Eagle. Bullion coins come packaged in rolls of twenty or mint cases of five hundred. They can be acquired for a very small premium over their bullion content and track the gold price every minute. Gold Eagles come in four sizes ranging from a one-ounce to a 1/10th-ounce coin.
Until recently we haven’t recommended Proof Gold Eagles to our clients because we couldn’t justify their large premiums over melt value. In recent months, however, we have sold millions of dollars-worth of back-dated proofs because we can offer them for a few percentage points more than regular Gold Eagles.
This is a major development in the marketplace today and it should be considered carefully. We’ve never seen Proof Gold (particularly the harder-to-find back dates) trade for such a small premium over melt, and this is an opportunity that shouldn’t be overlooked.
Remember, Proof Gold tracks the gold price each day on the world market just like a bullion coin and today’s historically low premiums offer an unprecedented value in today’s bullion marketplace. There have been many instances in prior years where the wholesale bid for Proof Gold Eagles has been $250 an ounce or more over melt!
By acquiring Proof Gold Eagles at today’s low premiums, you have the opportunity to not only acquire gold at a reasonable level, but you can lock in a much higher-quality product that has commanded significant premiums in the past. Timing is important—this is a fluid situation that can change quickly based on supply and demand fundamentals.
One last point: These coins have been struck each year since 1986 and dates from the early 1990’s typically have the lowest mintages of the entire series. Be sure to call us for availability and up to the minute pricing on back-dated Proof Gold Eagle singles and four-coin sets.
What are Proof Gold American Eagles
In addition to bullion coins, the U.S. Mint also issues “Proof” coins. Proof Gold Eagles are different from their bullion counterparts in several ways. The most notable is their overall look: Proof coins are struck several times on highly polished gold blanks to give each coin a highly reflective, mirror-like appearance that stands apart from the bullion version.
Also, instead of coming in tubes, each proof coin is given meticulous care as they are essentially “collector” versions of the Gold Eagle series. After being struck several times, each coin is carefully placed in a hard plastic capsule. The capsule is then placed in a clasped velvet booklet which then comes in an attractive box with certificates of authenticity.
Each year, proofs are offered directly to the public on the U.S. Mint website (www.usmint.gov). This year, for example, the mint is asking $1,610 for the one-ounce coin with gold spot price at $1,275—a premium of $335 per ounce, which is normally where proof gold trades.
Lastly, mintages for Proof Gold American Eagles are dramatically lower than the bullion version. In 1999, for example, over 1.5 million one-ounce Gold Eagles were issued. The proof mintage that year was a mere 31,247 coins!
Certified Pre-1933 Gold
The $20 Liberty Head coin, or the Double Eagle, has always been an investor favorite due to its large size and high gold content of 0.9675 ounces per coin. It’s no secret that this area of the market has been very soft in recent years and premiums over melt are at historic lows.
Common dates in the series, like the 1904, for example, can be acquired today in certified mint state condition with relative ease but we are seeing excellent value in harder to find “better dates”. This term refers to issues in the series that have either a lower mintage or a lower survival rate, making them harder to obtain and more valuable than a common issue.
In general we recommend $20 Liberty gold at the Mint State 63 or Mint State 64 level because you’re getting a choice uncirculated coin that has legitimate rarity with a very justifiable price premium over its gold content.
See the information below. It shows the value currently found in better dates versus their common date counterparts and why this area of the market makes so much sense at current levels. We chose to illustrate just three different dates but there are several others that meet this criteria.
Bottom Line: This area of the market is heavily oversold right now and because $20’s contain nearly an ounce of pure gold, they’re very sensitive to rising gold prices. This is a solid area to make acquisitions today and it should move quickly when the price of gold pushes higher.
Classic Rarities: The Best of the Best
Austin Rare Coins & Bullion handles some of the finest United States and ancient coins that the marketplace has to offer. These works of art are long-term stores of value that tend to appreciate slowly and surely over time, regardless of the direction of gold or silver.
The key is dealing with a reputable company that can source and offer these unique items at a fair price. Over the past three decades, we have established ourselves to be an industry leader and routinely buy and sell the absolute rarest coins available in the world today.
Normally, the finest coins we acquire will never make it to our website because we have an elite group of collectors and investors who desire only the best for their collections. To illustrate our point, the back page of Hard Money Investor features two examples of museum-quality rarities that we have sold in the past few months.
Shown here is the reverse of a $20 Liberty Head gold coin, issued from 1850-1907. This image takes you back to a time when Twenty Dollars actually meant something.
The Famed 1781 Silver Libertas Americana Medal
The dies for this numismatic masterpiece were engraved in Paris in 1782 at the request of Benjamin Franklin, who conceived the idea for the medal and suggested the mottoes. Its beauty, rich history and ultimate rarity combine to make it the object of desire for many a collector, yet there are very few to go around, particularly those struck in silver.
Originally intended to be a presentation piece for foreign dignitaries, the medal was struck in both bronze (under 150 known today) and also in silver, of which less than 20 are known to exist.
Issued in a striking high relief, the Libertas Americana Medal was the first visual rendition of Lady Liberty. This imagery served as the inspiration for the earliest U.S. coinage in the early 1790’s. The obverse depicts a bust of Liberty facing left with the words “Libertas Americana” and “4 Juil, 1776”, referring to the date of American Independence.
The reverse of the medal depicts an inspiring image of the fledgling United States represented by an infant Hercules, strangling two snakes. France is at our back, fighting off the tyrant Great Britain, depicted in the form of an attacking lion.
Over the years we have handled a handful of the bronze Libertas medals, which trade for $20,000 to $25,000 in Mint State-63 condition. In the past two years we have bought and sold two of the twenty known Silver Libertas Medals, both fetching around $145,000 each in Mint State-62.
Given their rarity, beauty and historic importance, we believe both versions of the Libertas Americana medal to be overlooked and undervalued in the current marketplace. Recently, high-end copper cents from the early 1790’s have brought hundreds of thousands of dollars at auction, giving us the utmost conviction in acquiring and recommending Libertas Medals at current price levels.
Adding to its future value and allure, the Silver Libertas Americana medal is featured on the cover of the book, The 100 Greatest American Medals and Tokens, and is listed as the #1 Greatest U.S. Medal.
Austin Rare Coins Sells the Famed “Ides of March Denarius”
Shown on the cover of the book entitled, The 100 Greatest Ancient Coins is the famed Ides of March silver Denarius, ranked by coin experts as the greatest of all ancient coins. It offers a unique window into one of history’s most notorious events: the assassination of Julius Caesar in 42 B.C.
It is estimated there are around 80 of these remarkable coins in existence today, most of them off the market in tightly held cabinets or residing in prominent museum collections. Obviously, there are far more people in the world who want one, which ultimately drives the value of any fine collectible.
The Ides of March silver Denarius was struck by Brutus, the main conspirator against Julius Caesar. The obverse portrays a bust of Brutus facing right in lifelike fashion, while the reverse depicts a liberty cap surrounded by two daggers and the words EID MAR (the Ides of March).
Last month, after years of patient searching, we had the pleasure of procuring an NGC-certified Extremely Fine example for a client in Houston. In recent years these extraordinary rarities have fetched over a half-million dollars at public auction; however, we acquired the coin and sold it privately for under $270,000.
Even though we have chosen to highlight these two extraordinary rarities for the initial issue of the Hard Money Investor, we take great pride and care with every recommendation for our clientele.
Disclaimer: Austin Rare Coins was founded in 1989 to serve collectors, investors, and rare coin dealers worldwide. Our staff is devoted to providing our clients with professional advice, the highest quality U.S. gold and silver coins & bullion at low prices. Gold and silver may not be an appropriate investment for everyone. Past performance in the precious metal market is no guarantee of future value. Gold and silver prices are historically volatile and there is downside risk.
Unauthorized use and/or duplication of this material without express and written permission from the author and/or owner is strictly prohibited. All Rights Reserved. © 2017-2018 Austin Rare Coins, Inc.