Gold and Silver: What It Means To You

One of the things that Texas has always been known for is gold; we have a rich history that reaches back hundreds of years involving settlers, pioneers, and miners all coming to the Lone Star State in search of gold  with good reason.  As an excellent and tangible form of security, gold has been recognized for centuries as the standard by which wealth is measured - and with the coming changes to the economy, the world needs a standard it can rely on. 

Investments that have typically been safe are now anything but: the foreign exchange is a roller coaster ride as currency values rise and fall rapidly, while the stock market has been even more of a risk than ever thanks to corporate instability.  Even real estate is a difficult investment to make due to banks and the unwillingness to loan money due to the sub-prime mortgage implosion.  To make matters worse, the Federal Reserve is initiating a policy of "quantitative easing."  While a complicated theory in a complete explanation, the basic idea is that the Fed "prints money" to provide itself liquidity in the short term - the idea behind it being that with the extra liquidity, it can provide that to banks, who will in turn lend that money out to start businesses, which will in turn stimulate job creation and economic growth.  The flaws in this plan are two-fold.

First, this entire stimulation is based under the assumption that the banks don't just pocket the money and add to their own bottom lines.  In the event that they don't use the funds for what the funds are intended for, the value of all American currency will suffer a drastic reduction in value - according to Bill Gross, the manager of the world's largest mutual fund, the drop in value could be twenty percent.

Second, this entire plan has already been used by an economy which is now flourishing - Japan.  It didn't work for them.  Government intervention caused the problem to deepen and pushed them into an economic recession; what ultimately propelled their economy forward was a policy of increasing their exports - unfortunately, the United States has a weakened industrial infrastructure.  America has grown into a nation of consumers, not producers - as a country, we've been on this slight slope for decades and only now are we seeing the results. 

So what are the answers?  As a nation, we have to reinvest in our infrastructure and bring business back to the United States.  But as individuals, we have to secure what we've worked so hard to build for ourselves.  The answer for the individual who is looking to keep and increase the value of their holdings is gold.

Gold is the answer that the nations of the world turn to when they want to secure their wealth and securities. Unlike printed currency, gold can never devalue completely; there will never be a point in time when someone who has accumulated gold coins or gold bullion will look at their collection and find that it isn't worth having. Furthermore, while the stock market has experienced record highs and lows in the last ten years, the value of gold has only grown by a large margin: almost five hundred percent over the last ten years! No other investment can make that kind of claim. And while the price of gold has already exploded, according to the several different analysts, it is showing no signs of a decline in the near future. With gold still on the rise, this is an exceptional time to start looking towards a way to set up a portfolio in precious metals.

But how does one get started? Historically, there's been three ways to set up a portfolio in gold:

1. Purchasing gold bullion.
2. Purchasing gold ETFs.
3. Purchasing gold coins.

The first of these ways, gold bullion, is how most of the major banks, corporations, and nationalities do it and isn't really feasible for the average person looking to purchase gold simply because the price of a bar of gold is prohibitive.(As of November 8, 2010, the cost of a one kilo gold bar would be around forty-eight thousand dollars, not factoring in the seller's profit margin.) The second of these, gold ETFs, is much more common but presents an issue that has cost several people thousands of dollars: simply put, what is being purchased isn't in the owner's hands. The purchaser of gold ETFs may be buying real gold or they may be buying a piece of paper and the promise of gold somewhere. While the ETF may be completely legitimate, there's also the chance that the gold that should be backing the paper is non-existent.

The third way is to buy gold coins.

At Texas Commemorative, we endorse this way for several different reasons. First and foremost, it provides physical security that can be held in hand, which is something that ETFs can not provide. With a collection of certified coins, the assets are yours. There aren't any questions about the location of them or whether or not what was paid for is actually available. In the event that economic conditions worsen to the point that they did during the Republic of Texas, the coins are liquid and universally accepted; with ETFs in particular, the owner in question can submit them to pick up the gold that supports them, but there may not be any to pick up! Or in a worst case situation, an owner in question may need that liquidity immediately and be unable to redeem their ETFs without going through multiple channels and then having to have the gold shipped, which can be expensive. Second, because gold coins have historical value in addition to their actual value in precious metals, the market is much larger. This can be coupled with the fact that many of these coins were very limited in mintage to increase their value. A rare gold coin from the early to mid 1800s may only be one of a couple thousand as opposed to a stock investment in which an investor may be one of a couple million who have a stake. Another crucial point is that the value of gold is directly tied to the economy. When times are hard, the value of the gold fluctuates high and can end up doubling or tripling in value and wise collectors can ride these waves to increase both their wealth and their collection. If one needs proof of the value of gold, then one needs look no further than the central banks and major nations. China has sold a large portion of their American bonds and securities and used those funds to purchase literal metric tons of gold and many other nationalities preceded them in the choice; many more will follow suit.

Historically, this is even what Texans did when the Republic was collapsing - the currency was so worthless towards the end that even the Texas government wasn't accepting Texas currency to pay debts or taxes - so the people of Texas resorted to gold and silver to barter for goods and services.

But how does one go about building a portfolio that includes precious metals? You divide it into 3 parts.

The First Third: Inexpensive Gold. The philosophy is simple.  Gold isn’t cheap, particularly at around $1400 per ounce, but you should own some inexpensive gold.  For these positions I prefer Swiss or French Gold 20 Francs.  Each coin weighs .2074 and they normally sell per oz. for about the same price as a one ounce Gold American Eagle or Gold Canadian Maple Leaf.

The Second Third: Semi-Numismatic Gold Coins. The next third should be in semi-numismatic gold coins. These coins range in price from $2500 - $4000 per ounce. The reasoning is that when we go through another period of economic turmoil, gold will rise and I believe that it could surpass the previous high of $1425per ounce and it has! If your rare coins are priced in that range, you will not lose any money. It is my way of hedging the second third of your portfolio.

The Final Third: Rare Coins. The final third of your portfolio should consist of rare coins. Coins that are condition census (in the finest 10 known) to the finest 200 known. These are coins that offer string potential to both collectors and investors alike. The prices can range from $5000-$350,000 per coin and this is where the most profit has been generated over the last 5-10 years. There are numerous coins that fall into this parameter and I will take time to discuss this further on a one-on-one basis.

SAMPLE PORTFOLIO $20,440

1. Gold 20 Franc - $297 / ea. x 20 coins = $5,940
2. Early Date $25 Gold American Eagle - $975 x 10 coins = $9,750
3. (2) Type II  $20’s Liberty = $,4,750

Approximate Gold Weight - 11ozs of Gold, Avg. $1858 = TOTAL $20,440

 

SAMPLE PORTFOLIO  $39,100

1. Gold 20 Francs - $297 / ea. x 50 coins = $14,850
2. Early Date $25 Gold American Eagle - $975 x 20 coins = $19,500
3.  (2) Semi Rare Type II $20’s Liberty = $4,750

Approximate Gold Weight - 22ozs of Gold, Avg. $1777 = TOTAL $39,100

 

SAMPLE PORTFOLIO  $80,100

1. Gold 20 Franc - $297 / ea. x 50 coins = $14,850
2. Early Date $25 Gold American Eagle - $975 x 20 coins = $19,500
3. Better Date $25 Gold American Eagle - $1,725 x 10 coins = $17,250
4. Type II $20’s Liberty - 7 coins = $17,500
5. Better Date Type II’s - 3 coins = $11,000

Approximate Gold Weight - 45ozs of Gold, Avg. $1780 = TOTAL $80,100

Based on a November 11, 2010 gold spot of $1395
All prices subject to change based on volatility.

At $100,000 and above, we start to talk more seriously about set building. In hot markets, sets can command 10–30% premiums

We would like to invite you to contact us and discuss how we can enhance your sense of financial security and your precious metals portfolio. Whatever your economic level, we can help you take your hard earned money and show you how to turn it into a Texas-sized return.

For your consideration, we would also invite you to take a look at our generic gold basket:

	MS-62	MS-63	MS-64	MS-65
G$1 TYPE 1	561	1044	1638	5088
G$1 TYPE 2	3433	7875	-	-
G$1 TYPE 3	567	850	1244	2213
$2.50 LIBERTY	729	829	939	1897
$2.50 INDIAN	530	724	1191	3105
$3.00 PRINCESS	3433	5013	7192	15180
$5.00 LIBERTY	504	882	1228	3277
$5.00 INDIAN	992	1748	2625	12880
$10.00 LIBERTY	829	1165	1921	4312
$10.00 INDIAN	1029	1191	1701	3680
$20.00 LIBERTY	1653	2016	1304	4025
$20.00 ST GAUDENS (N/M)	1643	1690	1758	2466
$20.00 ST GAUDENS	1643	1690	1758	2466

Dated April 4, 2011 at 2:00PM with a spot price of $1,436.00. Please contact us as these prices are subject to the current price of gold.