United States $20 Gold Pieces

(January 5, 2007) - When we last issued a special purchase recommendation in the summer of 2005 (see pdf), prices on semi-numismatic $20 gold pieces had taken another cyclical dip, providing an excellent purchasing opportunity both for those new to this market and current owners looking to add to their holdings. Over the years, this area of the gold market has been a proven winner for those who learn to take advantage of its inherent volatility by timing their purchases and sales well. (Explained below)

This research report details five items ­ the $20 Liberty in Mint State (MS) 63 and MS64 and the $20 St. Gaudens in MS63, MS64, and MS65. It discusses their price activity over the past two decades, as well as their profit potential in the years to come.

This report concludes with distinct recommendations for profit potential utilizing strategic opportunities whenever prices are either reaching their lower trend lines OR reaching new highs.

(click for larger view)

Explanation of Mint State Grading Scale and Resulting Investment Potential:

Pictured above is a brief explanation of the Mint State grading scale for semi-numismatic gold coins. As you move to the right across the scale, the condition of the coins improves and their scarcity increases. Our research shows that the decreasing availability of these coins correlates directly with additional profit potential.

In the series of charts prepared for this report, the larger graphs (see links in table to left or below) depict a 20-year price cycle, while the insert details price movement over the last decade. The 20-year graph is useful in illustrating the high upside potential when the market highs of the late 1980's-early 1990's are taken into account. The insert shows the strong, current bull market trend that began in mid-2001.

The bottom trend line depicts the lowest price points reached for each coin, and the upper trend line traces the highest levels reached in the same period. The most notable and consistent feature of these charts is the divergence of these trend lines.

The bottom trend line very nearly tracks the gold bullion price, which has been in a bullish up-trend since 2001. Even though these coins are known for their profit potential above and beyond movements inthe price of gold, it is important to note that their core value is still driven by the gold market.

Note also the strong volatility (helpful for generating trading opportunities and increased profit potential) represented by the steeper slope of the upper trend line. This divergence is likely caused by a combination of two factors. First, as demand for gold has steadily increased in the past three years, the premium on each coin (the value the coin carries above the spot price of gold) has shown more dramatic fluctuations, resulting in higher highs. As long as the lower trend line remains intact, it offers a solid base supporting the more dramatic and profitable upside volatility. In the past whenever the price has fallen to the bottom trend line, it signaled a particularly opportunistic buying opportunity.

A second, and equally intriguing explanation of the steeper upper trend line is that the premiums are expanding on top of a rising goldprice, producing a compounding effect. To better explain, a premium of 2 times the price of gold is only $600 on a $300 price ofgold, whereas it's $800 on a $400 price of gold. Working under the assumption of a rising gold price, the premium volatility could become even more dramatic in the future as the price of gold rises and more capital finds its way to this area of the gold market.

Downside risk in these coins is divided into two categories: Premium risk, and the risk associated with the price of gold. By purchasing at a level where the premium is at or near an all time low, the premium exposure is virtually eliminated. That said, a purchase of semi-numismatic $20 gold pieces assumes only slightly more risk than a basic bullion investment. In other words, this research has uncovered an opportunity to realize increased upside potential without adding substantially more risk than that of gold itself.

Please contact our account representatives today to discuss how the recommendations made in this advisory can work for you.

The graded $20 gold piece market works well for those looking to increase the risk-reward factor in their gold holdings. It is not a replacement for gold ownership, but a further diversification within one's overall portfolio. We recommend a three to five year minimum holding period for these items though strong returns in shorter period of time should be noted in the accompanying charts.