Untitled Document
Coins & bullion since 1973
 

1-800-869-5115

NEWS &VIEWS
Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 45th year in the gold business

November, 2018

SPECIAL REPORT
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Historic World Gold Coins
O
ne of the great, largely untouched and potentially lucrative
opportunities in the field of gold investing today

CLIENT ALERT

Historic world gold coins from the mid-19th to early 20th century, like those pictured above, may offer a rich vein of opportunity for individuals looking to get more from their gold investment than ordinary appreciation based on an uptrend in the gold price. In this little-known corner of the gold investment universe lies one of the great, largely untouched and potentially lucrative opportunities in the field of gold investing today. Adding to their appeal, these items can be purchased at reasonable premiums over their gold content – at rates competitive with similarly-sized modern bullion coins and sometimes even less.

There are four ways in which the investor might benefit from owning these items beyond our standard recommendation of precious metals primarily as a store of value and for asset preservation purposes. [Please see our Full Risk Disclosure here.]

– At a minimum, because these items historically track the gold price, they would likely benefit directly from a resumption of gold's secular bull market.

– Second, because the supply is fixed and limited to surviving specimens, premiums could increase as investor demand increases.

– Third, because these coins are scarce and desirable collectors' items they could some day gain numismatic value.

– Last, because these items were exempted from president Franklin Roosevelt's 1933 U.S. government gold seizure as "having a recognized special value to collectors of rare and unusual coins," that precedent could carry over to the modern era should some future president decide to follow his example.

Let's take a closer look at each of these possibilities.

Historic world gold coins as a gold investment

At the 2018 London Bullion Market Association annual conference, the consensus opinion on the gold price for 2019 among 682 industry delegates was $1532 per ounce. The LBMA offers its opinion annually and it usually falls on the conservative side of the ledger. So its consensus opinion of an average price more than 25% higher than the trading range at the time came as a surprise. "This is the most bullish forecast since 2012," said Ruth Crowell, chief executive of the organization which includes bullion banks, financial institutions, miners, and refiners.

At the time of the meeting, stock markets were gyrating, the latest emerging country crisis was reaching a boil and geopolitically the global financial order was more precarious than it had been in a long time. Gold's safe haven role was back on the financial pages. A few days later, the World Gold Council issued its quarterly assessment of physical gold market fundamentals. Demand for gold coins and bullion, the category that tracks private investor interest, was up 28% over the third quarter of 2017. Central bank demand, another closely watched indicator of global interest in the metal, was up 22% over the previous year. In short, the World Council was reporting the strong business flows among the LBMA's professional community that fueled the bullish predictions.

(Interactive chart on gold year over year percentage gains or losses by the month)

Gold is coming off a long period of consolidation and a good many analysts believe it is on the cusp of a major turnaround. Historic world gold coins, at the core, are an investment in gold itself. The most common items among the national mintages will track the price of gold directly while providing all the other advantages of gold ownership sought by most gold investors. If you believe a hedge in gold will help you weather the uncertainties ahead, or that higher prices are directly ahead, we invite you to contact our ORDER DESK at 1-800-869-5115, Extension #100 or order directly at our Online Order Desk.

As a premium play

Historic world gold coins, as just mentioned, track the gold price, but they also offer the potential for profit through premium growth. These items are in limited supply. As a result when demand increases and supply shrinks, as it historically has during many periods of financial stress, premiums can rise. In the wake of the 2007-2008 financial meltdown, for example, the premium on many historic gold coins in uncirculated condition rose to 30% over melt value. Those same items today trade routinely at premiums of 14% or less over their melt value.

The earliest reference of premium appreciation we have on record came in the late 1960s when the United States was still on the gold standard. Henry Mark Holzer, who was Ayn Rand's attorney, in his monograph "How Americans Lost Their Right to Own Gold and Became Criminals in the Process" refers to an article in the May 31, 1971 edition of Barron's. Holzer states that "[T]he value of certain gold coins had increased substantially over the prior three years. For example, in May 1968, the U.S. 'Double Eagle' had been selling at a premium of about 45% over the actual gold content of the coin, the official rate then being $35.00 per ounce. In May 1971, the premium was 69%. In May 1968, the German mark piece had been selling at a 75% premium; in May 1971, the premium was 175%." (The German 20 mark to which Holzer refers is offered routinely at our Online Order Desk.)

Similar situations developed in the late 1990s in the ramp-up to the Y2K scare and during the 1970s stagflationary breakdown. In short, in addition to protecting wealth, historic world gold coins offer the possibility of generating wealth beyond appreciation in the spot price alone.

As collectors' items

The notion that historic world gold coins could become collectors' items has its origins in the price history of U.S. $20 gold pieces and silver dollars in the 1950s and 1960s – a situation not unlike the potential opportunity today in historic world gold coins. Shrewd accumulators then were able to buy quality specimens in bulk at slight premiums over the bullion price. Their hope was that someday a collectors' market would develop to their advantage, which it did. Those accumulators experienced multiple returns later (during the gold bull market in the stagflationary 1970s and early 1980s) when scarcity and quality began to play role in the pricing. Bags of uncirculated silver dollars and rolls of $20 pieces then became eligible for culling and selling at premium prices by grade, date and mint mark.

There is no way of knowing for certain if a similar fate awaits the investor in historic world gold coins. This same potential opportunity though presents itself with little or no additional risk for those interested in owning gold anyway. This strategy makes particularly good sense for investors acquiring gold for longer-term estate planning purposes.

Editor's note: We just last week acquired a nice grouping of scarce 19th and early 20th century gold coins from various countires that fit the criteria outlined in this section. We are offering these scarce items at premiums comparable to what you would pay for common British sovereigns or Dutch 10 guilders – an opportunity that does not come along all that often. If you would like to see a list of what is still available, we invite you to call Jonathan Kosares (1-800-869-5115 x110) or e-mail us (orderdesk@usagold.com) and we will forward it to you.

As a hedge against capital controls

Many investors are concerned about the possibility of capital controls in the event of a full-blown monetary breakdown – including a gold seizure. We view a gold seizure as a possibility, rather than a probability, and see historic gold coins as an important and cost-effective hedge for those interested in addressing those concerns within their gold holdings. Over the years, and particularly since the 2008 financial crisis, our firm has placed tens of thousands of these items with gold owners who are concerned about this possibility.

For those with an interest, we offer a detailed open-access memorandum that documents the special treatment accorded pre-1933 gold coins under U.S. law – a chronicle that began in 1933 when the newly elected Franklin Delano Roosevelt issued a presidential order confiscating gold bullion followed by an additional order exempting gold coins "having a recognized special value to collectors of rare and unusual coin." A subsequent Treasury Department regulation (1954), as discussed in more detail at the link provided, broadened that definition to include all gold coins minted before 1933. That classification clarified the earlier exemption and established a precedent for similar treatment in the event of a future gold seizure.

Though we cannot guaranty these items would be passed over if capital controls were imposed, we do feel that they could offer a viable hedge given the historical and legal circumstances. In addition, a large selection of items that fit the definition of "rare and unusual coin[s]" trade at minimal premiums over their gold content making them an important consideration within a well-rounded gold investment portfolio.

Acquisition strategies

As was the case with American coins at mid-20th century, world gold coins come forgivingly (and mercifully) in two grades – circulated and uncirculated. Having sold thousands of these items at USAGOLD over the past decade, we have had the opportunity to personally inspect a wide variety of national design types and mintages and marveled at the quality state of preservation on a large cross-section of items.

To understand how vast the selection, all one has to do is review The Krause Standard Catalogue of World Gold Coins - a volume comprised of 1100 pages and 50,000 individual listings. Disciplining such a formidable array of possibilities into anything resembling a logical collection appears daunting at first blush. The marketplace, though, has already done the job for us to a large extent by presenting investors and collectors with a nice selection of commonly available items representing both the various nations and the monarchies over the period.

Between the years 1850 and 1933 while much of the civilized world was on the gold standard, eleven nations - Austria, Belgium, Denmark, France, Germany, Great Britain, Italy, Netherlands, Russia, Sweden and Switzerland – together minted millions of gold coins. Each nation-state minted at least one, if not two or three, coin types that would make sense in a representative collection.

The "Historic Fractional Gold Coins" section of our Online Order Desk offers a gateway to reviewing and ordering these items, many of which are offered as "core" selections. Availability will change from time to time as new items become available and extant offers disappear into private holdings, but you will have no trouble finding a few worthy prospects for immediate accumulation.

A more aggressive, though still sensible approach, would be to assemble roll sets - 50 coins each – of the items as they become available or double-roll sets. Such an accumulation could open the door to further culling down the road should the market begin breaking out the coins by date, mintmark and grade should the opportunity present itself. Another alternative would be to concentrate your purchases in target areas which you believe to have more potential than the others.

None of these approaches, of course, precludes pursuing a strategy of your own. Many of our clients have been satisfied to simply acquire what comes along according to their means and available capital. After all, you can't go wrong. At the very least, historically you can count on the bullion value no matter what happens in the numismatic market.

–– Michael J. Kosares

Related reading: Preparing for a Potential Gold Confiscation/George Cooper, JD/USAGOLD/2013. Also, The five best options for hedging a gold seizure/Michael J. Kosares

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You can review and order historic European gold coins anytime
at our Online Order Desk

Phone Orders 1-800-869-5115 x100 (8am to 7pm MT weekdays)

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A note on adding precious metals to your portfolio – Some investors have very specific ideas about the financial and economic contingencies they wish to hedge through precious metals ownership. Others are not so certain and design their portfolios to cover a range of possibilities. Some come to us as first-time investors. Others come as experienced investors who know what they would like to buy. Some wish to diversify across the spectrum of available gold and silver products. Others wish to concentrate their capital in areas of the market offering the most striking opportunities. Whatever your situation or analysis, USAGOLD will help you construct a portfolio to meet your specific needs and position your portfolio for the uncertainties ahead.

We carry a full range of physical gold and silver investments all offered at competitive prices. We invite you to utilize our consultation services by telephone (still the way most investors enter the market – 1-800-869-5115 x100 ) or you can go directly to our Online Order Desk and place orders at your discretion. Whatever your approach, we think you will come to appreciate the USAGOLD pricing and service advantage and quickly discover why thousands of investors have chosen us as their precious metals firm. (We invite your visit to the Better Business Bureau website to confirm our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

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Disclaimer - Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset-preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes and, as such, USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here. (Please see our Risk Disclosure here.)

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Michael J. Kosares is the founder of USAGOLD and the author of The ABCs of Gold Investing - How to Protect and Build Your Wealth With Gold. He is also editor and commentator for USAGOLD's Live Daily Newsletter.

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In case you missed this recent important issue. . . . . .
CLIENT ALERT
– Get the jump on inflation with an investment in graded, historic U.S. $20 gold pieces

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