Buy Silver Bullion Coins

By Jeff Clark  
Tuesday, January 10, 2012
 
The silver bear market is over

Silver bottomed two weeks ago at $25.65 per ounce. It happened during the
typically quiet period between Christmas and New Year's. If you blinked, you
probably missed it. But it happened. The price of the shiny metal fell to more
than 33% below its 200-day moving average (DMA) – thereby tagging the bear  market target we set last April.

But over the past two weeks, silver has bounced back 10%.
That's a big move – especially for such a short time frame. But it has gone
largely unnoticed. No one cares. No one is paying attention. It's as though all
the folks who were wildly bullish on silver early in 2011 have gone
away.

That, of course, is how bear markets usually end… quietly.

It's not the same with bull markets. Bull markets flame out in a spectacular, parabolic move higher in a rush of popularity… with calls for  insanely higher prices. Those were the conditions in the silver market last April.

Back then, we warned that the silver price had run too far,  too fast. It was trading 50% above its 200-DMA – a level that had signaled a top  for silver in the past. We suggested caution and patience. And we speculated  that silver could drop anywhere from 30% to 50% below its 200-DMA before finally
hitting a bottom. That's exactly what happened two weeks ago.

Silver dropped down to long-term support at around $26 per  ounce. It's still trading about 30% below its 200-DMA (the blue line). As you  can tell from the chart, silver typically doesn't get much more oversold than this.  In fact… except for the decline during the mass-liquidation event in  late-2008, this is as oversold as silver has been in the past decade.

But no one cares. No one sees an opportunity here. Everyone
seems to think silver's best days are behind it.

I can't say for sure that silver won't drift a bit lower from
here. But just as I was confident the action last April was a sign of a top for
silver and a time to be cautious, I am equally confident the action over the
past two weeks is the sign of a bottom.
 
Now is the time to buy silver. A new bull market is  beginning.

Best regards and good trading,

 Jeff Clark

Further Reading:

Last April, Jeff said silver – which was flying high from a meteoric rise in
just three months – was due for a "nasty correction." He advised readers to hold  off buying. Over the following two months, the metal fell 20%. Read his
prediction here: The Curse of the Silver Trade.

If Jeff's right and silver resumes an uptrend, shares of one company could be
a double in waiting. "I don't expect to make 800% returns," Brett Eversole
writes. "But we could easily double our money over the next few years… even if  silver goes nowhere. Our gains will increase if silver pushes higher." If you
like silver over the long term, this is a stock you need to own…







 

India may be the world's top consumer of gold, with 66% increase in demand in 2010 to 963.1 tonnes, but analysts are urging investors to shore up on the white metal, expecting the gold to silver ratio to drop.
Shivom Seth
October 14, 2011
www.mineweb.com
MUMBAI

It is a buying opportunity for silver. The white metal, which rose at more than twice the rate of gold last year, should continue to outperform its more lustrous peer, say analysts. In the process, it has narrowed its long term gap with gold, known as the gold-silver ratio, although this is currently well above the level it fell to earlier in the year.
The gold to silver ratio measures the relative value of the two precious metals. The higher the ratio, the more expensive gold is relative to silver. On the other hand, the lower the ratio, the more expensive silver is relative to gold.

Analysts say the ratio, which was at 80 a year ago, had come down below half of this level with some experts suggesting it could come down further, implying one may be better off buying silver than gold.
"On a year-to-date basis, gold prices in the international markets have given returns to the tune of more than 16% while silver has slipped more than 3% during the same period. The white metal had delivered phenomenal performance in the January to May period this year, as it had jumped a whopping 22%. Gold, on the other hand, rose only around 8% in the same period," said Reena Walia, research analyst with Angel Commodities, a broking firm in Mumbai.

Gains in silver were not only backed by its safe-haven appeal, but also because it is a cheaper alternative amongst the precious metals pack and still has many of the same characteristics.
However, the rally in silver has been cut short sharply in the month of September when compared to gold, as apart from being a precious metal, silver also finds industrial applications.
"There was a lot of speculation. Fundamentals played a big role," said R Prasad, bullion analyst at investment, broking firm, Karvy Consulting. "Silver rose 7% in August, a performance which looks subdued in comparison with gold, but is not, considering it had risen 21% in April 2011," he said.

Walia added: "In February this year, the value of silver was the highest in five years since the gold to silver ratio fell to just above 45:1. It then went for a toss declining sharply during the year. It touched a low of 31.53 on April 28, much below the level of 34.89 that it had touched in 1980."
In this case, the ratio indicates that an ounce of gold could buy only around 31 ounces of silver as opposed to around 70 ounces in early June 2010.
Walia noted that during the year, silver prices increased sharply and had tested a high close to $50 per ounce. "The gold to silver ratio has been witnessing a decline since the end of January 2011 from an average of 47.80 witnessed in January 2011, to 41.72, witnessed in June 2011, even touching an average low of 35.25 in April 2011," she added.

Currently, the ratio has risen back above the 50 level. In September, it averaged 47, indicating that prices have taken a hit. The trend has been reversed exactly when the ratio hit a low of 31.53, she pointed out.
For many Indian investors though, gold continues to be the mainstay. Traders said that investment demand for gold in India jumped 78% to 108.5 tonnes in the three months ended June 30, marking the second highest quarterly increase on record.

They added that out of 55% of global jewellery demand, India accounted for 32%, while China contributed 23% for global bar and coin investment. India is presently the world's top consumer of gold, with a 66% increase in demand in 2010 to 963.1 tonnes.
Rajesh Jain, precious metals analyst with another investment firm said, "We have stepped into the fourth and the final quarter of this year. There is a lot of uncertainty and confusion over the state of global economic affairs and investors cannot take a logical decision."

Adding that precious metals, which are largely considered as the safest form of investment, "have taken a beating as investors not only shunned riskier investments but also sold off their holdings in their most preferred investments, which is gold. This has created havoc in the global markets as all asset classes have given a negative performance," Jain added.
At the current level, Walia notes that the ratio indicates that prices could witness a reversal again, "as it has hit a high of 56.75 and one could say that at these lower levels, buying could emerge."

SILVER HOT
 
However, the current scenario is not supportive of a rise in silver prices as market sentiment remains choppy and with the downside in base metals, silver too is feeling the heat.
At the current ratio, one ounce of gold can buy around 53 ounces of silver. The broking firm has advised their clients that the gold to silver ratio will be in the range of 40 to 50 during the year.
Walia noted that spot gold prices declined almost 12% in September and in the same period, spot silver lost 33%, taking its cues from copper which on the LME fell 28%. "Since global economic growth forecasts have been downgraded, demand for base metals has become a major concern and this factor has influenced silver prices to a large extent," she added.

While the ratio is an indicator of how prices have moved over time, analysts maintain that it is only one of the several factors that should be considered while taking an investment decision. "There is still a lot of interest in silver here," said Raj Venkateshia of ScotiaMocatta, a division of Scotiabank, the largest seller of precious metals among banks in India.
Analysts are of the opinion that governments in many places are rapidly embracing gold as a security mechanism, especially since the value of the US dollar foreign reserves has drastically fallen over the past decade. Rising physical demand from Asia, especially from India has also supported the yellow metal prices, Angel Broking has said in a note to its clients.

Gold touched an intra-day high of $1691 and closed at $1676 on Wednesday. On the MCX (Multi Commodity Exchange), Gold December contract rose around 0.8% and touched an intra-day high of $549.85 per 10 grams on Thursday.

With Sprott planning to buy another $32 million worth of silver, is the price going to take off again, or continue its pattern of a nervous advance alongside any gold price increase?

Lawrence Williams
August 19, 2011
www.mineweb.com

LONDON

It is interesting to look at the price movement patterns for gold and silver of late. Normally if gold is on a tear, silver jumps up, as one commentator described it, like gold on steroids. Likewise when gold falls back silver is prone to plunge. But we have seen none of this in the past two or three weeks when gold has moved up and down quite drastically. Initially silver remained virtually unmoved while gold fluctuated wildly - unusual behavior for ‘poor man's gold'. And only now, with gold reaching for, and achieving new records, has silver been seemingly reluctantly dragged up along with it and at long last appears to be shaking off its stuttering performance. Does this change in behavior mean a rerating is taking place?

Perhaps not yet. Silver investors are naturally nervous, particularly following the sharp fall in their favored precious metal at the beginning of May - a fall so severe that it may have seen some new investors in the metal withdraw from silver forever. It is taking time to get over this setback but in recent days seems to be recovering its luster - and there is one move apparently under way which could drive silver very rapidly to big new highs.

Pre-eminent silver bull, Eric Sprott, has told King World News that he will be selling a further 2 million shares in the Sprott Physical Silver Trust which will make available another $32 million which will be used to buy physical silver to that value. Sourcing the 800,000 ounces or so of physical metal may put a squeeze on the market if some silver analysts are correct, and this could cause the silver price to accelerate- and along with gold's spectacular surge could drive silver back to the $50 level and higher very quickly. Sprott himself affirms strongly that he believes the silver price should be over $100, although this would suggest a 16:1 gold:silver ratio which, if it comes, may still be a way away yet timewise. The current gold:silver ratio on this morning's prices with gold at $1860 and silver at $41.30 was 45 - if silver does indeed start to accelerate this may come back down to below the 40 level short term (which would put silver at above $46.50 at an $1860 gold price) and then, if Eric Sprott is correct in his basic assessment , the ratio would gradually move downwards, and the silver price move upwards faster than that of gold in percentage terms.

But, some gold analysts are predicting a sharp correction in the yellow metal which they feel would be a natural result of what some see as an over-rapid rise in the metal price. If this happens will silver stay put - as it did during the last short-lived correction in the gold price of a couple of weeks ago - or revert to its old pattern of turning down much faster than gold in a declining gold price situation?

Even if this is the case, the true silver bulls would just see this as a great buying opportunity in what they view as a long term upwards bull market in precious metals within which category they see silver as the potential star performer. But it could well be a bumpy ride.

Tim Kiladze
August 18, 2011
www.globeandmail.com
Eric Sprott, the perennial gold enthusiast, has his sights set on a new precious metal.

Mr. Sprott's charitable organization, The Sprott Foundation, is selling two million units of its gold holdings and using the money to buy silver.
The move comes as gold veers close to $1,800 (U.S.) per ounce, and less than a week after Mr. Sprott had declared the metal "the investment of the last decade" in an interview with GoldMoney Foundation. "I think silver is going to be the investment of this decade."

Since the commodity boom kicked into high gear last fall, Mr. Sprott has been touting silver's merits. To demonstrate his conviction, he set up and invested his own money in the exchange-traded Sprott Physical Silver Trust, which buys silver bullion and stores it at the Royal Canadian Mint. Investors in the trust can cash in their units, or take delivery of silver in physical form if they wish.

He also launched a Silver Bullion Fund that enables investors to speculate on the metal's market price, but without the physical redemption option.

Until Wednesday, though, Mr. Sprott was still committed to gold, as its price rose to new highs. It could be that he is simply cashing in on a rapid rise in the price of Sprott Physical Gold Trust units, which are up 21 per cent since July 1, and of which he personally holds six million units, separate from the foundation's holdings.

On Wednesday, Mr. Sprott said his comment about silver does not mean he is abandoning gold altogether. "Anything I said about it being the resource of the last decade was not to suggest that it wasn't going to do well this decade," he said. "It's just I think silver will do better."
He bases that conviction on supply constraints: The amount of gold already mined is about 100 times greater than silver, yet for each dollar invested in gold, another dollar is currently being invested in silver. "By definition, you can't keep buying it at 1-to-1 and have the price stay the same" when the supplies are so different, he said.

Moreover, the price of gold is trading about 45 times the price of silver. Historically, the ratio has been about 16 times and Mr. Sprott thinks the two metals will move back in line with that ratio.

But not all silver assets are on equal footing. Mr. Sprott has been selling some of his own units in the Physical Silver Trust. In the past month, Sprott-related funds have sold about $23-million of his Silver Trust units, and earlier this spring they sold $34-million. Mr. Sprott said he is simply taking advantage of the trust unit's 20-per-cent premium to the fund's net asset value. (The premium has shot up since the fund was introduced last fall because of heavy retail demand, which means investors are paying more than the underlying metal's value per unit.) He is reinvesting the proceeds in other silver investments, including the Silver Bullion Fund.

Asked if investors in the Physical Silver Trust should be alarmed that he's cashing in, Mr. Sprott said "Anybody can do it any time they want to," and added that his sales are "all in the public domain," because he must report them to the U.S. Securities and Exchange Commission.
He also doesn't apologize for shifting more of his attention to silver, and is still touting his gold trust to retail investors who think economic turmoil will send bullion prices higher. "I think silver will outperform gold this decade, so why wouldn't I position myself, position our accounts, that way?"

Although the foundation announced that it would reinvest its money in the silver sector, it is interesting that it did not specifically say where it would invest, either in Sprott Physical Silver Trust, or the metal itself. But if you look at Sprott's recent selling activity, it's clear that money will go into the metal. In the past month or so, Sprott has sold about $23-million of the Silver Trust units. That comes on the heels of sales this spring worth about $34-million of the trust's units.

The sales have been pointed out by blogger ' kid dynamite.' While he acknowledges that Sprott is reinvesting the money back into silver, he points out that the Silver Physical Trust currently trades at about a 20 per cent premium to the net asset value. By exiting, Sprott captures that premium and then buys the metal at fair value.

Buying the metal ties back to Mr. Sprott's recent comments about being bullish on silver. In the GoldMoney interview, he pointed out that the physical amount of gold above ground is about 100 times greater than silver, yet people are buying the two metals on a 1-to-1 basis. That means the price of silver has to go up, he argues.

Plus, gold is trading at about 45 times the price of silver. Historically, the ratio has been about 16 times and Mr. Sprott thinks we will get back in line with that number.

But he isn't sure of the timing. "When it actually happens, I don't know," he said in the interview.

Greg Hunter
August 8, 2011
www.usawatchdog.com

I have thought about this economic collapse title for months. I held onto it and figured I would know when the right time was to put it out there. Today is the day. Watching mainstream media (MSM) this weekend, you would think a one notch downgrade to America's debt doesn't really matter. For example, former CNBC anchor Erin Burnett said Friday night on CNN the downgrade was "already priced into the market." The panel spoke as if the first U.S. debt downgrade in history was no big deal. To that I say, positively absurd!

The gold market must think the same thing I do because when the Asian market opened, the price of the yellow metal shot up more than $27 an ounce, which is another all-time high. At around 1:30 am today it was up $50 and ounce another all-time high! I don't know where gold will close in the U.S. market, but I think it is safe to say gold (and silver) prices are going much higher. On the other hand, stock prices are headed much lower. I'll be shocked if the Dow doesn't end 300 points lower today. I wonder if the Plunge Protection Team (aka the Presidents Working Group on Financial Markets) will step in front of this runaway locomotive.
China also thinks the U.S. debt downgrade is a big deal and a big negative future trend. CNBC reported yesterday, "The man who leads one of China's top rating agencies says the greenback's status as the world's reserve currency is set to wane as the world's most powerful policy makers convene to examine the implication of S&P's decision to strip the United States of its triple "A" rating. In comments emailed to CNBC, Guan Jianzhong, chairman of Dagong Global Credit Rating, said the currency is "gradually discarded by the world," and the "process will be irreversible." (Click here for the complete CNBC story.)

There are those, this week, that said the downgrade of the U.S. credit rating will be a "wake-up call" for Washington politicians. Some pundits claim this might pull both parties together, get something done for the good of the country, and finally deal with the immense problem of debt spending and entitlements. I think this will end up becoming a battle cry for both Democrats and Republicans in the 2012 election. Both are blaming one another for the downgrade. Yesterday on "Meet the Press," Senator John Kerry (D) trotted out some new partisan language and called the S&P action on U.S. debt a, "Tea Party downgrade because a minority of people in the House of Representatives countered even the will of many Republicans in the United States Senate who were prepared to do a bigger deal." Speaker of the House John Boehner (R) said this weekend, "Unfortunately, decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground."
 
The political sniping over the weekend signals that both parties know the economy cannot be fixed anytime soon, let alone before the 2012 election. So, the blame game is what we will be stuck with as the American economy continues to sink. Forget about the "Select Committee" of 6 Democrats and 6 Republicans getting any deficit reduction deal. The fight over spending cuts and tax increases is stuck in a feedback loop. That is part of the reason why S&P cut the credit rating of the U.S. Nothing is going to get done on the debt, at least not before the country goes off a financial cliff. In cutting U.S. debt, S&P also ultimately cut the value of the dollar. Almost all borrowing costs at all levels will rise, and the dollar will sink right along with the slowing economy.

Economist John Williams of Shadowstats.com has been warning for months about a sudden dollar sell-off. According to Williams, $12 trillion liquid dollar assets are held outside the U.S. (dollars and Treasuries). If the holders of these assets throw in the towel and cash out, there could be a severe dollar sell off. That could spike inflation, cause interest rates to surge and eventually plunge the country into a hyperinflationary depression, according to Williams. A special Shadowstats.com report put out yesterday said, "Lack of confidence in the U.S. dollar has been pushed to a new and more dangerous nadir in the last two weeks. Dollar selling has been exacerbated by the contentious and virtually meaningless debt deal negotiated by the President and Congress, by Standard & Poor's downgrading the rating on U.S. Treasuries to "AA+" from "AAA," and by mounting market recognition of the ongoing U.S. economic and systemic-solvency crises. Pending still is the Fed's move to QE3.
 
The dollar's back is close to being broken. Despite near-term interventions and extreme volatility, the heavy dollar selling that follows will be highly inflationary. . . &#34

The kind of impact we are going to have will not be like flying into the side of a mountain. It will be the kind of crash that skids over land, clipping trees and buildings until the plane ends up wingless in a smoldering heap. I just hope the fuel tanks don't ignite when the long rough ride is over.

Gold hit $1600 in London this morning and silver $40, although both fell back thereafter. But the barrier has been breached which would seem to be paving the way for further rises ahead.

Lawrence Williams
July 18, 2011
www.mineweb.com

LONDON
Gold cracked the $1600 barrier, albeit briefly initially, this morning in London, while silver moved back up through the $40 mark as the safe haven aspects of the precious metals began to take hold once more on perhaps the increased understanding by the whole investment community of the global economic perils ahead. Whether this $1600 level can be returned to, and increased, through the day - and in the U.S. - obviously remains to be seen, but the fact remains that a psychological barrier has been overcome. Past patterns suggest that the metals may trade at close to this level and either make a substantial breakthrough, or consolidate at just below.
Silver back through $40, and the further small fall in the gold:silver ratio (GSR) to a fraction below 40:1 does seem to be a further indication that investor interest in this metal is again coming to the fore with the April fall-off quickly being forgotten. But silver's reputation as the ‘devil's metal' as far as investment is concerned should act as a cautionary warning, but as long as gold stays strong silver downside is small. But if gold should see even a temporary fallback then the corresponding drop in silver could be sharp.
Silver's proponents point to the increasing uses of the metal in such spheres as biocides and water purification as being a major positive factor, but it is both speculative and safe haven investment that is the driving force here - industrial usage is currently only a minor part of the silver equation. As Rhona O'Connell points out in today's article on Mineweb - see Comex silver longs bound higher - but much of it is short covering extraneous technical commodity market factors may well be distorting the picture here as well.
The European debt crisis is definitely not going to go away and if one of the more vulnerable European economies is actually allowed to default (and one does not see how some kind of default can be avoided for Greece) then the knock-on effects on the other crisis hit countries and the banking system as a whole, could be dire. The emergency funding for Greece that was recently agreed appears only to be sufficient to postpone the inevitable and we could be looking to an autumn of ever escalating financial meltdown. If Greece defaults then one finds it difficult to conceive that Ireland and Portugal would not follow suit almost immediately, and then the pressures on the much more significant economies of Italy and Spain would be close to overwhelming. European banks would crash like ninepins and with the interconnections within the global banking system many non-European banks would collapse as well.
There is a sideshow in the U.S. at the moment too which is helping gold as Democrats and Republicans are playing a game of brinkmanship over the U.S. debt ceiling. If agreement can not be reached on raising the ceiling, and failing a Presidential bending of the rules, the U.S. itself could go into technical default in two weeks' time and the psychological financial repercussions of this could also be enormous. One suspects that a compromise will be reached at the 11th hour, but if intransigence on the part of the parties involved means that this drags on beyond the deadline then the effects on the financial system could be worse than the Lehman Brothers collapse.
Governments and central bankers are aware of the perils ahead and one suspects that they will somehow manufacture a solution that will ward off the seemingly inevitable, although whether they can do so to the satisfaction of the credit ratings agencies remains to be seen. Ratings downgrades lead to higher interest rates being applied and at current debt levels the amounts involved in resultant increased payments just make the likelihood of pulling out of the downward spiral almost impossible.
These are difficult - indeed exceedingly dangerous - times for the global economy and whether or not the politicians and central bankers can bring us back from the brink has to be questionable. In such times of uncertainty gold is likely to maintain its historical pattern of being the investment choice to preserve wealth, however anomalous this may seem in this day and age, and silver will likely follow suit on gold's back.

James Turk
May 31, 2011
goldmoney.com

Silver is the volatile precious metal. For example, a few weeks before the collapse of Lehman Brothers in September 2008, it took 51 ounces of silver to buy one ounce of gold. At the height of the market turmoil one month later, it took 84 ounces of silver to buy that same ounce. What makes silver so volatile? The demand for silver is "elastic" -- to put it into economic terms -- while the demand for gold is "inelastic".

When demand is elastic, it means that people's preferences are changeable. An inelastic demand means that the item will be acquired regardless of its cost. As an example, the rising price of petrol and diesel fuel in recent years has hardly reduced the demand for it. Fuel consumption has not dropped as its price has risen. People are generally not price-sensitive, at least at present prices, though the demand for fuel may become more elastic at higher prices.

When problems of national currencies increase the demand for gold, it is in fact an increase in the demand for precious-metal-money. Silver of course meets this requirement, as it is a precious metal, and like gold, it too is money. Functionally, silver is a good substitute for gold. Both are tangible assets, and both are money that does not have counterparty risk.

Thus, any increase in the demand for precious-metal-money impacts both gold and silver. However, this increase in demand has a bigger impact on silver because of its elastic demand.
Demand is impossible to measure, but we can see the changes in respective demand for the precious metals by movements in the gold/silver ratio. Movements up and down in this ratio clearly show the ebb and flow of demand between gold and silver.
When people move out of national currencies and into precious-metal-money, money moves into both gold and silver, and the gold/silver ratio falls. Eventually, this flow reverses if people's confidence in national currencies returns. It does so when the monetary problems that caused them to flee the currency in the first place (for example, rising inflation, bank crises, or other problems) are solved. The impact on silver is greater than the impact on gold because the demand for silver is more elastic than the demand for gold, so the ratio rises.
While I am very bullish on the long-term prospects for gold, I am even more bullish on silver. Historically, the ratio of these two precious metals is about 16-to-1. Therefore, as both gold and silver climb higher in this current bull market as a safe haven from national currency problems, I expect silver to climb even faster than gold, with the result that the gold/silver ratio eventually approaches 16-to-1.

Opinion: The reasons for the U.S. confiscating gold no longer apply. Bullion coins, not numismatics, the best hedge against meltdown.
Richard (Rick) Mills
March 6, 2011
COQUITLAM, BC (AHEADOFTHEHERD.COM)

Current Federal Reserve System chairman Ben Bernanke believes a simple recession was turned into the Great Depression by the Federal Reserve of the day not doing enough while the money supply contracted 31 percent between 1929 and 1933.
This reduction in the money supply was caused by no less than three bank runs between late 1930 and March 1933. Bank deposits formed 92 percent of the money in circulation at the time and 10,000 banks failed with the loss of $2 billion in deposits.

"The Fed failed to inject enough money into the system to sustain the desired minimum level of monetary aggregates. Because it failed to do this, the public run on banks resulted in a contraction in the money supply, which caused the Great Depression." Milton Friedman
Bernanke, a monetarist like Friedman, believes if the Fed had provided enough money to the large banks and bought US securities then these banks would never have fallen. Bernanke is, today, putting what he believes to be the fix for our current economic woes into practice:
giving money to the banks cutting the prime interest rate the Fed charges commercial banks buying treasuries

The Federal Reserve is providing liquidity and increasing the money supply.
So why didn't the Feds of the time simply increase the money supply by turning on the printing presses much like Ben "helicopter" Bernanke is doing today? Well, at that time the US was on the gold standard and the amount of credit the Federal Reserve could issue was limited by the Federal Reserve Act which required 40% gold backing of Federal Reserve Notes, paper money, issued. Back then if you had $10 in your pocket, you knew, that somewhere, there was $4 worth of gold backing that "promise to pay" in your wallet.

But the Fed's back was up against the wall, they were running out of room to issue more notes. They had almost hit their issue limit on credit that could be backed by the gold in their possession - they needed more gold to issue more credit.

Their need was made worse because during the bank runs Federal Reserve paper money had been exchanged for Federal Reserve gold. Since the Federal Reserve was already hitting its limit on allowable credit, any reduction in gold in its vaults had to be accompanied by a greater reduction in credit. Something had to be done.

On April 5, 1933, President Roosevelt signed Executive Order 6102 making the hoarding of gold certificates, coins and bullion illegal. This order, by confiscating Americans gold, increased the amount of Federal Reserve owned gold thereby making an increase in the availability of Federal Reserve Notes or credit possible.

Thus, the reason gold was confiscated back then doesn't exist today. Today no country is on the gold standard (the US cut the last ties to gold in 1971) and the US Federal Reserve's ability, or any countries ability, to create credit, print money, is no longer tied to how many ounces of gold a country has.

The flip side of this unfettered creation of money is inflation - and this is of course exactly why someone might want to own gold and silver. But there is something potential gold buyers need to be aware of.

THE SCAM

It is true gold was confiscated in 1933 - but now you know the why and you also know that the reason for confiscation back then doesn't exist today.

So the next time you read an article about how your government is going to confiscate your gold - all of it except rare collector numismatic coins - track it back to its original source. Too many times you will find that it has, as its originator, a gold numismatics merchant. The patter is always the same - "Your gold is going to be confiscated, buy rare collector coins because they won't be confiscated."

Gold numismatics were not confiscated in 1933. Order 6102 specifically exempted "customary use in industry, profession or art." The same paragraph also exempted "gold coins having recognized special value to collectors of rare and unusual coins."

The US Constitution's Eminent Domain Clause says - "nor shall private property be taken for public use, without just compensation." When gold bullion was confiscated compensation payment at the official gold price of $20.67 an oz was considered just, after all, that was the price of an ounce of gold.

But the confiscation of rare gold coins, called numismatics, would have been stealing private property. Legally just compensation would have had to been paid but for that to happen each gold numismatic would have had to been individually graded and priced - a huge and expensive time consuming task the government was unwilling to take considering the small amount of gold that would have been recovered.

So let's revisit - "Your gold is going to be confiscated, buy rare collector coins because they won't be confiscated." We know the reasons Americans' gold bullion coins were confiscated but gold numismatics weren't. For today's gold buyers, who still fear confiscation, the problem is: are the coins some gold dealers want to sell you actually gold numismatics and for a gold bullion investor - versus a coin collector - are they worth buying? Unfortunately the answers are maybe not and no.
Gold numismatics are rare collectors gold coins that trade at high premiums to their intrinsic gold content value. These coins are extremely rare, or one-of-a-kind, that collectors (there's that qualification again) purchase for their historical and aesthetic qualities.

Gold merchants can sell rare gold coins for a healthy markup, sometimes as much as 25 percent and more. The fierce competition in the gold bullion coin market often limits profit margins to maybe 3% over the spot price of gold.

American Gold Eagles, the Canadian Maple Leaf and South Africa's Krugerrand are all examples of gold bullion coins. Their value is derived entirely from their gold content. They are universally recognized and the value of these coins is easily verifiable. The reality is that too many coins sold as "numismatic" or "collectible" are ordinary gold bullion coins sold at high mark-ups to make fear mongering dealers extra profits.

If you want to own gold, the safest way is to buy one, or a mix, of the three gold bullion coins listed above, pay the 3% above spot and quit worrying about confiscation. Gold numismatics are not a store of value nor a better safe haven in a meltdown situation than gold bullion. Think about all the money you'll save. Maybe you'll buy some silver!

CONCLUSION

Gold bullion coins are a better store of value then gold numismatics - if social order breaks down and a collector needs to trade one of his collectables he's going to receive the exact same amount of goods that I would receive using gold bullion. That's because the transaction will be valued based on gold content and purity, not historical and aesthetic qualities.

Investors buy physical gold because it is a store of value - a way to protect your wealth from the relentless devaluation of fiat currencies - and a safe haven in times of turmoil. Your job as a retail investor, if you believe in gold and the ongoing devaluation of fiat currencies, is to buy as much potable, divisible gold with your dollars as you can. Buying gold numismatics is not the way to do this and buying gold numismatics that aren't... well that's being taken advantage of, to put it politely. Is this con game on your radar screen?

If it isn't, and you're a gold buyer, it should be.

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