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Investing in Precious Metals

Investing In Precious Metals
Written by Andy Schectman

Why buy precious metals?  By now, you have probably heard about the new bull market in precious metals. Are you convinced precious metals are right for you?  If not then consider these facts:

  • The Wall Street Journal lists terrorism fears, inflation anxiety, a weak dollar, buying by Asian central banks and swollen deficits as the chief forces behind the gold rally. Precious metals offer the perfect hedge against these fears and these trends.
  • The US Dollar has now lost well over 40% of its buying power since 2001.  Let’s not forget that fall was under a “strong dollar policy” from our friends at the White House.
  • Merrill Lynch has announced plans to offer its retail investors electronically traded non-traditional gold futures (ETFs) contracts. Perhaps they are offering this service so they won’t lose customers due to demand for precious metals.  
  • The new gold ETFs are expected to greatly increase the demand for gold by making gold available to institutional investors.  In fact, it already seems to be happening as Gold Bullion Securities snapped up 20 tonnes of gold during its first week of trading on the LSE
  • has made a decision not to sell any portion of its gold reserves this year. This decision will play a major role in gold market fundamentals as we move through 2005. Hopefully this decision might encourage others to hold their gold off the market. The German decision signals a major change in central banker thinking. Even the modest sales goals of the Central Banks Washington Agreement will be difficult to achieve this year as a result. Needless to say, this bodes well for the gold market going forward.
  • UBS, the world's largest provider of wealth management services with operations in over 50 countries worldwide, is calling for gold at an average of $460 per ounce in 2005.
  • John Emery, Chief Investment Strategist at Sprott Asset Management, Inc. expects gold to soar to $1,000 per ounce or more by the end of the decade.  Please call us and we will send you a copy of Mr. Emery’s report free of charge.
  • All the gold ever mined could fit into a cube measuring just 20 yards on each side. Trading paper dollars for real money

    Whether you’ve been considering precious metals either to make a profit or to hedge against the falling dollar, with precious metals you have an opportunity to do both. If you remember back in the bull market of 1979 to 1981, the price of gold reached over $850 an ounce and silver climbed all the way to $50 an ounce!  With economic conditions in place today that are all too similar to 1979, many economists have predicted both metals to reach and surpass those highs again within the next few years.

    Recently the dollar plunged to its lowest point ever against the euro and to its lowest point in over five years against the Japanese yen. Without any major moves by the White House to slow the ever growing trade deficit or to tackle the federal budget, economists say the dollar is likely to drop even more this year. To date, the US Dollar has lost 47% of its value, and experts say this is only the beginning.  In fact, some government officials are now openly predicting another 10% decline for 2005.  

    The charts below say it all!   It seems the only true protection available is put yourself on a "gold standard" by owning a percentage of gold and silver to hedge your other investments, and to provide insurance against a plummeting dollar.

    Two-Year Dollar Charts
    Two-Year Dollar Charts
    Getting started: A look at your choices

    With all the hard asset choices now available it is sometimes difficult to decide which one is the best for you. You can buy gold, silver, or platinum bullion coins, semi-numismatic coins or certified PCGS/NGC rare numismatic coins. And the more you learn the more you will find that each of these areas have important potential.

    So let’s take a look at all of these hard asset areas, as diversification investing in precious metals is something we highly recommend. We believe the accumulation of gold, silver and platinum bullion in conjunction with semi-numismatic gold and silver coins-and in some cases high-grade rare coins is simply sound financial planning.

    The proportion of your portfolio devoted to any one area is determined by matching your specific objectives to your temperament. If your goals are more short-term oriented and you want a fast in and out approach, you should have a greater percentage of your money in bullion coins. If you're patient and are looking for larger profits, based on past price history, your selections will favor semi-numismatic and numismatic gold and silver coins.

    The silver market: Affordability meets opportunity

    Silver has historically been the most affordable precious metal, and this remains true today.  Here are some of the more popular ways to build a silver portfolio.

    American Silver Eagle bullion coins

    One ounce Silver Eagles were introduced in 1986. Each coin contains 1 troy ounce (.999 pure silver) and carries a symbolic $1 face value, officially making them silver dollars and legal tender.  In fact, they are the only silver bullion coins whose weight and purity are guaranteed by the government.  Even though it is actual legal tender, the actual prices of Silver Eagles are based on the market value of silver plus a small premium.  Silver eagles are also eligible to be put into IRAs.  Contact a Miles Franklin at 1 (800) 822-8080 representative for information on putting precious metals in your IRA.

    Circulated and uncirculated pre-1965

    Dimes, quarters and half dollars minted prior to 1965 contain 90% silver and 10% copper.  In circulated condition these coins are sometimes called “junk silver coins” because they have no collector value above and beyond the silver content.  Uncirculated coins are available but carry premiums above circulated coins, sometimes $500-$1,000 per bag.  Bags containing coins of only one date carry still higher premiums.

    In addition to the pre-1965 90% silver coins, half dollars dated 1965-1969 contain only 40% silver and are traded as 40% clad half dollars.  

    Because US Mints originally shipped 90% coins in $1,000 face value canvas bags, today a bag of “junk” refers to a $1,000 in face value.  In other words, a bag of dimes contains 10,000 dimes; a bag of quarters contains 4000 coins; and a bag of half dollars 2000 coins.  Although, $1,000 face value is a standard unit for circulated coins, smaller quantities such as half bags ($500 face value) and quarter bags ($250 face value) are also commonly sold.  When minted, a $1,000 face value bag contained 723.4 ounces of silver.  However, because of wear through circulation a junk bag contains approximately 715 ounces when refined.  Therefore, to calculate per ounce price, simply divide the cost of the bag by the estimated 715 ounces.  A bag weighs approximately 55 pounds.

    COIN MINTED FROM-TO WEIGHT
    Dime 1853-1964 .07234 oz.
    Quarter 1853-1964 .18084 oz.
    Half Dollar 1853-1964 .36169 oz.
    Half Dollar 1965-1970 .14792
    Dollar 1840-1935 .77344 oz.
    .999 fine silver bars and privately minted silver rounds

    Silver bars are uniform in size, easy to handle and convenient to store.  Because they are compact they enable investors to secure a great deal of wealth in a limited storage space.  100 oz. and 10 oz. bars are the most common bars in circulation, but 50, 25 and 5 oz. bars, which were produced in the early 1970’s, surface occasionally.

    Although Engelhard and Johnson-Matthey are two of the world’s largest refiners, neither has mass produced silver bars since the mid-1980’s.  In other words, this means that Engelhard and J-M bars are only available when other investors sell theirs.  However, there are dozens of other refineries that produce 100 oz. bars, such as Sunshine Minting, Crown Mints, The Royal Canadian Mint, and Handy & Harman, just to name a few.

    Privately minted silver rounds are a very popular way to accumulate silver.  They generally have the weight and purity (.999 fine) stamped on them, making them easy to sell, trade or exchange.  These rounds are made from private mints such as the ones listed above.

    silver dollars:  Peace Dollars and Morgan Dollars

    Nicknamed Cartwheels, silver dollars come in two designs.  Silver dollars minted from 1878-1904 and in 1921 are called Morgans.  They were named after the coin’s designer George T. Morgan.  Peace dollars were minted from 1921-1936, named to commemorate the end of World War I.

    Silver dollars fall into three groups listed below:
    1. Pre-1921 Morgan dollars minted from 1878 to 1904
    2. 1921 Morgan dollars minted in 1921
    3. Peace dollars minted from 1921 to 1935

      Silver dollars bear relatively large premiums over their actual silver content.  Of the three types of silver dollars the pre-21 Morgans are by far the scarcest and most popular.  As a result they cost more than either the 1921 Morgans or the Peace dollars.  The 1921 Morgans and the Peace dollars are both readily available; however the 1921 Morgans sell at slightly higher prices than Peace dollars of equivalent grades.

      Gold the ancient metal of kings

      When it comes to accumulating gold there is no right or wrong way to go.  There are no set criteria or established protocols for success.  But there are a few different paths one can take so let’s take a look.

      Gold bullion

      A gold bullion coin or bar is always valued by its weight in gold. In other words bullion coins and bars are sold based on the current market price of gold plus a small premium. Unlike numismatic or commemorative coins, which are valued by limited mintage, rarity, condition and age, bullion coins are purchased by investors seeking a simple and straight forward way to own and invest in gold.

      American Eagles, our favorite gold bullion choice

      American Eagles are our favorite choice for bullion purchases and are available in four denominations: one ounce, one-half ounce, one-quarter ounce, and one-tenth ounce. American Eagle bullion coins are not sold to the general public directly from the United States Mint due to fluctuating prices. Rather, they are available through a network of distributors, like us.

      Authorized by the Bullion Coin Act of 1985, American Eagle gold bullion coins quickly became one of the world's leading gold bullion investment coins.  Produced from gold mined or minted in the , American Eagles are imprinted with their gold content and legal tender "face" value.  However, the face value is largely symbolic since their market value has historically been much higher.

      American Eagles are fashioned with 22 karat gold. This standard was established for circulating gold coinage over 350 years ago.  They contain their stated amount of pure gold, plus small amounts of alloy.  This creates harder coins that resist scratching and marring, which can diminish resale value.

      Minted to exacting standards, the obverse (front) design is inspired by what's often considered one of America's most beautiful coins:  Augustus Saint Gaudens' $20 gold piece, the Saint Gaudens, minted from 1907-1933.  The reverse design features a nest of American eagles, symbolizing family tradition and unity.

      What truly sets American Eagles apart is that they are the only bullion coins whose weight, content and purity are guaranteed by the government.  Investors can buy them with confidence, knowing the coins contain their stated amount of gold.  In addition, long-term savers can include American Eagles in their Individual Retirement Accounts (IRAs).  Contact a Miles Franklin at 1 (800) 822-8080 representative for information on putting precious metals in your IRA.

      Other bullion coins

      The South African Krugerrand, the Canadian Maple Leaf and the Austrian Philharmonic are amongst the most popular bullion coins.  Like the American Eagle, these coins track dollar for dollar with the world gold spot price and are easy to buy, sell, and trade.  Like all bullion coins the values are non-subjective, therefore tracking the value of these coins is very easy.

      European bullion coins

      There is nothing wrong with European gold bullion coins, but there are some things to consider. By in large, European coins are simply bullion coins. Even though in many cases these coins are over 100 years old, they do not have genuine numismatic potential.  Secondly, European coins contain irregular amounts of gold such as .1244 oz, or .1867 oz. or .3734 oz. and do not have their gold content stamped on them, making them more difficult to trade.  Most of our customers prefer coins stamped in English, the European coins are stamped in the languages of the countries of origin, not in English.   

      American Eagles, Canadian Maple Leafs and Krugerrands all have the gold content stamped on them in English and come in sizes that you and I are accustomed to dealing with.

      numismatics: The other gold coin

      Prior to 1933, gold coins served as money in this country.  However, in his first “official” act in office, President Franklin Roosevelt declared a banking “holiday” and issued the order to confiscate gold.  (For a detailed discussion on why we like the Double Eagles and on the topic of confiscation, see our reports: BULLETPROOFING YOUR GOLD PORTFOLIO: THE CASE FOR DOUBLE EAGLES, and THE WHITE PAPER ON GOLD.  Many of our clients have already received these “timeless” reports, but if you are new to Miles Franklin, please call us at 1 (800) 822-8080 if you would like copies.)

      The Double Eagle as it is often called is the generic name for the two best known old US gold coins: the $20 Liberty (1850-1907) and the $20 Saint Gaudens (1907-1933).  Other popular old gold coins are the $10, $5, $2 ½, and $1 coins, both the Liberty type and the Indian head type.

      Compared to the new bullion coins, such as American Eagles and Canadian Maple Leafs, old US gold coins offer a greater profit potential, more privacy and protection against governmental confiscation.  

      We recommend that when you buy uncirculated gold coins, make sure that they are third- party graded, sealed and certified  by either PCGS or NGC.  In the uncirculated grades, we prefer the MS/60, MS/61, MS/62 & MS/63 grades.  Any coin graded “60” or higher (61, 62, 63, etc.) is referred to as being in Mint State (MS) or uncirculated condition.  In other words, the coin looks as new as the day it was made, with 100% of the design and lettering intact.  The higher the grade, the fewer scratches, nicks and other minor imperfections the coins have.  All of them are still uncirculated; it’s simply an eye- appeal issue. As noted above, we prefer the grades of MS/60 through MS/63, because they have much smaller premiums than the higher grade coins.  We also sell numerous circulated gold coins in the grades of XF and AU.  All of the coins we recommend have one thing in common: Most of the value is derived from the amount of gold they contain, not on their scarcity or condition.  In our current “deflationary” economy, we frown on the higher grades, like MS/64, MS/65 that our competition promotes.  In “hard times” people will be better off if they own lots of lower graded coins rather than a few “pretty” or “scarce” dates.  In hard times, it’s quantity over quality.   

      We can help you obtain a “collection” composed of different dates, mint marks and denominations.  We are especially fond of the $20 Saint Gaudens, the $20 and $10 Liberty coins.  Of all the old gold coins, they alone offer the most gold for your dollar.  We always do our best to diversify the dates and mint marks for you because it’s the best way to avoid confiscation in the future.   The 1933 law that legalized the confiscation of gold exempted coin collectors from the recall.  This is a very good reason for you to build a “collection.”  We will use only the most “common” dates so you will not have to pay a high and unnecessary premium for the diversification.  Of course, at some point, you will have to duplicate dates and/or purchase more costly dates if you wish to expand your “collection.”

      We are very experienced in how to help you with your portfolio.  Our prices are very, very competitive and our philosophy of helping you build a “core position” – the base of your investment pyramid – is designed to help YOU.

      Platinum: The rarest precious metal

      Just like gold, the American Eagle is our favorite choice when it comes to investing in platinum. First issued in 1997, they are the first and only official investment-grade platinum coins from the United States Mint.

      The American Eagle Platinum is the only platinum bullion coin whose weight, content and .9995 purity are guaranteed by the government. It is available in four denominations: one ounce, one-half ounce, one-quarter ounce, and one-tenth ounce.  Furthermore, all American Eagles are legal tender coins, with the face value imprinted in U.S. dollars.  Although the face value is mainly symbolic, it provides proof of the authenticity as official

      Other popular one ounce platinum coins are the Australian Mint Platinum Koala, Canadian Mint Platinum, Maple Leaf, and Isle of Man Noble.

      Who is Miles Franklin Ltd?

      For those of you who are new to The Miles Franklin Report here is some background information that you might find useful.

      Miles Franklin, Ltd.  was started in 1990 by David Schectman.  Prior to that, David was a senior broker and public spokesman for one of the nation’s largest gold dealers, Investment Rarities. From 1989-1991 he was also the editor in chief of the popular newsletter of the times, Future Economic Trends.  

      Miles Franklin, Ltd. has been recommended by many nationally respected newsletter writers and authors, including Robert Prechter  (Conquer the Crash) Richard Maybury (Early Warning Report) John Tomchick (The Whole Investor Report) Jean Pierre Louvet (The Safe Wealth Group) Bill Murphy (LeMetropole Café) and Chris Powell (Gata.org).

      We have sold tens of millions of dollars of bullion, numismatic gold, silver and platinum. We are set up to operate efficiently with low overhead, so our pricing is fair and more than competitive.

      Most of us have been here since 1990, and between us we have well over 70 years of experience in the precious metals industry.

      We have also helped many people obtain Swiss annuities, and have written many articles on Swiss investments as a compliment to a precious metals portfolio.  If you are interested in obtaining a Swiss annuity, talk to us and we will put you in touch with a very reputable Swiss firm that will work with you.  If you would like a quote on any of the precious metals, let us know.  Our prices are very hard to beat.

      We are committed to the best service, low pricing and prompt delivery.  We hope you will think of us when you decide it’s time to move into the metals.  We will work extra hard to earn your business.

      Buying metals, the final step

      When all of your questions have been answered and it’s time to move forward, here’s how you do it. First, we lock in your order on a “verbal” hand shake.  Next, we send you a confirmation for your records and a posted return envelope.  Put your check in the envelope, a personal check works just fine, seal it and send it off.  That’s it, no social security number or “Get to know your client form” as you would see in just about any other investment.  There are never any reporting requirements by you or the dealer when you buy gold with a personal check, regardless of the amount.  So now you just sit back and wait for your postal person to bring you a registered and insured package.  Our standard policy allows one week for your check to clear, then immediate shipment.  Your package is shipped out wrapped in brown paper and marked “machine parts.”

      It works the exact same way when it’s time to sell.  Call us; we’ll lock in a firm and binding bid price for your metals.  We will send you a confirmation for your records along with detailed instructions on how to ship your coins back by registered and insured mail.  When we receive your package we will send your funds immediately by check or wire-your choice.

      So there you have it!  You are now well armed with enough information to take the next step and build the base of your financial pyramid with precious metals.  If you would like to discuss any of the topics listed in this report, please contact one of us at Miles Franklin Ltd.

      On behalf of all of us at Miles Franklin Ltd.  We look forward to assisting you with your precious metals needs, or answering your questions on the best ways to invest in the Swiss franc and euro.

 


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