Bullet Proofing Your Gold-
I.Why gold, and why Double Eagles?
The Case For Double Eagles
Written By Bob Sichel
Gold is much more than an inflation hedge; it’s a financial insurance policy. Today many experts recommend gold ownership because it has one characteristic no paper currency, bond or money market account can ever have intrinsic value. Gold is the only form of money that is not at the same time someone else’s I.O.U. The yellow metal never declares bankruptcy on its owners, be they nations or individuals.
Today with governmental corporate and personal debt levels eclipsing all historical records, gold and the protection it offers for your life savings takes on renewed importance. Gold can help offset any “surprise” losses in the purchasing power of your dollar denominated assets.
There are two basic ways to own gold: either buy gold mining stocks or buy bullion bars or coins. Miles Franklin, Ltd. recommends holding 60% to 75% of your gold in the physical form and the rest in mining shares. The physical gold (coins and bars) becomes your “core-holding” financial insurance policy, while the more volatile mining stocks are held as an investment.
Because we believe that history repeats itself and gold is likely to be confiscated again by the we continue to favor pre-1933 $20 Double Eagle gold coins. They are hands down our number one bullion related recommendation. Each of these coins contains nearly a full ounce of pure gold (.9675 of a Troy ounce). Our reasoning is based on the fact that in the 1930s only gold coins with “unusual historic value” like these Double Eagles were exempted from F.D.R’s gold call-in.
This alone should be a powerful enough reason to favor historic “Double Eagles” over modern one ounce bullion coins like American Eagles, Canadian Maple Leafs, Chinese Pandas and South African Krugerrands. However, we see another strong force at work here. Double Eagles will likely be considerably more profitable than the bullion coins discussed above due to strong demand running head first into a fixed and dwindling Double Eagle supply.
II. Double Eagles And Gold Confiscation
The best report on gold confiscation available is titled The Right To Own Gold, Are we About To Loose It Again? If you have not already read this report by Miles Franklin’s, Ltd. President David Schectman please call us and request it. It discusses in depth why ownership of gold is viewed by Uncle Sam not as a right, but as a privilege that can be revoked in a national emergency.
I do not want to duplicate what this report discusses but I do want to expand upon one of its conclusions. The Right To Own Gold points out that owning “gold coins having recognized special value to collectors of rare and unusual coin,” such as Double Eagles, is the safest way to own domestically held gold bullion without worrying about what the government may do in a future crisis. I agree totally, but as author Jeffrey Pritchard points out in Heads You Win, Tails You Win: The Inside Secrets of Rare Coin Investing:
“Exempted from the [1930s] surrender requirement were not ‘owners’ of rare gold coins nor ‘holders’ of them nor persons who ‘possessed’ such coins nor even ‘investors.’ On the contrary, the order specifically focused on an individual’s motive for having rare gold coins, exempting just one classification: ‘collectors.'
“The Treasury subsequently issued additional regulations under the Executive Order that declared that all gold coin made prior to 1934 is considered to be of recognized special value to collectors of rare and unusual coins.”
What this boils down to is that it's not enough to own a respectable quantity of Double Eagles, say 100 coins of the same date. What you really need to do is assemble a Double Eagle coin collection consisting of a wide variety of different dates and mint marks. A mint mark is simply a small letter on the coin that tells you where the coin was made, “S” for San Francisco, “D” for Denver, “CC” for Carson City, etc. Collecting by dates and mint marks is one of the most popular ways of collecting coins.
It should be perfectly “O.K.” to have more than one example of a particular date, because almost all collectors have some duplicates in their collections. Exactly how many duplicates will be allowed, I have no idea. But if your holdings consist of 100 coins with only a handful of different dates, I think you would find it very difficult to demonstrate that your motive was to collect gold coins and not hoard gold bullion.
Suppose you wake up one morning seven years from now, and the President has just issued an emergency order to seal safe deposit boxes, confiscate all gold bullion and pay off all gold owners in paper money. There’s a red seal on your box at the bank, and it can’t be opened without the presence of “Big Brother.” At that time you will need to be able to prove that you are indeed a long-time gold coin collector, not a gold hoarder.
To my mind one of the easiest forms of proof would be to have a list in your box in your own handwriting with “Coin Collection Inventory” written in bold letters across the top. On this sheet you will have previously listed all the different coin types, dates and mint marks currently in your collection. Now I’m no expert in legal matters, but it seems to me that this document would go a long way in demonstrating that prior to the sealing of your box, your intent was that this was your personal, much beloved coin collection.
I also recommend that you take the time to learn a little about your coins, their history, design, grading. etc., all of which are covered in this report. It’s not hard and after all, that's what coin collectors do! Why merely try to give the appearance of being a bona fide collector when it’s so easy to actually be one.
Sometimes a prospective gold client will say something to me like “hey, if they come for my Maple Leafs and Krugerrands, I’ll simply hide them at home or bury them if I have to. I will never turn them in!” I sympathize completely, but the problem with this approach is that the penalty for getting caught can be quite severe. In 1933 the penalty was 10 years in prison and/or up to a $10,000 fine (in 1933 dollars!) Why should any law abiding citizen run this risk? It's plain foolish, especially when with a little forethought and planning, any person of means can arrange their gold portfolio in such a way that confiscation becomes a non-issue.
Another thing I hear a lot from people goes something like this: “I know what happened under Roosevelt, but they can change the laws exempting collector coins any time they want! How do I know that the next time around won’t be different?” My answer is you don’t know. Laws can be changed. But, we do have a strong legal and historical precedent at work here, even though it’s not 100 percent “bullet-proof.”
Also keep in mind as the late currency expert Dr. Franz Pick pointed out in his classic 1985 book The Triumph of Gold, that there is a global precedent at work here as well. As Pick pointed out:
“Today, there are some 49 countries which forbid ownership of gold by their citizens, but do allow holding gold coins for numismatic purposes. This is one big advantage to numismatic gold, such as Double Eagles. It is the idiosyncrasy of governments that, although they may prohibit ownership of gold in any form, they are reluctant to touch collections of numismatic gold coins. So these are the only gold holdings that could be kept in your safe deposit box without any fear of confiscation.”
III. The ABC’s Of Grading
As with all other coins,, the state of preservation or condition of a Double Eagle is known as its grade. A coin’s grade is measured on a numerical scale from one to seventy, with the low numbers representing low-quality coins and the high numbers representing high-quality coins.
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 like the day it was made, with 100% of the design and lettering intact. The difference between MS/61, MS/62, and MS/63 coins is that the higher numbered coins have fewer scratches, nicks and other minor imperfections. All of them are still uncirculated. It’s an eye appeal issue.
The higher a coin’s grade the more it will cost you. Miles Franklin, Ltd recommends that Double Eagle investors stick to the MS/61 and MS/62 grades whenever you are buying the common (generic) dates. The uncommon dates, which usually sell at a premium to the common dates, are “O.K.” to purchase in circulated condition in grades ranging from VF/30 to AU/58. We believe these grades offer the best compromise between price and quality. By acquiring these grades you can build a collection of bullion heavy Double Eagles without having to pay huge (and unnecessary) premiums above the coin’s gold content value or “melt value.”
In order to ensure that the coins you acquire are both authentic and accurately graded, third-party certification is strongly recommended.
IV. An Introduction To Certified Coins
If you are not experienced in buying and selling collector coins like Double Eagles, certified coins were designed to protect you and your pocketbook. Before “third-party” or “certified” coin grading emerged in 1986 each coin company in graded coins according to their own company standards and biases. Because of this, sometimes even the most reputable and respected coin dealer could not agree on a coins grade and therefore its value.
Coin certification has virtually eliminated this problem. With certified coins, instead of a coin’s grade being determined by either the buyer or seller, the coin is instead submitted to an independent grading service. At the grading service at least three experts impartially “consensus grade” the coin. The grading service charges a fee (generally $15 to $35) to authenticate and grade the coin and then seal it in a museum-quality inert plastic holder (commonly referred to as a slab). Sealed inside each slab along with the coin is information on the coin in question: type, year, grade, and individual serial number.
Even novice gold coin enthusiasts can handle these “slabs” without worrying about damaging the classic gold piece sealed inside. Once stored in a dry, safe environment like a bank safe deposit box or home vault, certified coins can be left alone indefinitely without the need for any upkeep or maintenance.
Currently there are over half a dozen services that certify coins. The two best known and most respected services are the Professional Coin Grading Service (PCGS) and the Numismatic Guarantee Corporation (NGC). These are the only two services used by Miles Franklin, Ltd. With PCGS and NGC coins, even novices can buy quality Double Eagles with complete confidence that they are getting exactly what they paid for.
V. Collector Premiums
When you invest in a $20 gold piece (Double Eagle), you’re not just paying for the gold value of that coin, which is always .9675 times the spot price of gold. You are also paying a premium to reflect the fact that these eye-catching rarities are no longer being produced, yet are highly prized by collectors. The amount of premium you pay for a coin in a particular grade is based on simple supply and demand. When gold is trading actively and people are clamoring to own these and other gold coins, the premium goes way up. When gold trading is flat or inactive for long periods of time, the premium drops.
In the last dozen or so years I have never seen uncirculated Double Eagles (today’s MS/61 and MS/62 grade) trade for less than a $100 collector premium, or more than about a $700 premium. The premium was last at the high end of the scale from 1984 to 1987, when premiums of $400 to $700 over the coin’s gold content were common.
Mark my words-in this decade we will see Double Eagle premiums equal or exceeding the $500 to $700 range again. This will not be a one day wonder. Premiums will stay that high or higher for years.
This is the main reason why I expect that Double Eagles purchased today will turn out to be substantially more profitable than modern one ounce bullion coins like Maple Leafs and Krugerrands. The value of these coins will always be roughly equal to the spot price of gold without any appreciable premium.
When considering their impressive gold content, freedom from possible future gold call-ins and superior profit potential, Double Eagles may yet become the supreme prize—the King of all gold coins.
VI. A Brief History of Gold Coins
From 1795 to the lean depression years of the 1930s, a wide variety of denominations and designs from one dollar to twenty dollars were coined as legal tender.
The standard gold piece became known as an “eagle” or ten dollar coin, which contains just under one-half an ounce (.48375) of pure gold. In 1849, a year following the discovery of gold in California, twenty dollar gold coins were made and came to be known as “Double Eagles.” Each Double Eagle has just one full ounce (.9675) of pure gold. In the same vein, five dollar gold pieces were called “half eagles” and two-and-one-half dollar gold coins were called “quarter eagles,” each with a proportional amount of gold.
Gold coins of all types were very popular with ’s founding fathers that never really trusted paper money. They had a terrible experience with Continental Dollars, the “official” currency of the colonies before the American Revolution. Perhaps you have heard the phrase “not worth a continental.” This paper money was not backed by either gold or silver and was so despised that even George Washington refused them in his personal business transactions. As a direct result of this experience, the constitution authorized the new congress to issue only gold and silver money based on fixed weights and purity.
Until the late 1840s, many American shopkeepers still refused to accept any kind of paper money, especially in frontier areas. Even up until 1933, every American knew that paper money wasn’t real money but only a promise to pay in real gold or silver money.
Prior to 1913, all international accounts and contracts were payable only in gold. Because of their hefty gold content, Double Eagles were routinely shipped to London, Zurich and other world financial centers to settle up bank to bank and government to government transactions. Today, many of the choicest Double Eagles available still come from hoards newly released by European and South American banks and governments.
VII. “The Best Coin That Has Been Struck In Two-Thousand Years.”
There are two kinds of $20 Double Eagles, the older Liberty design minted from 1849 to 1907, and the Saint Gaudens variety minted from 1907 to 1933. No report on Double Eagles would be complete without a more detailed discussion of the artistic merits and history of these “Saints.” A coin which Teddy Roosevelt described as “more beautiful than any coin since the days of the Greeks.”
In memoirs, Roosevelt described the introduction of this coin as one of the crowning achievements of his administration. He particularly delighted in passing out the new gold pieces as souvenirs. He felt that this stunning new design would demonstrate to the world the greatness and vitality of at the dawn of a new century.
Augustus Saint Gaudens was a famous sculptor who produced over 150 works in his lifetime, and in the process received honorary degrees from Harvard, Princeton and Yale, as well as memberships in the prestigious Royal Academy in London and the French Legion of Honor. Not known for modesty, St. Gaudens once bragged to the Director of the Mint that he was the only American capable of producing worthwhile coin designs comparable to those produced by the ancient Greeks and Romans. His $20 design was not only his most memorable but one of his last. It was released to the public just months after his death in 1907.
This coin was the first American coin ever fully designed by a sculptor. An impressive 34 millimeters in diameter, this coin has everything going for it: aesthetic beauty, eye-catching size and hefty gold content.
Much of this report deals with Double Eagles as gold bullion investments but let’s not ignore collector appeal totally. Many people find that there is a deep psychological satisfaction in owning a collection of gold coins as stunning as these Saints. Collecting gold coins can engender a fierce pride of ownership and a strong sense of security. Always remember that besides their gold content, these coins are historically significant works of art in miniature that you can be proud to own.
VIII. Buying and Selling Double Eagles
Certified $20 gold pieces in a particular grade can be bought by telephone with relative ease, similar to calling your stockbroker and buying a stock at its current market price. Liquidity is also excellent should you wish to sell. In 20 years I have never seen a single day when doubles couldn’t be sold back to a dealer at some price. The only real question is how much of a premium you will receive. Obviously, selling when the gold market is hot and dealer activity is brisk is the preferred strategy here.
Be aware that as much as we favor Double Eagles as the best medium-to long-term gold investment, we do not recommend they be used for short-term holdings of less than 3 to 4 years. No matter who you do business with you will always be buying double eagles above wholesale yet selling them back to a dealer slightly below or at wholesale. Typically Double Eagles are sold with a retail mark-up of 10%-15% at most large national companies and 5%-10% when working with a discount gold broker like Miles Franklin, Ltd.
Short-term traders are better off buying Krugerrands or gold mining stocks, both of which have lower mark ups more suitable for this type of trading.
IX. Financial Privacy In The Computer Age
Double Eagles make an excellent form of private, portable, concealable wealth. This is becoming even more important in today’s computer age as brokerage houses, banks and other financial institutions are required to obtain Social Security numbers and provide extensive reporting to the government.
Like all other gold coins, Double Eagles allow an investor to keep a low profile: they are not legally reportable until you sell and declare either a gain or loss on your taxes. In the meantime, no one needs to know what you own or where it is stored (or hidden).
Many Miles Franklin, Ltd. clients hold Double Eagle collections with the idea of never selling these antique treasures. They plan on passing these coins down to their children and grandchildren as gifts. In this situation a family can own double eagles for generations with virtually complete privacy. It’s a fact that most of these double eagles reside in strong hands. They will be off the market for many years and will likely not be sold even in a rising market. This adds to their scarcity.
X. Swapping For Double Eagles
We offer a special service to clients who agree with the philosophy expressed in this report and who already own modern bullion gold coins like American Eagles, Maple Leaf, Krugerrands, etc. Theses coins can be swapped or exchanged for safer and potentially much more profitable $20 coins with no commission or fees of any kind being charged for the coins you sell back to us. Upon request we can even mail you appropriate coin tubes, boxes and other packing materials to make shipping your gold coins back to us quick and easy. On behalf of Miles Franklin, Ltd. We look forward to assisting you with your precious metals needs. Please call a representive at 800.822.8080