10 Reasons To Own Gold By John Embry 1 Global Currency Debasement The US dollar is technically very weak and should fall dramatically. Other countries are ve r y re lu c t ant to s e e t h e i r c u r re n c i e s appre ciate and are resisting the fall of the US dollar. Thus, we are in the early stages of a massive global currency debasement which will see tang ibles (most particularly gold), rise significantly in price. 2 Investment Demand for Gold Is Accelerating When the public recognizes what is unfolding, they will seek an alternative to paper currencies and financial assets and this will create an enormous demand for gold. 3 Alarming Financial Deterioration in the US The current amount of the deficit has reached levels which have portended currency collapse in virtually every other instance in history. 4 Negative Real Interest Rates in Reserve Currency (US Dollar) To combat the deteriorating financial conditions in the US, intere st r ate s have b e e n dropp e d to ro ck b ottom le vels, re a l interest rates are now negative and, according to statements from the Federal Reser ve, are expected to remain so for some time. There has been a very strong historical relationship between negative real interest rates and stronger gold prices. 5 Dramatic Increases in Money Supply in the US and Other Nations US authorities are terrified about the prospects for d e f l a tion given the unprecedented debt burden at all levels of society in the US. Ben Bernake is on record as saying the Fed has a printing press and will use it to combat deflation if necessary. Other nations are following the US’s footsteps and global money supply is accelerating. 6 Central Banks are Nearing an Inflection Point When They will be Reluctant to Provide More Gold to the Market Far Eastern central banks who are accumulating enormous quantities of US dollars are rumored to be buyers of gold to diversify away from the US dollar. 7 Gold Is Increasing In Popularity Prominent developing countries such as China, India and Russia have been accumulating gold. In fact China with its 1.3 billion people recently established a National Gold Exchange. Demand in China is expected to rise sharply and could reach 500 tonnes in the next few years. 8 Gold as Money is Gaining Credence Islamic nations are investigating a currency backed by gold (the Gold Dinar), the new President of Argentina proposed, during his campaign, a gold backed Peso as an antidote for the financial catastrophe which his c ou nt r y has e xp e r ie nc e d and Russi a is t a l k ing ab out a f u l ly convertible currency with gold backing. 9 Rising Geopolitical Tensions The deteriorating conditions in the Middle East, the US occupation of Iraq, the nuclear ambitions of North Korea and the growing conflict between the US and China due to China’s refusal to allow its currency to appreciate against the US dollar headline the geopolitical issues, which could explode at any time. A fearful public has a tendency to gravitate towards gold. 10 Limited Size of the Total Gold Market Provides Tremendous Leverage All the physical gold in existence is worth somewhat more than one trillion US dollars while the value of all the publicly traded gold companies in the world is less than one hundred billion US dollars. When the fundamentals ultimately encourage a strong flow of capital towards gold and gold equities, the trillions upon trillions worth of paper money could propel both to unfathomably high levels. BUYING GOLD AND SILVER By Jim Kerben If you are considering buying gold and/or silver the first question you should ask yourself is “What am I trying to accomplish?” The answer to this question will guide you through the rest of this process. Suppose you are thinking that gold or silver would be a good investment. The first thing you need to realize is that if you start today with 10 troy ounces of gold, in 20 years you will still have only 10 ounces. There is no interest, no div i dend or any other expansion of the amount you hold. The only way your investment will pay is if the price of gold increases. O t he r t y p e s o f investments may pay interest or a d iv i d e nd and inc re as e t he amount of d ol lars that you have, even if the price does not change over time. Mo st p e opl e, w hen aske d w hat t he y are trying to do will answer that their purp o s e i s t o p r o t e c t t h e i r a c cumulated wealth. Stated another way, they are looking for insurance against loss of value. For this purpose, gold and silver are ideal. The best illustration of this is the $20 gold piece minted prior to 1933. At that time, gold was valued at $20/troy ounce. That one gold piece would buy a very nice man’s suit. Fast forward to today, that gold piece is worth over $1000. So, to carr y the analogy further, that gold piece would still buy a very nice man’s suit. Let’s look at what happened. At first glance, most people would say that the price of gold increased from $20 to $1000/ounce. This is not accurate. Gold still buys the same amount of goods and services that it did in 1933. Gold stayed pretty much constant. The value of the dollar fell by a factor of 50 so that it takes 50 times more paper dollars to buy the same amount of goods and services than it did in 1933. Looking forward, you must ask, will the dollar buy more or less in 10, 20, or 30 years. The gold you have today will allow you to buy the same amount of goods and services that your money will buy today, 10, 20, or 30 years from now. Looked at in this way, gold and silver become a way of preserving your wealth. They are a form of wealth insurance. Most Europeans have long held 10–20% of their net worth in precious metals for this very purpose. They have a history which includes hyperinflation, government changes, borders that have moved and two world wars. The durability of gold has served them well through all sorts of political unrest. In fact, it is the only constant in a world subject to change. WHAT TO BUY You have now made the decision to make a purchase and are faced with the decision of what to buy. There are many ways to own gold, coins, bars, old coins, jewelry, etc. Since they are all a way to accomplish the same task, we should look at some of the differences. In today’s market, there are a couple of different ways to buy gold. Bullion coins and bars would be one way. The other is collectible coins. Which is better? They both have advantages and disadvantages. Let’s first look at the difference. Bullion coins are sold by weight. This is the common definition of bullion. Collectible coins are sold by a complex pricing structure that includes, but is not limited to gold weight. It is valued as a collectible. You might also hear the term numismatic used to refer to collectible coins. This is a bit of a misnomer. The term numismatics refers to the study of money. Although coin collectors are referred to as numismatists, the study of money can include many different things besides coins. Paper money is included and one can certainly c ol l e c t mo de r n c oinage as a hobby or num is matic pursuit. For our purposes, we’ll call older coins “collectibles.” In 1933, FDR, in a desire to remove the United States from the international gold standard, issued an order to the public to turn in all gold coins, bullion and gold denominated paper bills. People were paid at par value for these items. After this was accomplished, he immediately devalued the dollar by raising the “official” price of gold from $20 to $35/ounce. This has become known as the gold confiscation. The order made the following exceptions: gold used in industry or profession; gold held in trust for a foreign government and coins having a “recognized special value to collectors of rare and unusual coins.” It is this phrase that leads some dealers to claim that collectible coins are exempt from any future act because of this phrasing. Other dealers will claim that bullion is the best way to buy because it does not have the collectors premium and thus the price is closer to the value of gold itself. This issue is one that you should have resolved one way or another when you go to buy. It will determine what you buy and as a consequence, how much you pay. Using our analogy of insurance, one is basic coverage and the other is a more expensive coverage. Whether the more expensive model gives you more protection is a matter of opinion. You should know what you believe about this. GOLD PRICING The w ay gol d and si lve r are pr ic e d is t he s ource of a lot of misunderstanding. Most people look at the “spot price” and try to figure out how everything relates to that. The “spot price” for gold is the price per ounce of a 100 oz. gold bar used to fulfill a futures contract on the Comex, or New York Commodity Exchange. Gold producers sell their gold (sometimes before it is produced) on a forward con- tract to a buyer. On the day that is specified by the contract, the settlement price is . called the “spot price” These contracts can vary in length of time and they all have the same physical amount of gold, 100 ounces. If you are a gold user and buy a contract, you will receive a 100 oz. bar as settlement if you wish. To produce a more saleable product, you must then melt the bar and put it into discs for coins or smaller bars. There is a cost involved. Then, a design or pattern is stamped into the gold disc or bar. There is a cost involved in this. Once these coins or bars are produced, the manufacturer must market these to companies which sell these to the public. There is an additional markup involved here. As you can see, the costs and markups will put the price well above the “spot price”. Further, collectible coins have scarcity, condition, and other factors which also af- fect price. In periods of high demand, the market may also move ahead of the price. An example of this is when the producers around the world cannot produce any more coins than they are currently making. An increase in demand will not affect the spot price at all since the producer is already buying as much gold as they can produce. What happens then is that the premium for coins that already exist increase even though the spot price hasn’t changed. In the long run, the price of gold is secondary to the purpose of holding it. Remember our insurance analogy. If you buy gold today and sell it in ten years for a profit, you have done well. If, in ten years, the price of gold is less than what you paid, the difference is the cost of insurance. Spread out over ten years, it is probably a small cost indeed. This also explains why most dealers will tell you that the longer you hold gold the better off you will be. Most of us would be hard pressed to find another form of insurance that pays you the premium back if we don’t use it. Life insurance is probably the only one and there is certainly a cost involved there. The key thing to remember is that “spot price” is the price for a gold contract and that there are several steps involved in putting gold into a form that is saleable in today’s market. Anyone claiming to sell at or near spot is probably buying from an unwitting public at 20–30% below spot. QUALITY AS A PRICE CONSIDERATION A confusing part of metals quality revolves around the issue of purity. Coin purity can range from 90% up to 99.999% pure. Purity is not as important as content. An American Eagle is 90% pure. It has copper mixed with it to harden the gold. A Canadian Maple Leaf is 99.999% pure. They both contain 1 oz of gold. Therefore, their price is similar. The Eagle will weigh more as a coin, even though the gold content is the same as a Maple Leaf. Along these same lines, most coins have a nominal amount of metal and an actual amount of metal. Since these coins are already made and no on will melt them down to extract the metal, they will trade at their nominal amount. An example is the $5 Liberty or Indian. They are ¼ oz nominally, although the actual amount of gold is .24187 oz. Even though they are slightly less than a full ¼ oz., they are priced and traded as though they were a full ¼ oz. Another quality consideration is coin grading. High graded collectibles are graded and encapsulated in tamper proof plastic holders by two recognized sources, NCG and PCGS. Generally, MS 60 and higher are treated this way. In addition, very rare specimens known only in lesser grades can also be graded this way. As long as the plastic holder is intact, once graded, these coins are easily bought and sold as known quantities. There are also known to exist, rolls of silver coins which have never circulated. These BU (Brilliant Uncirculated) specimens are often found in their original wrappers and are best not handled as their value could drop should the coins become scratched or altered. Finally, a condition known as toning is often associated with silver coins. Interaction with chemicals in ambient air can produce this effect and it is not considered a flaw or detriment to the coin. In fact, some collectors see it as a sign of authenticity. HOW TO OWN GOLD AND SILVER IN YOUR IRA If you currently have an IRA or a qualified plan such as a 401(k), 403(b), etc most likely your plan does not allow you to own physical gold or silver in your account. If that is the case, there is a way to do it that is relatively easy and inexpensive. What follows is a step by step explanation of how to do it. The first step is to find a custodian that will allow such a transaction. There are several including Sterling Trust Company, Goldstar Trust Company and Entrust. There are many others.These three are the most experienced with holding metals. Once you select a custodian, you will need to open a self directed IRA. This involves a minimum amount of paperwork and a fee to set up the account. Once you have the account established, it needs to be funded. If you already have an IRA, the money can be transferred to your new IRA. If you have a qualified plan, you can rollover assets to your new IRA. CAUTION. If you are still contributing to your plan, or are still employed by the plan sponsor, they may not let you rollover your money. Before you open your new account, make sure you can fund it the way you intend. Another option for funding would be to begin to make annual contributions to your new account. Currently, the maximum allowed is $5000.00 a year with an additional $1000.00 if you are over the age of 50. The new custodian (Sterling, Goldstar, Entrust) will transfer the funds for you. Your other option is to make the withdrawal yourself and then send the check to your new account. The danger here is that this must take place within 60 days of the withdrawal date or you will be liable for taxes on the withdrawal. Please note, the transferring of money from one custodian to another does not make you liable for the 10% early withdrawal penalty. You did not make a withdrawal, you transferred the assets from one custodian to another. Once your new account is funded, you can then direct your broker to purchase gold, silver, platinum and palladium for your account. Your broker will withdraw payment for the purchase and send the appropriate amount of metals to the custodian’s storage facility. The storage facility will report the receipt to your custodian and show the metals in your account. French 20 Franc (Angel) French 20 Franc (Rooster) Swiss 20 Franc Fine Gold Content: Fine Gold Content: Fine Gold Content: .1867 Troy oz .1867 Troy oz .1867 Troy oz Fineness: 90.00% 21.6 Karats Fineness: 90.00% 21.6 Karats Fineness: 90.00% 21.6 Karats Diameter: 21.0mm Diameter: 21.0mm Diameter: 21.0mm British Sovereign South African Krugerrand Fine Gold Content: Fine Gold Content: .2354 Troy oz 1 Troy oz Fineness: 91.67% 22 Karats Fineness: 91.67% 22 Karats Diameter: 22.05mm Diameter: 32.6mm Canadian Maple Leaf Austrian Philharmonic Fine Gold Content: Fine Gold Content: 1 Troy oz 1 Troy Oz Fineness: 99.99% 24 Karats Fineness: 99.99% 24 Karats Diameter: 30.0mm Diameter: 37.0mm American Eagle Liberty St Gauden’s Fine Gold Content: 1850–1907 1908–1932 1 Troy oz Fine Gold Content: Fine Gold Content: Fineness: 91.67% 22 Karats .9675 Troy oz .9675 Troy oz Diameter: 32.7mm Fineness: .900 21.6K Fineness: .900 21.6K Diameter: 34mm Diameter: 34mm American Buffalo Indian Fine Gold Content: 1907–1933 1 Troy oz Fine Gold Content: Fineness .999 24K .48375 Troy oz Diameter: 32.7mm Fineness: .900 21.6K Diameter: 27mm American Eagle Morgan Dollar Peace Dollar Fine Silver 1878–1921 1921–1935 Content: 1 troy ounce Fine Silver Content: Fine Silver Content: Fineness .999 Pure Silver .7734 Troy oz Fineness: .7734 Troy oz Diameter: 40.6mm 90.0%Pure Fineness: 90.0%Pure Diameter: 38.1mm Diameter: 38.1mm Walking Liberty Half Dollar Kennedy Half Dollar 1916-1947 1964 Fine Silver Content: Fine Silver Content: .36169 Troy oz. .36169 Troy oz. Fineness: 90.0%Pure Fineness: 90.0%Pure Diameter: 30.6mm Diameter: 30.6mm Modern Commemoratives Merc Dime 1982–Present 1916–1945 Fine Gold Content: .24187 Fine Silver Content: Troy oz Fineness: .900 21.6K .07234 Troy oz Diameter: 21.6mm Fineness: 90.0%Pure Diameter: 17.9mm Free Lakota Bank Ludwig von Mises Clean Silver Rounds “Crazy Horse” 2009 2009-Present Fine Silver Content: 1 troy Fine Silver Content: 1 Troy oz Fine Silver Content: 1 troy ounce ounce Fineness: .999 Pure Silver Fineness .999 Pure Silver Fineness .999 Pure Silver Diameter: 39mm Diameter: 39mm Diameter: 39mm HOW TO BUY To begin the process, all you need to do is call 800–686–2237. Our brokers will take your information and work with you to insure you are investing in coins that will meet your investment goals. When you have decided on an order, your broker will give you the total amount due and a trade number. The trade number will lock in your price for five business days and is a binding agreement for the purchase. Regardless of the fluctuations in the price of the metals after the trade date, the contracted price is binding on you and on us. In a busy market, prices change rapidly! You will send in your payment, either by check, money order or bank wire to Midas Resources within those five business days and the processing of your order will begin. Your broker will notify you when your order has been shipped and will give you a registration number to track your shipment online. All orders are shipped registered and insured by the U. S. Postal Service. The USPS requires signature upon delivery of registered mail and is the safest delivery method aside from picking it up yourself. Midas Resources has excellent record of delivery for over a decade. Our brokers are ready to answer your questions and help you get started. Your future is too precious to postpone. Don’t delay, call Midas Resources today. 1–800–686–2237
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