Monday, September 26th, 2016 MST

A Return to Hard Assets

April 2003

Investors, especially first-time investors, often ask if they are doing the right thing by investing in gold or silver. As a retailer of precious metals–now in its 30th year–CMI admits bias. Yet we believe that abundance evidence makes a strong case for gold and silver over the next few years, maybe the next few decades.

Conditions suggest that gold and silver slowly are being recognized for what they are: the only real forms of money. It was not that long ago (early 1800s to the outbreak of WWI) that the world, while on the gold standard, enjoyed solid growth. Additionally, that period saw declining prices, which meant that people were rewarded for savings.

During those 100 years, the world was without a serious economic decline. “Panics,” as they were called in those days, were regional, usually brought on by huge credit expansions and/or the printing of too much paper by banks. When depositors saw that the banks were misbehaving, they withdrew their funds, sometimes creating “bank runs.”

Historians usually paint the depositors as the bad guys, but they were simply exercising their right to withdraw their funds when the banks engaged in dangerous practices. Today, the Federal Reserve, the guardian [sic] of the dollar, the world’s primary reserve currency, is printing excessive quantities of dollars. The danger is that holders of dollars will cause a “run” as they switch to other currencies or safe havens such as gold and silver.

Not only are approximately 75% of central bank holdings in dollars, but dollars are used more than any other currency. One estimate has 75% of the world’s business done in dollars. So, a “run on the dollar” would result in financial losses and personal suffering not only for Americans but for people around the world. Such a disaster could cause paper money to be distrusted for decades.

That would not necessarily mean that governments would abandon paper currencies. Governments like paper currencies because they can be printed (and created electronically) with little cost. When the people prefer-or even demand-gold as the medium of exchange, governments can extract money from the people only through taxation, which puts governments at odds with the people because taxes are visible. Taxed directly, people know what their governments cost.

When governments print paper money (use inflation), “The process engages all the hidden forces of economic law on the side of destruction, and does so in such a manner that only one man in a million can diagnose it.” (John Maynard Keynes, circa 1920). Consequently, governments prefer paper money.

Nevertheless, after paper currency disasters, people distrust paper currencies (and governments). The bigger the disaster, the longer the distrust. With the dollar being the world’s primary reserve currency, we could be facing a monumental disaster that could send millions of investors worldwide into gold and silver, perhaps for decades. If so, because of the small amounts of gold and silver, they will increase in value relative to other commodities.

Recent developments suggest people around the world see the handwriting on the wall and are taking steps toward a return to hard money. India, the world’s largest importer and consumer of gold, just lowered its import duties on serial numbered gold bars from 250 rupees per 10 grams to 100. In making the announcement, the finance minister said, “We want to make India the gold trading capital of the world.”

If this were South Africa, a major gold producer, such a position would be easily understood. It would be an effort to stimulate interest in gold and to increase exports. However, India imports some 750 metric tons a year, while producing only about 100 metric tons. Obviously, India is betting on gold.

Meanwhile, China has liberalized gold ownership and opened the Shanghai Gold Exchange. Further, the Bank of China has added gold to its reserves (while continuing to amass dollars because of its trade surplus with the US.) Closer to home, US investors are turning to gold-and away from stocks-as evidenced by gold’s price rise over the last two years.

The Aden Sisters, long known for their gold analysis, view the situation this way: “The S&P has also formed a huge top, which is the most massive top ever built in the history of the U.S. stock market. This top formation was confirmed in 2002 when the S&P broke below the 950 level. Based on this technical pattern and the breakdown, the S&P could now eventually drop to the 550 level as a downside target. So this chart is telling us we’re in for a long lasting and grueling bear market in stocks. Interestingly, this is exactly the opposite of what gold is showing.

“As you can see, gold broke clearly above its two long-term moving averages in late 2001, just months after the stock market’s breakdown. This was a very bullish sign. Plus, in 2002 the moving averages turned super bullish when the 20-month crossed above the 40-month moving average for the first time in almost 10 years. Again, this strongly indicates that the bull market in gold is going to last for years and it’s still in its early stages.”

The Adens see “a new era in the making,” with investors losing faith in paper assets, and especially stocks. They forecast a mega trend, a change that comes every ten or twenty years. Go with the mega trend, the Adens advise.

So, when investors ask if buying gold and silver is the right thing, we say yes. The time is right for gold and silver.

Pensions in Jeopardy

Over the years, Monetary Digest has carried many articles that warned against relying solely on private pensions for retirement. The article below, The Unintended Consequences of Underfunded Pensions, contains John Mauldin’s observations about the current state of pension funds in America. For those who do not know, Mauldin is one of the foremost economic and market analysts of our time. His weekly email letters are eagerly awaited by thousands of readers. (To receive Mauldin’s letter, visit www.frontlinethoughts.com on the Internet.)

Because so many Monetary Digest readers are retirement age or are soon-to-be, Mauldin’s message is especially poignant. It shows that meeting pension requirements will strain corporate America and the many states and municipalities that have obligations to their retirees. Reading between the lines, many pension funds will fail.

The Unintended Consequences of Underfunded Pensions

by John Mauldin

I have written extensively about how corporations are misrepresenting their pension fund liabilities. Steven Kandarian, head of the US Pension Benefits Guarantee Agency which insures pensions and is financed by company-paid premiums, told the Senate Finance Committee that inadequate requirements have led to a $300-billion shortfall in the assets of company plans.

Typical is General Electric Co. which reported Friday that its pension plan contributed $806 million pretax to earnings in 2002. A footnote on page 27 in its annual report showed that it actually lost $5.25 billion, equal to 29% of the company’s pretax earnings.

They can do that because they assume their pension plans, which invest in stocks and bonds, will grow at 9%. Since bonds are only paying 6% or so, this means they assume the stock market will grow at 10-12% a year. If that happens, they will not have to take from profits and fund the pension plans. Of course, if the market does not grow that much, then they will have to take a hit to profits.

If actual pension liabilities had been counted in financial statements, aggregate earnings for the S&P 500 would have been 69 percent lower than the companies reported for 2001, or $68.7 billion rather than $219 billion, Credit Suisse First Boston Corp. found in a research study on pension accounting published in September. Morgan Stanley says the S&P 500 companies have $220 billion dollars in unfunded pension liabilities as of the end of last year.

I could do a whole letter on public company pension fund problems. But for most of us, the problem is not one which affects us directly. We can simply sell the stocks of companies which have pension fund problems, and we don’t have to buy S&P 500 index funds.

But there is a pension funding problem which dwarfs the public company problem, and which will directly affect your pocketbook. Let’s look at government pension plans, which your tax dollars must fund.

Wilshire Associates does an annual review of state pension funds. They released the 2002 study this week. Ugly does not begin to describe this paper. Let me give you a few of the more salient findings.

Of the 123 state retirement systems covered in the study, 79% are now underfunded. In 2000 only 31% were underfunded. At least nine states have pension fund liabilities that exceed their annual budgets. Nevada would have to devote 267% of its annual state budget to make up its current shortfall. Illinois would need 144% of its current annual budget.

It’s actually worse, as the study was done on reports from the retirement systems that were mostly done in June or July of 2002. Since the average fund has 63% of their investments in equities (both domestic and international) and the markets are down by 20% since last summer, it is very possible total pension assets might be down another 10% or close to $200 billion in fiscal 2003 unless we see a substantial rise in the stock market in the next three months.

As of the report, state retirement systems only had 91% of the assets needed to fund liabilities. This is down from 115% only two years ago. It is not unrealistic to think that it might be as little as 80% by the middle of this year.

And, of course, I have to go on to note that it gets uglier. Wilshire assumes that these funds will get a 7.5% return per year on total assets, which is only 0.5% less than the 8% the average state plans assumes they will get.

How realistic is that? As noted above, the average fund has 63% of its assets dedicated to equities, down from 64% last year. Since the stock market had a large drop in 2001-2002, that means they were selling bonds and putting any new revenue into stocks to maintain their stock/bond ratios. The consultants tell the boards this is a smart thing to do, because you don’t want to miss the next bull market. The boards buy into the logic, because the alternative is too hard to contemplate: lowering assumptions of future returns and thus requiring the states to ante up more money.

If you assume you can get 6% on your bond portfolio (which is aggressive, as most retirement funds are required to invest in high quality bonds which do not pay more than 6%), this means the average fund is assuming they are going to get returns of 10% per year on their stock market investments.

They basically assume that the market will double in the next seven years: Dow 15,000 here we come! An S&P 500 of 1700 is right around the corner. I wrote a few weeks ago about the tables at ww.decisionpoint.com which shows the current P/E ratio for the S&P 500 is 27.59. I can find no period in the history of the US markets in which 7 years after such a nosebleed level the stock market has averaged even 1%, let alone 10%. You can make an argument that from periods where P/E ratios hit their highs (generally in the area of 22-23), there were some periods where the markets averaged 3% the next seven years, but you can also find periods where the next 7 years showed actual losses.

But there are no examples of 10% from the P/E levels which we are at today. None. Nada. Zippo.

This week, the Financial Accounting Standards Board decided unanimously to review how options should be accounted for. As I predicted early last year, I believe they will decide to require companies to expense options. This will be a significant drag on earnings for many companies. Along with other stricter accounting requirements (see more below), the chances that earnings in corporate America are going to grow by 10% a year for the next seven years are remote.

There are those who will argue (and do so aggressively) that investors will ignore the new earnings and focus on pro forma earnings, and thus earnings could rise by 10-15% or more per year. I politely reply, “Nuts.”

After the next recession, and even more earnings disappointments, investors are going to be even more conservative than they are today in how they view earnings. The standards will get stricter, and many companies will have to work to get back to what they reported only a few years ago.

Nightmare on Pension Fund Street

Let me start with a worst case scenario, and then see if we can find a way to paint a better picture.

Today, there is something north of $1 trillion dollars in equity assets in the 123 state pension funds covered in this study. My back of the napkin analysis shows that pension fund estimates assume that the equity portion of the pension fund assets will grow by 10% or around $100 billion per year.

That means in 7 years and at 10% compounding, they are assuming there will be approximately $1 trillion dollars in growth from the equity portion of their assets. If the stock market is flat, they will be short $1 trillion in only 7 years, from a “mere” $180 billion shortfall today. If the market grows at 3%, the states will be down $750 billion from their estimates.

Can It Get Worse?

The Texas legislature is in session. In Texas, we regard large groups of politicians in one place as dangerous, so we only let the state legislature meet for five months every two years. I called one of the most knowledgeable long-time veterans in the legislature today and asked him how we are dealing with our Texas sized $19 billion dollar, public pension shortfall.

Bottom line: we aren’t. It is not on the “leadership” radar screen. For the first time, Republicans finally control both houses of the legislature and statewide offices. They ran on a no new taxes platform. They are scrambling, as is almost every state, to balance a huge budget deficit without raising taxes. It is doubtful they will be able to do it. It they had to kick in another $3 billion a year, or close to 5% of the state budget, just to get us to balance within 10 years, there would be panic in Austin. There is no way they could find another $2-3 billion a year without substantial new taxes.

This is typical of states throughout the union. It is much easier to assume 10% equity growth, increase funding a little and hope the problem goes away.

If we see a sustained secular bear market, there is no way that state governments can meet the kind of pension shortfalls I am suggesting are possible, which is precisely what I think is going to happen.

What will happen? Will the public pension fund world come to an end? No, politicians will eventually step in, when things start to get grim. There will be declarations of crisis and emergency, and to “save the system,” benefits are going to be cut or frozen. Future retirees will not be happy.

It is probable in many states that defined benefit plans will be changed to defined contribution plans. Some states will honor current retirees, but younger employees will not be able to retire under the current system.

The longer this secular bear market goes, the worse things will get and the more money states will have to come up with in the future.

The unintended consequences of the current policy of benign neglect will mean either future tax increases, cuts in services or both. As medical costs rise, the state funded portion of those costs will rise as well. The pension benefits for younger workers will be cut, and they will be forced to either save more or face a less robust retirement.

Unless steps are taken soon, it is possible we could see shortfalls approaching $1 trillion dollars in state sponsored funds by the end of the decade. A deficit of this size on state levels can truly be called a crisis. A tax increase or other adjustments to fund this will be a large drag on the economy.

This does not take into account the many municipal (police, fire and employees) and county pension funds, which have the same underfunding issues. The problem, in reality, is much larger than the 123 state funded plans discussed above.

Perth Mint
Lunar Gold Coins
Increasing in Popularity

In 1999, CMi began recommending the year 2000 1-oz Gold Dragon, which is the fifth coin in the Perth Mint’s 12-coin Lunar Series. The Series is based on the Lunar Calendar, and each year a coin is released coinciding with the Calendar. The Series started with the 1996 Rat; this year’s coin is the Goat (Some say 2003 is the year of the Ram, but the Perth Mint chose to go with the Goat.) The Series will end with the 2007 Pig.

CMi’s recommendation has turned out well as the 1-oz 2000 Dragon, which is the Series’ “key coin,” achieved a premium in the secondary market after the 30,000-coin cap was reached. (The Perth Mint is limiting production of the 1-oz coins to 30,000 each.) More important, however, the Series is becoming better known and is gaining acceptance with dealers and coin collectors alike.

When CMi began recommending the Dragon, it was the only coin of the Series that could be purchased from authorized distributors that buy directly from the Perth Mint. At the time, there was not enough demand to justify distributors tying up capital in the earlier coins; consequently, the earlier coins could be purchased only through “secondary market dealers” who brought the coins in from the Australian secondary market. This cumbersome process resulted in the earlier coins selling at higher premiums than the Dragons.

Now, because of increased demand, all the coins (except the Dragon) are being imported by authorized distributors. (CMi is not an authorized distributor.) The Lunar Series coins, as are Gold Eagles and Maple Leafs, are sold via the traditional manufacturer, wholesaler, and retailer distribution system.

Because of these changes, all the earlier Lunar coins now sell at the same markup over spot, which is only a few dollars more than the popular unlimited production bullion coins (Gold Eagles and Maple Leafs). Therefore, CMi recommends that investors who are buying gold coins for the long-term go with Lunar Series coins, preferably some of each. We believe that the increasing popularity of the 1-oz Lunar Series coins could result in all the Lunar Series coins reaching their 30,000-coin caps before the end of the Series in 2007.

In deciding which gold coins to buy, investors need to think about the conditions under which they would sell. For example, if gold were to spike to $450 and you were inclined to sell, then the lowest premium gold coins make the most sense because you get more gold for the money invested, which means you would receive a higher return on your investment. This makes Krugerrands a likely option because they sell at smaller premiums than the more popular Gold Eagles. (See also our Cheap Gold comments on pages 5 and 6.)

However, investors who believe that gold and silver have begun a long-term bull market that will draw in millions of investors will want to consider the Lunar Series coins. During sustained bull markets, unique coins often pick up premiums. Note: This is not an endorsement of old US gold coins (Double Eagles: $20 Saint Gaudens, $20 Libs, etc.). These coins already carry huge premiums. CMi recommends buying low premium coins that have the potential to pick up numismatic (collector) premiums. All the 1-oz Lunar Series coins, except the Dragon, which has already picked up a premium, are ideal for this approach.

The Lunar Coins are exquisitely-struck limited edition coins. Each is encapsulated in a protective capsule, and the Series is becoming better known. Long-term investors should make the Lunar Series 1-oz gold coins their first choice, even above the popular 1-oz Gold Eagles, which have unlimited production and are unlikely to achieve premiums during any reader’s lifetime.

In 2002, the US Mint sold 239,500 1-oz Gold Eagles; in 2001, the number was 245,000. So far this year, the Mint has sold 174,000 1-oz Gold Eagles. By comparison, the Perth Mint will sell only 30,000 of the 1-oz Gold Lunar Series coins for each year.

Often, investors tell us they want only to invest in gold coins for value of their gold content. Yet, these investors buy Gold Eagles instead of Krugerrands, which sometimes sell $10 a coin less than Gold Eagles. If cheap gold (i.e., coins with the lowest premiums) is the objective, then Krugerrands, Mexican 50 Pesos, and Austrian 100 Coronas make the most sense. (See Cheap Gold, next article.)

With the problems and challenges the world is facing, it is understandable why investors want to own bullion gold coins, and 1-oz Gold Eagle are the most popular bullion gold coins sold in the US. Still, when it comes time to sell, investors are not going to turn down higher prices if their coins have achieved collector status. We believe that the 1-oz Lunar Series gold coins have the potential to pickup sizeable collector premiums.

With all the 1-oz Lunar Series gold coins (the 2002 Dragon excepted) now selling at only a few dollars more than 1-oz Gold Eagles, buying the Lunar Series coins makes sense, and we encourage all readers who will be adding to their gold coin positions seriously to consider them.

Cheap Gold

Many investors simply want “cheap gold,” coins that have the smallest premiums over spot. The Krugerrands are the best known low-premium bullion coins and have sold-at times-$10 below Gold Eagles. (Krugerrands and Gold Eagles are identical in weight, size, and gold content. Both are 22-karat, which means they are 91.67% gold and 8.33% copper.) Presently, Rands-as they are dubbed in the gold coin business-sell at about $6 less than Gold Eagles.

Rands sell at discounts to Gold Eagles for several reasons. One, Rands are not advertised, whereas Gold Eagles are. Two, many US investors prefer US-made Gold Eagles to foreign coins. Three, Rands are “reportable” when sold back to dealers, but Gold Eagles are not.

For clarification, sales of 25 or more 1-oz Rands (by individuals to dealers) are reportable to the IRS on form 1009B. (The same reporting requirement applies to 1-oz Gold Maple Leafs.) However, 1-oz Gold Eagles are not subject to reporting. [Further clarification: No purchases of any gold coins are reportable, no matter the number of coins purchased or how much money involved.]

Because of this “reportability,” many investors avoid Krugerrands and buy the higher-premium Gold Eagles. Yet, other low-premium gold coins are not “reportable,” and at times they sell at even smaller markups over spot than do Krugerrands.

CMi recommends that investors wanting “cheap gold” look at the Mexican 50 Pesos and the Austrian 100 Coronas. Both coins were popular in the 1970s, before Krugerrands dominated the market. And, back in the late Ê»70s and early Ê»80s, when Rands carried premiums comparable to the premiums on today’s Gold Eagles, Mex 50 Pesos and 100 Coronas were the “cheap gold” coins.

Consequently, many investors who bought gold bullion coins in the 1970s opted for Mex 50 Pesos and Austrian 100 Coronas to avoid the premiums on Krugerrands. (Under Precious Metals Prices, this newsletter has posted Mex 50 Pesos and Austrian 100 Corona prices since it began publication.)

The Mexican 50 Pesos coin is the largest of the gold bullion coins commonly available. As stamped on the obverse, the coin contains 37.5 grams pure gold (1.2057 troy ounce). It is an alloy of 90% gold and 10% copper (21.6 karat), with a gross weight of 1.34 troy ounce. By comparison, Gold Eagles and Rands each contains one troy ounce of gold and have gross weights of 1.09 troy ounces.

The 50 Pesos were first minted in 1921 to commemorate the 100th anniversary of Mexico’s independence from Spain and are also known as Centenarios. Between 1949 and 1972, approximately four million pieces were minted, nearly all of them with the 1949 date.

The Austrian 100 Corona contains 0.98 ounce of gold and like the 50 Pesos is alloyed with copper. Also like the 50 Pesos, the Austrian 100 Corona is 21.6 karat, with a gross weight of 1.09 troy ounces.

As this is written, Rands are selling $6 less than Gold Eagles, but the Mex 50 Pesos and the Austrian 100 Coronas are selling $10-$11 per ounce cheaper than Gold Eagles. The prices at which the “cheap gold” coins sell are determined by the market. Specifically, the “supply of” and “demand for” Krugerrands, 50 Pesos, and Austrian 100 Coronas determine their prices.

Because the 50 Pesos and the 100 Coronas have not been minted for decades, at times they are not available. Now, however, when they are, and they provide an excellent way for investors to own “cheap gold.” For more information on and photos of the Mexican 50 Pesos and the Austrian 100 Coronas, visit www.goldcoinguide.com.

Silver Infrastructure Disintegrating

Despite silver’s dismal price performance over the last two years, CMi believes that as this precious metals bull market continues silver will produce greater gains on a percentage basis than will gold. Historically, silver has always outperformed gold in precious metals bull markets. We see no reason why this bull market should be any different. In fact, looking at the developments in silver over the last fifty years suggests that sometime in the future a huge price increase lies ahead for silver.

In the 1960s, in an effort to keep silver at the “official” price of $1.29, the US government sold most the 2.1 billion ounces of silver in the Strategic Defense Stockpile. (In 1986 when the US Mint began turning out Silver Eagles, the government had 166.8 million ounces. In 2002, President Bush signed a law that permits the Treasury to buy silver on the open market to continue the Silver Eagle program. Between 1986 and 2002, the US Mint had used up the last of the greatest hoard of silver ever accumulated. Most of the silver, more than 100 million ounces, went for the production of Silver Eagles, but the Mint’s collectible coins program consumed during those 17 years some 60 million ounces.) However, shortly after the effort to hold silver at $1.29 ended, the price of silver began a bull market that ended in January 1980 with silver hitting $50.

Then precious metals entered a bear market that took silver to $3.50 in 1993. Since then, silver has had some spurts and starts but has failed to put in any strong moves, the exception being early 1998 when Warren Buffett took delivery of his 130 million-ounce purchase. Buffet’s move temporarily lifted silver to $7.50.

The important aspect is what happened to the 2.1 billion ounces that the Treasury sold in 1960s. Basically, that hoard was used to meet increasing industrial demand over the next fifty years. In 1960, industrial demand for silver was 260 million ounces. In 2002, industrial users required an estimated 861 million ounces.

But, because of the enormity of that hoard, the need to find new silver deposits was not necessary. Silver users lived off the dispersed government stockpile. Now, however, aboveground supplies are reaching “critically low levels” (CPM Group’s words).

And, much of the aboveground silver is controlled by investors who are looking for significantly higher prices. Further, much of it is held by people seeking a safe haven against the ravages of paper money. These people have no set price at which they will sell; they simply want a hedge against the declining purchasing power of paper currencies. This does not mean only dollars, but all the paper currencies that are being printed around the globe.

Although a few individuals glommed on to some of the government’s silver, most of it ended up in commercial warehouses, after it had been refined into “good delivery” bars that could be used to settle commodities exchanges’ contracts. (Only occasionally do “US Assay Office” 100-oz silver bars show up. US Assay Office bars are unique and can be called “Americana collectibles.”) With most of the silver being in warehouses, the aboveground supply of silver could easily be tracked.

That tracking shows a huge decline in aboveground supplies of silver, which have declined so much that some precious metals warehouses have gone out of business. Additionally, several major bullion houses closed their trading desks, and financial institutions that had for decades had lent money against silver purchases (for speculation and for industrial purposes) shuttered their operations as well.

The infrastructure that supported the silver market is falling apart. (Only a decade ago, an order for 100 bags of pre-1965 US 90% silver coins could have been filled with a phone call to any one of five to ten bullion houses. Today, an order for fifty bags would take several phone calls. To further illustrate the shortage of bags, if you wanted to buy fifty bags, they would cost you more-on a per bag basis-than if you bought three or four.)

If silver were going the way of buggy whips, the faltering infrastructure would be understandable. But, that is not the case for silver. Since 1960, the industrial demand for silver has grown three fold. Silver is a growth industry because our modern economy cannot do without this essential metal. Yet, the infrastructure that delivers silver to the market is falling apart-and aboveground supplies are dwindling to “critically low levels.”

Organizations that track silver supplies also keep tabs on production and demand, noting whether silver is in “surplus” or “deficit.” Since 1990, silver has been in deficit. CPM Group calculates that since 1990, 1.5 billion ounces of the aboveground supplies have been used to feed industry’s voracious appetite. Basically, silver users have lived off the 2.1 billion-ounce stockpile that the US government sold in the 1960s. Now, that their cheap source of silver is drying up, what will the silver users do?

The only solution is for the price of silver to rise to levels that will encourage exploration for new deposits and that will make old mines economic. However, with silver’s dismal price performance over the last ten years (The price of silver went no where.), financiers will not be eager to fund new projects unless they are confident that their investments are secure.

Silver will have to turn in a stellar price performance before we can expect any significant increase in production. It also means we can expect a volatile silver market-after silver breaks the bonds of the Comex traders (and the Silver Users Association) who have held it hostage for so long. Over the past year, silver has not had the run that gold has, but its day is coming. Every precious metals investor should have some silver in his or her portfolio.

Recommendations

Silver

Circulated 90% silver coins remain a popular way to invest in physical silver. However, 90% bag premiums are rising because few bags are sold when silver is below $5. Even fewer are sold when silver slips below $4.50. Further, the Y2K buying in 1998 and 1999 helped send thousands of bags of 90% to the refiners’ furnaces.

Y2K buyers had no commitment to silver. They did not understand money. They simply feared that their local ATMs would quit spewing $20 bills or, worse, their banks would close. So, they bought pre-’65 US 90% silver coins to have “real money,” as they were told to do by Y2K doomsayers.

When January 1, 2000 rolled around and Y2K turned out to be a nonevent, the Y2K crowd started selling. And, they sold, and they sold, clear into 2001. Because the silver market was weak-helped a great deal by Y2K sellers-tens of thousands of bags of 90% coins were melted. So, the increasing premiums on bags of 90% are because there are not as many bags around as there used to be. While silver is below $5, 90% bag buyers must get used to higher premiums. When silver gets above $5, more bags will come into the market. Higher prices always bring out sellers.

100-oz 999 fine silver bars are a convenient way to invest in physical silver. They stack and store compactly. Buyers who want pure silver and silver in a versatile form will want to consider 1-oz silver rounds. For more information on and photos of 100-oz bars and 1-oz silver rounds, visit www.silvercoinguide.com on the Internet.

Gold

We have given gold coins a good discussion under Cheap Gold on pages 5 and 6. Further, our article on the Perth Mint’s Lunar Series gold coins states our reasons why investors should consider those coins.

Platinum

CMi believes that platinum is too high compared with gold and silver and should be avoided at this time. We have said this for more than two years.

Investors wanting to discuss these recommendations with CMi staff are invited to call. Our toll-free number is 800-528-1380. We take calls between 7:00 a.m. and 5:00 p.m., MST, Mondays through Fridays.

Actually, we often take calls much later than 5:00 p.m., and we sometimes take calls before 7:00 a.m. Sometimes we take calls on Saturdays.