July 2007
The Perth Mint will accept final orders for its popular Lunar Series coins at the end of June. With the year 2007 Pig coins now available, all twelve gold coins in the Lunar Series have been minted and the Series is complete.
Through June 25, 2007, CMIGS will accept orders for all of the Lunar Series coins that have not reached their production caps. To date, only three coins of the 12-coin series have reached their production caps: the year 2000 1-oz Gold Dragon, the year 2001 1-oz Gold Snake, and the year 2002 1-oz Gold Horse.
The Mint expects to complete the final orders in July but said that production may go into August. After the final coins are shipped, The Mint will destroy the dies and announce the mintages of all the coins.
The Mint anticipates a rush of last-minute orders as the Series has become quite popular with collectors. The first two coins to reach their productions caps, the 1-oz Gold Dragon and the 1-oz Gold Horse, command premiums in the secondary market. The year 2001 1-oz Gold Snake was the third coin to sell out but still trades at bullion coin prices.
The success of the Lunar Series is a tribute to both the quality of the coins produced at The Perth Mint and the popularity of the Chinese Lunar Calendar. No more beautiful and exquisite coins are minted anywhere, and nearly every adult knows his or her Lunar Calendar birth year.
Collector Coins at Bullion Coin Prices
The success of the Lunar Series can also be attributed to the fact that The Perth Mint priced the Lunar Series gold coins at bullion coins prices. Although The Mint turns out collector coins with huge markups, it chose to price the Lunar Series gold coins so that they would be competitive with American Gold Eagles, which have been the world’s best-selling gold bullion coins for many years.
Offering the Lunar Series gold coins at bullion coin prices attracted bullion coin investors, many of whom saw the beauty of the coins and became collectors. Pricing the Lunar Series gold coins at bullion coin prices also resulted in three of the 1-oz gold coins reaching their production cap of 30,000.
Now, the Lunar Series coins that have not reached the 30,000-coin cap will be “capped” at the number sold through June. Closing the Series will present an interesting situation for collectors.
Originally, there was the perception that each coin would be produced until the coin for that year rolled around again. For example, the Year of the Rat (1996 in the Series) will cycle again in 2008. So, it was thought that the year 1996 Rats would be produced until The Mint began production of the 2008 Rats. But, that is not to be. Production of all Lunar Series coins will end this summer, and it presents an interesting, and perhaps quite profitable, situation.
Although The Mint will be producing a redesigned year of the Rat coin for 2008 in October 2007, it will not be producing any other coins associated with the Lunar Calendar until those years roll around. This means that anyone wanting, say a Perth Mint Lunar Tiger, will have to buy a 1998 Tiger coin in the secondary market or wait until 2010 when the next Year of the Tiger arrives. Buyers wanting a Year of the Dog Perth Mint coin will have to buy the 2006 Dog coin in the secondary market or wait until 2018 when the next Year of the Dog comes around.
Until June 25, the year 2006 1-oz Gold Dogs will still be available at new 1-oz Gold Eagle prices. And, the other coins still being minted will be available at only 1% higher, which essentially means that now all 1-oz Lunar Series gold coins are available at bullion coins prices. Practically, though, investors and collectors wanting additional Lunar Series coins should not wait until the last minute to order as the ordering process from Australia can be cumbersome.
In the years ahead as gold rises above $1000, and at CMIGS we are confident it will, we do not know if collectors will continue to put premiums on the Lunar Series 1-oz gold coins. Gold above $1000 will put a whole new perspective on coin collecting.
However, with all the other 1-oz Lunar Series gold coins essentially available at bullion coin prices, buying them appears to be an attractive investment for investors who can hold on for two or three years.
In two or three years, gold prices should be much higher, making gold purchases at present price levels profitable. Going with the 1-oz Lunar Series gold coins, which collectors have shown they like, gives investors two ways to profit: from an increase in the price of gold and potentially from collectors continuing to put premiums the coins. Investors who bought Dragons and Horses a few years ago have enjoyed prices increases well beyond gold’s price rise.
A Second Lunar Series
Officially, The Perth Mint now calls the 1996-2007 Lunar Series coins its First Series. Lunar coins beginning with 2008 Rats will begin a Second Series. However, the coins in the Second Series will be quite different from the First Series coins in a number of ways.
Whereas the First Series 1-oz coins are 32.10 mm in diameter and 2.80 mm thick, for the Second Series The Mint is looking at a diameter of 38 mm and a thickness less than 1.8 mm, which will make the coins in the Second Series close in size to the 1-oz Austrian Philharmonics. The dimensions change means there will be no confusing the First Series coins with Second Series coins, and, of course, there will be the differences in the dates.
Although The Mint calls the 1996-2007 series its First Series, the marketplace appears ready to call it the Queen Series. All the coins in the Series bear the likeness of Queen Elizabeth II; and the first coin in the Second Series, the year 2008 Rat, will carry the official image of the Queen. However, should the Queen pass before the Second Series is completed, the coins minted after her death will carry the likeness of her successor, which right now is Prince Charles.
The Prince is not nearly as popular as the Queen. In fact, he has a negative image with many people. The Prince’s negative image undoubtedly stems from the fairy tale marriage to Princess Diana that ended in a tabloid nightmare for Buckingham Palace. Having two different royalty images on the Second Series coins could make the Second Series less popular and could increase interest in the First Series, which is a homogenous series with the Queen’s likeness on all coins.
Another feature that should make the First Series–let’s start calling it the Queen Series right now–the Lunar Series is that it contains the year 2000 Dragon, the key coin in the Queen Series for a number of reasons.
The dragon is China’s icon but is immensely popular in all Asia. Still more important is the date of the Dragon: 2000. When the dragon year fell on 2000, it was the first time the Year of the Dragon started a new millennium in modern times. That alone will make the Queen Series unique.
Cmigs’ Most Successful Recommendations
The Dragons and the Horses have become our most rewarding recommendation, with clients who purchased the Dragons and the Horses being rewarded with premium increases beyond what we thought possible. Although many coin dealers now promote the Queen Series, it was CMIGS that made the Series known in the United States.
We learned of the Series in 2000 when a client from Hawaii wanted to put 1-oz Gold Dragons in his IRA. Our first call was to the largest precious metals dealer in the US and a major importer of Perth Mint bullion coins. “Sorry, we don’t see enough interest in the Series to carry the coins,” we were told. We turned to a smaller importer and placed an order for 800 one-ounce Gold Dragons.
We then looked at what the Series offered, basically collector coins at bullion coins prices, and started recommending the 1-oz Gold Dragons to our gold bullion investors. In 2002, the year 2000 1-oz Gold Dragons reached their production cap of 30,000 coins, with CMIGS selling nearly 11,000 of the coins.
In 2005, the year 2002 1-oz Gold Horses also reached the production cap of 30,000 coins. Again CMIGS sold nearly 11,000 of the coins. The year 2001 1-oz Gold Snakes reached the cap in 2005, and again CMIGS sold nearly 11,000 coins.
By 2002, when the 1-oz Gold Dragons sold out, other dealers learned of the Series and began promoting it. Now, many dealers promote the Queen Series, but primarily as collector coins with high premiums. The Queen Series stands a good chance of becoming a true collector series.
The Dragons’ and the Horses’ premiums are attributed primarily to the popularity of the creatures on the coins but also to the active coin market that was spawned by gold’s rise from $480 in November 2005 to $725 in May 2006. Whenever prices stall, such as right now as this letter is written, interest in gold and silver and coins wanes. That is a feature of the early stages of a precious metals bull market.
(In the early stages of a precious metals bull market, it takes weeks of consistently rising prices to cause many investors to act. The rising prices give confidence. When prices suffer declines, which occur in all bull markets, buying slacks off.
(In the latter stages of bull markets, investors readily buy dips, as years of rising prices give them great confidence. In the early stages of bull markets, however, investors are less confident and wait for prices to turn up before buying.
(But, after years of rising prices, even with dips, investors become confident that they are right and buy dips. Frankly, investors who are not influenced by rising prices but know why they are investing in precious metals make the most money.)
When gold and silver have additional sustained run-ups, we expect investors and collectors again to become interested in collector coins and the Lunar Series. Right now, it is a quiet metals market.
A Unique Closing to the Lunar Series Silver Coins
Although CMIGS never recommended the silver coins from The Perth Mint’s Lunar Series because of their high premiums, many clients bought the silver coins after seeing them in the Lunar Series brochures that we have enclosed with issues of Monetary Digest. Because many clients bought the silver Lunar Series coins, we feel compelled to discuss the unique way that the silver Lunar Series coins will be closed.
To bring everyone up to speed, The Perth Mint began production of the gold Lunar Series coins in 1996 with the year of the Rat, but did not produce silver Lunar Series coins until 1999, with the year of the Rabbit. Now, The Mint is going to close the Series this summer, with the last day of ordering being June 25, 2007.
So that collectors of the silver Lunar Series coins can have all twelve years of coins, The Mint is going to produce those missing three years, the 1996 Rats, the 1997 Oxen and the 1998 Tigers after taking final orders. The coins will be consistent with the other nine coins already minted, with one slight difference.
The nine already minted carry their coinciding Lunar Calendar dates on the reverse, and so will the three yet to be produced. However, the obverses of the three coins will have 2007 on them. The Mint will produce seven sizes of silver coins for the three years.
New Lunar Series Website
A website dedicated to The Perth Mint Lunar Series has been put up. See it at www.lunarcollectorcoins.com. The information provided there is in addition to what can be found on cmigs.com.
CMIGS Launches Gold and Silver Blog
CMIGS has begun an Internet blog that will deal primarily with gold, silver, and money. Specifically, we plan to restrict the blog to aspects of gold and silver that we think will be of interest to our clients. We also will use the blog to keep our clients informed as to recent developments concerning the products we buy, sell, and recommend. The blog will be a quick and easy way for CMIGS to update clients on developments that do not warrant an Article of Interest, another feature of our website.
Other topics will include, but not be limited to, changes in supply/demand statistics, new industrial uses for the metals, changes in central bank gold holdings, and financial developments around the world that usually affect precious metals prices. Obviously, we will discuss the deteriorating financial condition of the federal government and the United States as such pertains to the American people as a whole.
Our comments about money will encompass a wider range of topics, such as budget deficits, trade deficits, the money supply, fractional reserve banking, and other matters that impact the price of gold and silver. At times, we will comment on opinions that appear on other blogs and websites devoted to precious metals. All such comments will aimed at further clarification and understanding of the topics.
The history of paper money and money itself have always been favorite topics here at CMIGS and probably will be frequent topics on the blog.
Daily posts on the blog are not planned, but will be written when we believe them appropriate. At times, however, posts may be daily, maybe even several times a day. Quiet times in the precious metals markets will probably result in fewer posts. But, with the current state of world affairs economically, financially, and geopolitically, quiet periods may be few and far between.
To inform clients when posts are made, we will put notices on our Daily Prices and our Articles of Interest. If you are connected to the Internet but have not signed up for our Daily Prices or our Articles of Interest, you are encouraged to do so.
Our Daily Prices emails give the spot prices for gold, silver, platinum and palladium as of the close of trading on the COMEX in New York, further showing the change from the previous day’s close and prices for a week ago, a month ago, and a year ago.
Articles of Interest are sent irregularly. Sometimes they are original CMIGS articles; sometimes they are from other sources.
Daily Prices and Articles of Interest have proven to be popular with subscribers. They are easy to unsubscribe if you later do not want to receive them.
By subscribing to Daily Prices and/or Articles of Interest, CMIGS’ clients will have an easy, convenient way to find out when posts have been added to our new blog.
The Federal Reserve and the Presidential Election
For the first time since the creation of the Federal Reserve System, it has been injected into a presidential election. Albeit in a small way, the Fed is becoming an issue in the 2008 presidential election.
Republican presidential candidate Ron Paul, a member of the House from Texas, has often been the only voice in Congress for gold and the gold standard. Understandably so, for Ron Paul has long studied the works of the great free market economist Ludwig von Mises, who exposed the fallacy of a central authority controlling the money supply.
Further, in 1982 Ron Paul served on the U.S. Gold Commission, which was formed to evaluate the role of gold in our monetary system. In fact, the Commission was Paul’s idea, and forming the Commission carried forth a promise made in the 1980 Republican platform. Although the Commission was Paul’s idea, he could not select the Commission members and from day one fought an uphill battle.
After serving on the Gold Commission, Ron Paul coauthored The Case for Gold with Lewis Lehrman, a 2005 National Humanities Medal recipient. In discussing the case for gold in a monetary system, a thorough discussion of the Fed and central banking is necessary.
When the Fed came into existence, Americans were told that it would put an end to “economic panics,” the scare term of late the 19th century and early 20th century. In the 1930s, however, the Fed-caused Great Depression made “economic panics” look like rainy days, and today the great scare term is “depression.” (The best book on the Great Depression and how the Fed caused it: America’s Great Depression, by the late Murray Rothbard.)
A depression is, of course, an extended and deep recession. Supposedly, according to Establishment lore, the Fed has prevented depressions since the 1930s, giving us only recessions.
In calling for a return to the gold standard to end business cycles, which give us either credit-induced false booms (the last 15 years) or recessions, Ron Paul has been called “anti-government.” One Ron Paul critic said the neocons were much better than Paul, since at least they would not try to scale government back. Such is the criticism of Paul for his advocacy of the gold standard and smaller government.
In past campaigns, the promise of scaling back government has long been a popular promise, primarily of Republicans but sometimes Democrats. It always has been a false promise. Government continues to grow, even when Republicans such as Ronald Reagan gain office. More recently, George W. Bush railed against big government when campaigning, but look what we have now.
The Federal Reserve System and its ability to create money out of thin air facilitate big government. If the Fed did not exist, the government would have to raise funds either by increasing taxes (a politically dangerous thing to do) or by borrowing in the marketplace, competing with businesses and individuals also wanting to borrow. Government borrowing would increase interest rates and be detrimental to the economy.
So, to finance our welfare state, our wars, and a few good things such as highways, the federal government hands the Fed little pieces of paper called treasury bills and treasury bonds. The Fed, in turn, credits the federal government’s checking account in amounts equal to the face value of the bonds, and new money is created, right out of thin air.
Actually, the process is a little more cumbersome than described, as the federal government cannot, by law, borrow directly from the Fed, which means that when the federal government does borrow it has to go through Wall Street, which allows the major bond houses and banks to make billions.
The present borrowing scheme is a gift to favored special interests, for there is no reason for the federal government not to be able to borrow directly from the Fed. Taking it a step further, there is no reason for the Fed when it comes to the federal government borrowing money.
Instead of the Fed creating the new dollars (and collecting interest on money that did not exist before the federal government needed to borrow), the US Treasury could order the Bureau of Engraving and Printing to create the dollars, saving billions in interest. (Not recommended by this writer, but at least it would cut Wall Street out of the process.)
If the gold standard becomes a major issue in this presidential campaign, the American people can only benefit. Americans have little understanding of money and the deleterious effects of central banks (The Fed is our central bank.) Americans would need to be much more knowledgeable about the Fed before it could be eliminated.
Presently, most Americans put the Fed on a pedestal. An understanding of how the Fed really works would cut the legs from under that pedestal. A small, excellent book on the Fed is Murray Rothbard’s The Case Against the Fed.
Meanwhile, Americans wanting honest money need to become more knowledgeable about money and the Fed, and they need to encourage a debate in this presidential election about returning to the gold standard. An excellent book on the gold standard is Murray Rothbard’s The Case for a 100% Gold Dollar.
All the books mentioned can be bought from the Ludwig von Mises Institute. Their website is www.mises.org. Look under the publications tab.
CMIGS’ Hours
Longtime CMIGS’ clients have gotten used to it, but for new customers CMIGS’ hours sometimes get confusing. The confusion stems from the fact that Arizona does not go on Daylight Savings time. This means that while the country is on Daylight, Arizona is the same as Pacific Time. During the winter, we are on Mountain Time.
CMIGS takes calls 7:00 a.m. to 5:00 p.m. MST, Mondays through Fridays. Unlike many businesses, we have not gone to an automated answering system. A person answers at CMIGS. However, at times our lines get overloaded and some calls are routed to voice mail. When that happens, please leave your name and phone number so that we can return you call.
The Mother of All Double Tops Fails
Past issues of Monetary Digest discussed the possibility of the stock market having put in, according to Dow Theory, a double top, one that we said would be The Mother of All Double Tops. When the last Monetary Digest was written in the fall of 2006, the possibility of a double top was still in place.
However, since then the stock market has gone on a tear, hitting new highs on not only the Dow Jones Industrials Average but also the DJ Transportation Average and the DJ Utilities Average. Had a double top formed and stocks subsequently fallen, it would have been a major boost for precious metals.
We did point out that “there is a fly in the ointment” with the double top analysis. We wrote:
Since 1998, the Federal Reserve System has pumped quantities of money into the system that can only be described as gargantuan. That money had to go somewhere, and much of it has found it way into stocks. So, a horrible fall in stock prices may not be in works as that money re-circulates itself on Wall Street.
Not only did a double top not develop, stocks climbed to record highs. Still, looking at what the US economy faces, it is difficult to understand why stocks are performing so well. It should be pointed out, though, that at times stocks do lose touch with reality. Perhaps this is one of those times.
For the times ahead, we still like core holdings of gold and silver, the only two monies that have stood the test of time.
Digesting the Gains
To many precious metals investors, the last twelve months have been disappointing. In May 2006, gold and silver hit prices not seen in decades, with gold trading at $725 and silver at $15.40. Before the decline set in, investors were euphoric. But, when the inevitable correction came, it was brutal and euphoria turned to gloom for those investors who dismissed the warnings of the correction. Still, those investors who like to buy dips reveled in the price corrections.
Since the correction, prices have been quite volatile and have traded below their May 2006 highs. A look at gold and silver prices is in order.
From November 2005 to May 2006, gold climbed an enormous 50%. Going back to May 2005 as silver’s starting point, it doubled in price by May 2006. These were huge gains, and now the market is digesting them.
Chartists would say the markets are going through “a period of consolidation.” We say the market is “digesting the gains.”
Only a few years ago, gold was under $300 and showed no sign of moving higher. Silver traded below $5.00. By late 2005, gold was in the $480 range, have enjoyed solid gains. Silver was in the $7.00 range by early 2006. Then they started up.
Now, investors have to get used to buying at much higher prices. It takes time for investors to come to grips psychologically with higher prices. After time, however, investors come to realize that higher prices are the norm and return to the market.
Palladium
Although palladium is not a monetary metal, it is a precious metal and is marketed by many of the same entities that produce gold and silver products. For example, the Royal Canadian Mint, which turns out Gold Maple Leaf coins and Silver Maple Leaf coins, produces Palladium Maple Leaf coins. PAMP, a major Swiss refinery, produces palladium bars, and PAMP produces the Credit Suisse palladium bars.
Consequently, CMIGS buys and sells palladium (and platinum) products. However, we rarely recommend palladium and platinum because, strictly speaking, they are not monetary metals. Still, we comment on them in this newsletter from time to time because of investor interest.
The best source of information on palladium (and platinum) is Johnson Matthey, a major player in the palladium and palladium market. JM’s annual review on platinum and palladium has just been released. Before any CMIGS clients make any big investments in palladium, we recommend they study the review, which is available in pdf format on the Internet at www.platinum.matthey.com.
Several aspects of the palladium market are worth mentioning. First, the primary consumer of palladium is the autocatalyst industry, which annually makes up some 60% of annual consumption. A worldwide recession would hit auto sales hard and lessen demand. However, continued economic expansion should keep auto sales strong. Because we fear a recession, we urge caution in the palladium (and platinum) market.
The second aspect is the emerging palladium jewelry market in China, a relatively recent phenomenon. Basically, palladium for jewelry did not get started in China until 2004. Therefore, in 2004 and 2005, China’s jewelry industry was “filling the pipeline,” which required big quantities of palladium.
So, in 2006, when demand for palladium in China fell 50%, it was interpreted by many to be negative for palladium. In reality, the Chinese palladium market is still emerging and potentially stands to be a huge factor in the demand for palladium. Again, we urge investors to visit the Johnson Matthey website and study the JM Platinum Review, which contains an analysis of the palladium market.
Recommendations
As has been our position for years, we recommend that precious metals buyers who are hedging against further declines in the value of the dollar go with as much silver as possible because historically silver has always outperformed gold in precious metals bull markets. In this bull market, we expect silver to show a still bigger percentage gain than gold because the industrial demand for silver outstrips production.
Silver
Presently, circulated pre-1965 90% silver coins offer investors the best value, meaning buyers get more silver for the money. Circulated 90% silver coins are selling close to at spot, sometimes a little below spot.
Circulated 90% silver coins are also called “junk” silver coins because they have no collector value. Junk silver coins are the most cumbersome to store. Investors using safe deposit boxes will probably want to go with .999 fine 100-oz silver bars because they stack and store compactly.
The low premium on 90% coins is evidence of a lack of public participation in the market. When the public comes in, we expect them to put premiums on forms of silver that are limited in number. In the case of pre-1965 US 90% silver coins, they will probably never again be minted. And, huge quantities are sent to smelters daily, meaning that are fewer 90% silver coins today than yesterday, and tomorrow there will be fewer 90% silver coins than there are today.
For investors wanting a pure silver play and silver in a convenient form, 100-oz bars are recommended. As this is written, 100-oz silver bars are selling for $.40/oz over spot. However, on big price drops premiums can increase as bargain buyers rush into the market.
Investors wanting pure silver and “survival coins” should go with 1-oz silver rounds. Engelhard Prospectors are selling at $.70 over spot. Generic 1-oz silver rounds sell at $.45 over.
Gold
Investors who want “cheap gold” should go with Krugerrands, which are selling at $18 or so below back-dated Gold Eagles. As this is written, back-dated Gold Eagles are selling at $4-$5 below new 2007-dated Gold Eagles, which puts Krugerrands $22-$23 back of new Gold Eagles.
Investors who are inclined to buy new Gold Eagles should consider any of the 1-oz gold coins from The Perth Mint’s Lunar Series (See article on page one).
Still more information on the Lunar Series can be found on our website cmigs.com and on a new website dedicated to the Lunar Series, www.lunarcollectorcoins.com.
Platinum
CMIGS continues to believe that platinum is too high compared with gold and silver and should be avoided at this time. We maintain that the primary reason for owning precious metals is to protect against a decline in the value of the dollar. Gold and silver are proven to do that as they are monetary metals. Platinum and palladium are industrial metals.
Palladium
Investors wanting to discuss these recommendations with CMIGS staff are invited to call. Our toll-free number is 1-800-528-1380. We take calls between 7:00 a.m. and 5:00 p.m., MST, Mondays through Fridays.
Be aware that Arizona does not go on Daylight Time, which means during the summer we are the same as Pacific Time. When the nation is not on Daylight Time, we are on Mountain Standard Time.