Gold or How Silver? the Smartest Coin Investors Know When It s Time to Buy An exclusive sponsored report from our friends at
2016 has been a huge year for the precious metals market. You probably knew that. What you might not know is how to best take advantage of it as a numismatist and investor in U.S. coins. You often hear about the gold and silver markets in the same breath. That s not a shock. In general, when one is surging, the other probably is, too. We naturally connect the two markets, but they move at different paces and with different levels of volatility, and therefore harbor different kinds of investments. Just because both gold and silver are up in 2016 gold is up 21 percent since the start of the year and silver is up 35 percent does not mean that investing in them should be done in the same way or with the same rationale. How can a coin collector take advantage of strong gold and silver markets? Buying bullion the coins and bars that are sold not as numismatic collector items but simply as chunks of their respective precious metal can be expensive. Though you re not paying a numismatic premium for a bullion coin s collectability, often a gold or silver American Eagle or Maple Leaf coin has passed through several levels of the bullion market by the time it gets to your portfolio and has accumulated significant retail premiums along the way. And, after all, you re a numismatist. You re a coin collector. If there s a way to invest in the gold and silver markets while at the same time adding historyrich coins to your collection, that s a win-win. That s having your cake and eating it, too. To accomplish this two-pronged goal, however, you need to understand both the numismatic and precious metals markets. You need to know the relationship between the gold market and the silver market, what approach smart investors take within those markets, and how to know when the time is right to expand your gold or silver holdings. That last one, knowing when the time is right, is where we ll start. And we ll begin with the one number you need to be tracking.
Know the Gold/Silver Ratio The Gold/Silver Ratio (which we ll refer to as the GSR going forward) is a critically important number for any precious metals investor, especially for one trying to determine whether or not to increase their gold and silver assets. That s because the GSR has been a reliable indicator for coming changes in the gold and silver market, giving investors insight into whether they should expand or scale back their purchases. The best part of the GSR is how easy it is to calculate. Simply put, the GSR is the number of ounces of silver it takes to equal one ounce of gold, according to the two metals spot prices at any given time. So if an ounce of silver is worth $20, and an ounce of gold is worth $1,000, the GSR is about 50. If gold rises to $1,250 and silver falls to $17, then the GSR at that point would rise to about 74. A typical GSR is between 35 and 50. In 2016, it s been much, much higher. Right now, the GSR is around 70, coming down from a high of 83 in March. The magic number for the GSR is 80, which in recent decades has proven to be a consistent market turning point that signals to investors they should increase their gold and silver holdings. Over the last 25 years, a GSR of 80 has been hit just four times the fourth and most recent time was this past March. Each of the three previous times it reached 80, the GSR has dropped drastically 40 percent to 60 percent over the ensuing 12 to 18 months. This phenomenon happens at the start of a bull market for gold and silver. Gold typically leads the way and rises first. Then silver follows. So the difference in price, at the outset of the bull market, between the surging gold and the still-stagnant silver widens, leading to a high GSR. Eventually, the silver market picks up, the silver spot price starts to outpace the gold spot price, and the GSR normalizes back to between 35 and 50 as both gold and silver prices rise. So while the GSR has dropped below 80, there is still time to get in on the bull market while the GSR is on its way down. At 70, there is still a long way to go. Does a high GSR signal that it is time to buy silver, or that it is time to buy gold? The answer depends on what your goal is as an investor.
Looking for insurance? Go with gold. After reading about the GSR, you might be thinking to yourself, When the GSR is high, that means I should stay away from gold because it is carrying an inflated price. Not exactly. A high GSR does not mean that the price of gold is generally high and will soon be on its way down, it only means that the price of gold is relatively high compared to the price of silver. In fact, a high GSR, being a signal for an oncoming bull market, means good times are ahead for investors in gold especially investors taking the long view and looking to insure his or her portfolio. Gold as a commodity has always been, and continues to be, a safe-haven asset. Your success investing in the stock market depends on the business performance of the companies you buy stock in. Your success investing in the currency market depends on the economic well-being of the countries whose currencies you accumulate. But gold is gold. Its value is simple and indisputable. Its value is in its rarity as a material. A company can go out of business, and a country can go into recession. These are developments that would heavily devalue investments in that company or that country. There will not, however, in our opinion, come a day when we as a global society up and decide gold is worthless. (Especially when those aforementioned companies are going out of business and those aforementioned countries are going into recession!) Though its price-per-ounce does change as demand fluctuates, gold is something you can purchase and store away so that, if and when markets crash, you have a hedge against the negative turn. Wealth insurance purchases of gold should be bought and held, and sold only if you have a financial emergency, said Rich Checkan, president of Asset Strategies International, Inc. The GSR does not change this basic nature of an investment in gold. Whether the GSR is high or low, a gold investment remains a long-term insurance purchase. What a high GSR indicates is simply a good opportunity for expanding those long-term gold holdings. If you treat gold as the long-term investment that it should be, then the value of your inventory will rise and fall with the ever-changing spot price. But if you buy when the GSR is at or near that magic number of 80, like it has been in 2016, you can sleep comfortably knowing that you made your purchase at the start of a bull market, and likely at the lowest price point you will see for several years. You know when is a good time to get into the market (in short, now), but you also need to have an idea of what coins you should be looking to purchase.
The coins to buy: Pre-1933 Saint-Gaudens $20 gold double eagles graded MS-64 You want to use gold as a hedge that provides wealth insurance because of its inherent value as a rare, indemand precious metal. That s what we just finished explaining. But if you had the opportunity to add some gold to your portfolio that provided both that long-term insurance and the potential for a short-term profit under the right circumstances, you would be smart to take advantage. Pre-1933 Saint-Gaudens $20 gold double eagles graded MS-64 are coins that, in addition to being quite a mouthful, provide that opportunity. But it s a limited-time proposition. Buy these coins now, and you can choose to either stow them away as a long-term investment or flip them for a tidy profit. Buy them later, and that might not be the case. Premiums on pre-1933 MS-64 Saint-Gaudens double eagles have not been as low as they are today in over a decade. In January 2008, MS-64 Saint-Gaudens double eagles were selling for around $1,350. The spot price of gold at that time was $837.30 per ounce, meaning the premium on the coin above spot was 67 percent. By January 2010, the spot price was $1,121.90 and MS-64 Saint-Gaudens double eagles were selling for $2,050 per coin. That s an 89 percent premium. Today, with the gold spot price at around $1,300, MS-64 Saint-Gaudens double eagles can be had for a significantly smaller premium. Why are premiums low? Checkan says it s because many investors are currently distracted for a multitude of reasons a stock market setting all-time highs, and an improved bond market, among other factors. Whatever the reason, Checkan says don t expect it to last long. In a nutshell, today s premiums represent a superb entry point for classic U.S. gold, Checkan said. The combination of low premiums and low spot prices is extremely unusual. These conditions offer two ways to profit from pre-1933 gold: a rise in spot prices and/or premium increases. In fact, if history is any indication, a sharp rise in gold spot price could trigger significant premium expansion. This phenomenon has repeated itself many times in the past and we would be surprised if it didn t happen again. But do not simply embrace gold without taking a look at that other popular precious metal. Silver is an ideal investment for a different type of investment, so you just might want to double dip.
Want to turn a quick profit? Buy some silver. The nature of silver s value is similar to gold s: it s an in-demand precious metal because of its inherent rareness. But it s on a smaller scale. Silver does not enjoy gold s level of rarity, so the price of one ounce of silver, as the GSR indicates, is a fraction of the price of one ounce of gold. But it s that lower price-per-ounce that allows for silver to be a great investment for savvy speculators looking to cash in on their knowledge of upcoming market trends. The silver market is more volatile than the gold market. With a lower value that is much more vulnerable to large-percentage changes based on the wider environment, silver s price is characterized by quicker rises and steeper falls. That makes the silver market a smarter play for a profit-motivated investor. Just like with gold, you can use the GSR as a signal for entering the silver market or expanding your silver holdings. If the GSR is at or near 80, gold is on its way up and silver is about to follow at an even faster pace. Chances are it s going to be several years before you have another opportunity to buy silver that cheaply. The difference between a silver investor entering the market when the GSR is high and a gold investor entering the market when the GSR is high is that the silver investor should always be on the lookout for market normalization. Profit-motivated precious metals purchases, such as silver in this case, should be monitored and rebalanced as needed to maintain proper allocation, Checkan said. If a silver investor gets in when the GSR is 80, he or she can expect to see their investment take off over the next several months. However, because silver is more volatile then gold, the lows can come just as quick as the highs. So be aware and ready to adjust your holdings when you have an opportunity. The ideal silver coins to invest in would be purchased in bulk. They would carry a low premium. And they would be small, so an investor has the ability to make adjustments to their holdings, large or small, at any time. We know just the thing.
The coins to buy: Pre-1965 U.S. dimes, quarters and half dollars Junk silver is the term for pre-1965 U.S. dimes, quarters and half dollars that are composed of 90 percent silver, but have had a normal circulation experience and are of a low grade. The coins you get in a bag of junk silver likely aren t going to be ones you ll send in for certification, or sell at auction. They re common coins whose value is in their silver. The value of a pre-1933 MS-64 Saint-Gaudens gold double eagles depends on both the spot price of gold and the numismatic market s premium level for the coin at the time of purchase or sale. But the value of junk silver coins goes up and down based only on the spot price of silver and junk silver supply and demand. Junk silver serves as a relatively cheap and easy entry into silver buying. It s also a smart entry, especially when premiums on such coins over the spot value of silver are as low as they currently are the lowest we ve seen in six to seven years. Buying silver bullion coins and bars often leads to high premiums. The end buyer of a 2016 American Eagle silver 1-ounce bullion coin is often the third or fourth owner of that coin: The U.S. Mint (owner 1) strikes it and sells it to one of its limited number of authorized purchasers. The authorized purchaser (owner 2) is likely a wholesaler who sells the coin to a local dealer (owner 3), who then sells the coin to an individual (owner 4). Junk silver, on the other hand, is silver that was pulled straight out of circulation and is sold straight to the individual. And while junk silver premiums can often be expected to come in significantly lower than silver bullion, they re particularly low today, just like they are on those pre- 1933 MS-64 Saint-Gaudens gold double eagles. You can currently get a bag of junk silver for its current spot value, plus a $1.99 premium per ounce. In the past, that premium has been as high as almost 50 percent over spot price. Junk silver is legal tender, easily divisible because of its small denominations, and is immediately liquid. It s a smart and easy way to get it on the currently hot silver market without being at the end of a long, premium-accumulating supply chain. And what numismatist wouldn t get a kick out of searching through a bag of classic U.S. silver coins?
Let s recap Here s what we ve learned about how numismatists can successfully and enjoyably invest in gold and silver: 1. The Gold/Silver Ratio is a number that needs to be watched as an indicator of when to start or increase your investment allocation. The magic number that signals a bull market is on the way is 80 ounces of silver for every ounce of gold. 2. Gold is a great investment for those taking the long view and looking to insure their portfolio. A great gold coin investment currently are low-premium pre-1933 MS-64 Saint-Gaudens gold double eagles. 3. Silver is the way to go for a profit-motivated investor who pays attention as the more volatile spot price moves up. The coins to buy here are junk silver, which are low-grade pre- 1965 circulating silver coins that can be had in bulk at low premiums. With gold and silver on the rise, the time is now to start viewing your coin buying as a precious metals investment. Asset Strategies International, Inc., President Rich Checkan puts it simply: If you can buy the most beautiful gold coin ever minted at as close to bullion price as you have been able to do in over 13 years, and if you can buy pre- 1965 90 percent silver coins at a better premium than modern silver American Eagles and Maple Leaf bullion coins, why not add some history to your portfolio as you fill your bullion allocation? Keep track of the gold and silver markets. Calculate the GSR. If you see it approaching the normal level between 35 and 50, re-visit your strategy. Until then, look for low-premium gold and silver U.S. coins like pre-1933 MS-64 Saint-Gaudens gold double eagles and pre-1965 junk silver that serve as bullion-like investments in the metals market without all the in-between buyers and sellers that lead to high premiums for the eventual owner. We all want to combine the enjoyment of numismatics with the thrill of making quality investments. You have the tools and knowledge, now make it happen.