The Michael Fuljenz Metals Market Report: September 2012, Week 2 Edition

Gold broke over $1700 last Thursday, mostly due to the news that Europe would issue "unlimited" bonds to back the deficits in Europe's most debt-ridden nations, like Spain, Greece and Italy. Then, on Friday, gold rose to over $1730, based mostly on the dismal U.S. jobs report, which will likely force the Federal Reserve to announce some new form of "quantitative easing" (slow-motion money printing) at their Federal Open Market Committee (FOMC) meeting this week. Gold is up $80 in the last eight days, $180 in the last two months, and is now at its highest level since the February 29 annual peak of $1788.

Wall Street is Turning Bullish on Gold...Again

Wall Street is basically a trend-following mob. When they heard in mid-August that George Soros and John Paulson, among others, made big commitments to gold in the second quarter of 2012, other Wall Street traders rejoined the gold bandwagon. Traders in the futures market are net bullish on gold, and some of the leading Wall Street investment gurus are saying positive things about gold once again:

"Gold cannot be reproduced. It can be taken out of the ground at an increasing rate, but there is a limited amount of gold. There has been an unlimited amount of paper money over the past 20 to 30 years...Central banks got out of the gold trade a few years ago. Recently, they are coming back into that market." -- Bill Gross, co-founder of PIMCO, America's leading bond guru

"The main advantage that gold has over other currencies is that it can't be printed...Deleveraging strongly favor shifts from financial assets into gold and other tangible assets." - Ray Dalio, the multi-billionaire founder of Bridgewater Associates

In addition, this week's issue of Barron's posted this question to various market gurus: "The GOP platform calls for a commission to examine a 'metallic basis for the U.S. currency' even as the Fed appears ready to further ease monetary policy. Should we reinstate the gold standard?" Their answers:

"The gold standard - paper money somehow tied to gold - is an invitation to fraud because the monetary authorities always create more receipts for gold than the gold they possess; it isn't authorized by the Constitution, and it has empirically failed. If left alone, the free market would choose gold as money...." - Lawrence M. Parks, Executive Director, Foundation for the Advancement of Monetary Education.

"Given the instability of the world's currency - the U.S. dollar - more and more people are searching for some role for gold to play in the international monetary system. There are many gold standards, including using a basket of gold and commodities prices as a reference target for monetary policy. It injected stability in the late 1980s. Right now, Ben Bernanke doesn't even have the U.S. dollar on his dashboard." - Steven H. Hanke, professor of Applied Economics, Johns Hopkins University

Will the Next Gold Commission Fizzle - Like the Last One, in the 1980s?

Back in the 1980s, the first gold commission, under Ronald Reagan, basically went nowhere and the price of gold declined so we are rightly skeptical that the Republican call for a new gold commission will result in some official link with gold. But times are different now. Back in the 1980s, there were very few fans of gold in government. Ron Paul was a lone voice in the wilderness. Now, there are many fans of gold in Congress, and several states have begun to institute legal tender laws favoring silver and gold coinage.

In the Senate, Jim DeMint, Mike Lee and Rand Paul have co-sponsored the Sound Money Promotion Act, which would remove capital gains taxes on the appreciation of any gold and silver coins that have been declared legal tender by the federal or a state government. On the state level, Utah has already made gold and silver coins legal tender in the state. On the national level, Republican Candidate Mitt Romney has said that he would not re-appoint Ben Bernanke as Fed Chairman, and the official Republican Party platform calls for an audit of the Fed as well as a gold commission. If Romney is elected and Bernanke is forced out of office, we might see a serious fan of gold appointed as the next Federal Reserve Chairman.

In a 2010 Congressional hearing, Paul Ryan asked Ben Bernanke, what he thought of gold. At the time, gold had recently set a then-record high of $1200 per ounce. In one of the great understatements of history, Bernanke answered Ryan: "I don't fully understand the movements in gold's price." AMEN!

Bottom line, gold could fare better in a Romney administration than it did in the 1980s gold commission.

The Indian Gold Coin That Will Become "The Face of Numismatics"

One important Indian gold coin from the early 20th century could someday become "the Face of Numismatics" in the 21st century. It's a gold coin so valuable, worth over 15 million dollars, and so beautiful that in the future you'll probably see it on almost every national news story about rare coins, and you'll see replicas advertised on TV. What's the gold coin? In this Metals Market Report I'll tell you about it, and why I and many other numismatic experts believe someday it will be widely considered the most important and valuable coin an individual can own -- and how it will affect you and your Indian gold coin investments. (Hint: I'm currently working on a feature article related to this unique Indian gold coin. It's expected to be published in a national magazine by the end of the year.)

The Face of Numismatics: 1907 Indian Head Double Eagle (J-1905, gold)

          

• A pattern coin is one that was struck at the Philadelphia Mint (with a few exceptions) for the purpose of testing a new design concept or unusual metal. A pattern differs in some ways from normal circulating coins. Patterns were not monetized and thus were not legal to spend.
• J. Hewitt Judd, M.D. was the author of the definitive guide book on United States pattern coins. Pattern coins were assigned Judd numbers like J-1905. This coin is unique and is the most valuable coin extant today (worth over $15 million).
• J-1905, formerly listed as J-1776, was the same size and weight as a $20 gold coin.
• Its obverse design is Lady Liberty's left-facing head wearing an Indian war bonnet. This is essentially the same final portrait used on the $10 Indian gold coin.
• Below the Indian Head on the obverse is displayed the inscription LIBERTY, not the date of issue, which appeared on the approved $10 Indian obverse.
• The reverse design is virtually the same as the new $20 coin made for commerce in 1907 - a breathtaking eagle in flight, inspired by the reverse of the flying eagle cent.
• Saint-Gaudens moved the Roman Numerals date to the reverse, engraved atop the sun at the base of the coin.
• J-1906 is identical to J-1905 except it is technically a trial strike made of lead. It resides in the American Numismatic Society collection.
• President Theodore Roosevelt considered U.S. coinage to be sterile, dull and unworthy of a great nation. He admired Saint-Gaudens' renowned medallic work and deemed Saint- Gaudens well suited to carry out Roosevelt's vision for U.S. coins, inspired by the glorious high relief coinage of ancient Greece.
• Frustrated with the obstructive responses of the U.S. Mint's Chief Sculptor-Engraver Charles Barber, President Theodore Roosevelt consulted Tiffany's and Gorham's, the two great New York silversmiths and jewelers of 1906, for expertise in die manufacturing related to striking coinage in high relief.
• J-1905 was Augustus Saint-Gaudens' initial recommendation for the design of the new double eagle. The obverse portrait ended up on the new $10 gold, not the $20, but the reverse was used for the new $20.
• Augustus Saint-Gaudens died of cancer, August 3, 1907, after J-1905 was struck, but before the final approved new $20 double eagle was released into circulation.
• In 1981, the Indian Head double eagle (J-1905) set a price record for any coin produced by the U.S. Mint, bringing $475,000.00 at the official convention auction of the American Numismatic Association.
• The last time J-1905 traded hands was at a private sale in 1985 to a "major Northeastern collector" who was an executive in a high-tech field. It sold for what was described as a "mid six-figure price." It still resides in that spectacular collection, which includes numerous other extremely rare and valuable coins and medallic works of Augustus Saint-Gaudens.
• While many other rarities have broken the million-dollar barrier since 1996, the Indian Head double eagle has remained unsold since 1985. A reported $15 million offer for the Indian Head double eagle was rejected. In most guides, it is currently listed as the most valuable coin by far. The highest price paid at auction to date for a U.S. coin was $7.59 million for a 1933 Saint-Gaudens $20 in 2002, about one half the value of J-1905.
• This ultimate coin could be transformed overnight into something even more special: The Face of American Numismatics. Unquestionably, its price would be so sensational that news of its sale would be periodically featured on front pages of newspapers, big and small, across the country. It would be given prominent play on newscasts and trumpeted by headlines on major internet websites. I believe its sale would serve to continually increase interest and demand for all Indian gold coins and particularly the $10 Indian, which the Indian Head double eagle's obverse so closely resembles.
• The eagle found on the reverse of the Bela Lyon Pratt $2 ½ and $5 Indian gold coins is strikingly similar to the eagle on the reverse of the Augustus Saint-Gaudens $10 Indian. It is believed to be a form of tribute by Pratt to his recently deceased mentor Saint-Gaudens. This is another reason collectors of Augustus Saint-Gaudens works often revere and collect these Indian gold coins too.

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