April 2019 - Week 4 Edition
JPMorgan Reports Gold is Outperforming Stocks and Bonds in the 21st Century
Gold has been stable in the last few weeks and months, but it’s important to remember that gold is easily beating stocks, bonds and real estate so far in the 21st Century, and by a wide margin. The prestigious firm JPMorgan shows that gold soundly beat stocks, bonds and real estate since January 1, 1999. Of 10 different categories, only a specialized category, Real Estate Investment Trusts (REITs) beat gold. When a major firm like JPMorgan lists gold as beating the world’s biggest markets – stocks and bonds – investors will listen. Investors with JPMorgan and other major investment firms will want to diversity their portfolios into gold and many will then be introduced to rare gold coins.
How is 2019-2020 Like 1979-80 or 2011-12 (Gold’s Peak Markets)?
What was in place that made for $850 gold in January 1980 and $1900+ gold in September 2011? Could we see another spectacular increase in gold prices this year or next? There are several similarities today.
Let’s take these similarities one at a time. This week, let’s look at America’s politics and deficit spending:
In 1976, Jimmy Carter became President in America’s Bicentennial year after the pain of the Watergate scandal created great hope for a new man to heal America. Carter was quickly seen as inept, generating inflation and long gas lines. As a result, the Republicans gained 15 House seats in the 1978 elections and +3 seats in the Senate. At the same time, the Ayatollah Khomeini took 54 Americans hostage in Iran and the Soviet Union was expanding around the world. When the Soviets invaded Afghanistan the day after Christmas, 1979, gold soared from $450 to $850 in three weeks. Also, our budget deficits were soaring:
In 2008, Barack Obama became President after a financial crisis that almost brought the world’s financial system crashing down. His first act was to spend $787 billion in a “stimulus” bill that featured “shovel-ready” projects that turned out to be either boondoggles or far from shovel-ready. Then he spent billions for “cash for clunkers” and then passed a second stimulus bill. Then came his massive Obamacare medical plan, without a single Republican vote. As a result, Republicans took back 63 House seats in the 2010 elections. Obama ran up $1.2 trillion deficits in each of his first three years, causing a downgrade of U.S. debt in August 2011 and a government shutdown, pushing stocks down and gold up to $1,900.
In 2016, Donald Trump surprisingly won the Presidency over favored Hillary Clinton, so the Democrats and their powerful press allies spent the next 2+ years searching for every way they could to invalidate his Presidency, through the Mueller investigation, impeachment threats, non-stop 24-hour cable news talk shows and planted (fake) news stories on the Internet. As a result, the 2018 elections delivered control of the House back to the Democrats, increasing the threats of impeachment as the budget deficits kept rising:
We’re not saying gold can go to $2,000 this year or next, but the pieces are in place for a showdown in Congress over the rising debt and the conflict over leadership of our country. In addition, there are global crises brewing, which are also similar to the events of the late 1970s and 2011, which we will cover later. These reasons contribute to major financial institutions like Commerzbank predicting $1,500 gold in 2019 and Goldman Sachs predicting $1,425 gold by the end of 2019. Shouldn’t you own some gold now?
Central Banks are Buying 60% More Gold in Early 2019
Banks in the old Soviet Union’s eastern European satellite nations have each bought several tons of gold in early 2019. Poland, Hungary and the Czech Republic have bought at least six tons each. China increased its gold holdings in March for the fourth straight month. The People’s Bank of China raised its gold reserves to 60.6 million ounces (1,885 metric tons), as trade tensions between the U.S. and China continue unresolved.
China, Russia and Kazakhstan were the top central buyers of gold in 2018. In 2019, central banks bought a net 39 metric tons of gold in January and 51 tons in February according to a recent report by the World Gold Council. The total of 90 metric tons in the first two months of 2019 is more than 60% greater than the 56 tons central banks bought in the first two months of 2018 as central banks—mostly from the emerging markets—continue to accumulate gold at a rapid pace.
Coin-Buying Billionaires are Competing for “Trophy Coins”
An old adage is that coin collecting is “The Hobby of Kings,” since only kings could afford (or have the power to seize) the top-quality rare coins made of precious metals. Today, that slogan has changed to become “The Collector is King,” with the serious collector of rare coins driving up the price of rare coins.
With over 2,000 billionaires around the world, “The Hobby of Kings,” has now become the hobby of the very rich. In the last year, I have learned of at least five billionaires who are currently competing for high-quality “trophy” coins. These are coins at the top of the population report (“top of the pop”) in the highest condition census – one of the five or six finest-known examples of a coin type and date and ties, as defined in my 2015 Numismatic Literary Guild Book of the Year, “Type Three Double Eagles, 1877-1907, 2nd edition.”
One example of a “Trophy Coin” is an 1885 Trade Dollar in NGC Proof 66. Only five are known to exist putting it in the same elite category as the legendary 1913 nickel. The 1885 Trade Dollar sold in 1997 for $907,500. The same coin fetched 264% more in 2006, at $3.3 million, and it lately was sold for $3.9 million. Another example was a tied for finest known 1951-S Washington Carver half dollar in PCGS MS-67+ CAC that was valued at $2,600 but sold for nearly five times as much, $12,500 recently.
In modern times, celebrities such as Wayne Gretzky, Buddy Ebsen, Penny Marshall and Jerry Buss have collected rare coins, but wealthy collectors like the American financier Louis Eliasberg (1896-1976) have set the standard for a lifetime devoted to serious collecting of the best-known specimens of U.S. coins.
Billionaire investors are highly competitive goal-oriented collector-investors. I have been told that at least two of them are trying to do what Mr. Eliasberg did – build complete sets of every coin from the US mint in as high a grade as possible. Besides these few billionaires bidding for “best of breed” coins, other high-end collectors are building “registry sets” with either PCGS or NGC coins for “top-of-pop” coins. This competition for high-end coins is also fueling a resurgence in demand for many low population coins that trade from about $2,000 and up. We specialize in building award-winning registry sets. Call us today if you are interested in this strategy. Please consider adding a few trophy coins to your portfolio.
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