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California Numismatic Investments

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A Few Notes Along The Way: Comments are welcome and thanks for reading:

1. (August 30, 2010) Learn about The True Value of Gold. This from Ellen Kelleher and ft.com makes for interesting reading especially in the context of today's valuation questions. It is amazing to me that many buyers today still place gold in a strictly pricing context. In other words have they made or lost money on owning the physical product when I believe its true role of keeping everyone honest is sometimes ignored. Today's common approach is dangerous especially when balancing huge and escalating government spending with an economic downturn that may still be misrepresented and misunderstood.

2. (August 27, 2010) Update - Reporting Rules & President Obama’s Health Care Reform - "Within this new bill the IRS plans a massive expansion of Federal Form 1099 and will tract cash transactions as low as $600! This means that virtually all precious metal or rare coin business done in cash will be recorded! And so will all $600 cash small business transactions across America! This egregious assault on business will push legitimate transactions underground and bury honest gold dealers in a paperwork maze that will raise prices to pay for compliance representatives and frustrate daily buying and selling." This quote from my recent (Number 10 Comment) below, so the question you should be asking your precious metal friends is as follows: Does your Senator or House Member support repealing the new 1099 reporting requirements in Obama's healthcare legislation? Find out here for House Members, and here for Senators. Please ask your elected officials to support the Small Business Paperwork Mandate Elimination Act and save us a pile of time and you a pile of money.

3. (August 27, 2010) What books are necessary to answer coin and related numismatic questions? A large coin library is a treasure and old time coin dealers actually acquire hundreds of volumes over the course of their careers but for the average fellow I would recommend two standard reference books: A Guide Book of United States Coins by R.S. Yeoman (referred to in the trade as the Red Book) and Coin Clinic by Alan Herbert. These two classics have been around for years and the pair provides a surprising amount of valuable information. Well worth the price of admission and available from any bookstore for about $15 each.

4. (August 24, 2010) Bait & Switch - "I'm fresh out of nightcrawlers. How about this combination VCR/DVD player?" This is one of my favorite cartoons and reminds me of how dangerous hard sell telemarketing can be in the rare coin business. It should also serve as a warning to new buyers considering the precious metals. A new customer calls up with questions about buying gold bullion and asks the polite telemarketer for his "free investor's kit". By the time the conversation ends the investor is "up-sold" to a High Relief in PCGS MS-65 for $60 grand, being told this is a much better investment in "gold". My point here is not to criticize rare coins or bullion, but simply to point out it is your job to decide if your potential dealer has an agenda. It is prudent to remember that commissioned salespeople are always biased and follow "the company line" if they want the next set of "hot" leads which come from that expensive advertising. So is the customer better off with the High Relief or in generic bullion coins? I have found a combination of both rare coins and bullion is a good strategy but I have a great deal of experience. In my opinion a first time buyer should never be sold an expensive rare coin when inquiring about gold investments because he does not know enough about the rare coin dynamic. So if you are new to investing in precious metals being suspicious is good. Weigh carefully information given by salespeople, especially those on commission and establish a core position in gold bullion before considering other opportunities.

5. (August 19, 2010) Overlooked Rarities And Human Nature – This post comes from a number of questions which center around collecting coins in general and more specifically the notion that collectors today are excluded because of pricing. Dave Bowers recent comments about “the graying of collectors” was, in my opinion misconstrued, as coin show attendance has always been dicey and subject to the prevailing winds of the here today and gone tomorrow investor. It is true that the collector today pays considerable more than the collector of yesterday but it does not follow that rising prices are necessarily bad for the trade in general. The great thing about collecting and to some degree investing in rare coins is that there is always something for everyone, in every price range which makes financial sense. I am not a big fan of all the modern issues being struck by the US Mint today because the numbers produced are too large for the existing fan base. But these programs do serve the purpose of talking up coin collecting on a world wide basis. And don’t forget the advertising money poured into these programs does develop the collecting base and some of these collectors will turn into tomorrow’s dealers. But there are wonderful alternatives to high priced US coins which offer great opportunity to those taking the time to learn about numismatics. Many circulated early type coins are inexpensive and just as difficult to find as their expensive and higher grade cousins. Accepted collectable material is best seen at local or national coin shows which are advertised and easily found with a Google search. These shows can be fun for the family and are educational because you can look at a wide area of numismatics without making a commitment. The added bonus is that closely followed related areas like tokens or paper money are included for the small price of admission. Modern issues are fine and will gain the attention of a newcomer but look past this coin “bling” and a new collecting world will come into focus. You will find many low and moderate priced pieces of history ready to be appreciated. And as your collecting interests become more sophisticated you will appreciate “overlooked” areas which offer opportunities to the informed buyer. For example, many foreign coins which are legitimately rare can be purchased for a fraction of what a similar US rarity might fetch and are also graded by PCGS. There are bargains in the lower priced circulated gold coins from US Branch Mints like Carson City (CC), Dahlonega (D) or Charlotte (C). Any PCGS certified $3 gold piece is worth your consideration and nice circulated examples are surprisingly difficult to find. If you look for original color and lack of impairments these worn examples are more difficult to find than their “investment grade” expensive cousins. If investing tastes are not limited by budget so much the better but if this is not the case there are plenty of areas offering great promise. In today’s plastic and throw away world these treasures of yesteryear will do just fine because most are sensitive to inflation. But there is more to this story in that as disposable income increases people want to own, collect and preserve that which is nostalgic and no longer available. Because of these long term financial trends placing a few of these undiscovered rarities in your safe deposit box makes good financial sense.

6. (August 17, 2010) Box or Opium Dollars – This is an interesting subject and answers a few Emails but more probably belongs to the wider area of collecting tokens and medals called Exonumia. These pictures of the past are sometimes mistakenly called opium dollars and are very collectable today. Most examples I have seen are made from trade dollars struck in the 1870’s which have been hollowed out inside. A frame and hinge is then installed and one side of the dollar opens and closes to form a kind of jewelry piece which hides a charming secret compartment. The machining on these pieces is very exacting and the misplaced name opium dollar comes from the fanciful notion that they were used to secret away drugs when traveling. Their real use was to house pictures of loved ones and original examples today contain the rare picture and the mica covering. These not often seen romantic reminders of probably the Victorian era are worth between $100 and $500 depending on condition and subject matter.

7. (August 12, 2010) - Most people don’t know the US Mint uses a variety of outside vendors in the making of coins and currency. The paper which is used in printing our money has been created by Crane & Co. - Makers of US Currency Paper since 1879. "The Mint has gold American Eagle blanks made in Australia. Should such blanks be made by Mint in the U.S.?" This interesting question has just been posed by Numismatic News (August 10, 2010) editor Dave Harper. Readership answers were interesting in that most believed this idea was the worst form of outsourcing one can imagine. The reasons given begin with the loss of badly needed jobs and progress through such practices creating product shortages and ending with what's wrong with "Made in the USA?". I agree in that the duty of our mint is to uphold the sovereign right America has to produce its own legal tender. Is there anything these days that is not up for sale in America?

8. (August 10, 2010) Daily Precious Metal Brief - For those looking for additional market commentary and a capsule look at the precious metals on a daily basis the live link posted below (Kitco Video News) is a great source. The commentator is balanced and presents both sides of the precious metals using well known national commentators. For example expert David Morgan might be interviewed regarding his bullish silver opinion but she will also present the bearish side using another commentator. This excellent video series is short, updated daily and posted so you can catch up if you miss an episode during the week.

Click for Daily Video News

9. (August 6, 2010) Could Government Gold Seizure Become A Problem? - I have talked about government gold seizure before and personally think the whole idea is nonsense. The gold telemarketers however stoke this fire on a regular basis because it spooks the public and lays out a scenario which allows the unethical to charge ridiculous prices. I received this Email today from Numismaster.com (powered by Krause Publications) and it is very interesting. Krause is the biggest publisher of rare coin news, prices, and general coin information in the world. David Ganz is one of the most knowledgeable legal experts and writers in the coin business. David is also a good friend of mine and an attorney so both sources (Ganz and Krause) are impeccable.

Gold Seizure Mechanism in Place

By David L. Ganz, Numismatic News

August 05, 2010

This article was originally printed in Numismatic News.

It’s not the dog days of summer, but rather the economy that’s causing a number of people to query my law office about gold seizure scenarios that they believe might take place, what they can do to prevent it, and what they might be able to do about it.

These inquiries come from sincere believers not in conspiracy theories, but rather in the staying power of gold in both the short term and the long run. Their inquiries are genuine, the concerns expressed real – these are hard money strategists, not people who go off with half-baked ideas.

I have no great insight to offer as to whether or not gold seizure is in the offing, but there are some interesting reasons cited by many as to why the government of the United States – and maybe the world as well – needs to nationalize gold, if only for the purpose of making sure that governments, not citizens, remain in control of the economy.

In talking with many of the people, they question how the government could possibly enforce a gold seizure and go on to tell me that no power on earth could make them give up their gold. My rejoinder is that some of the best literature has been written by authors from prison, to which they often sublimely respond that the government lacked the resources to prosecute people – and that even in the old days, that wasn’t something that the government did (prosecute people for declining to turn in their gold.

Let’s clear up some misconceptions as to what happened in 1933-1934; what legal authority the President has to order the seizure of gold (or other precious metal); what evidence of compulsion was used before (and what could be used now), and just what is so magical about this metal that makes some individuals covet it, and makes governments fear it.

Let’s start with the premise that there is no element of compulsion that can be employed to make a citizen turn in gold coin or bullion, especially if the coin is legal tender. The premise is absolutely wrong.

In 1933, President Franklin D. Roosevelt (using the “Trading with the Enemy Act of 1917”) issued an executive order on April 5 requiring that less than a month later on or before May 1, 1933, all persons in possession or control of gold coin, gold bullion, and Gold Certificates (i.e., paper currency redeemable in gold coin of the United States) to turn them in to any Federal Reserve bank or any “member bank” of the Federal Reserve system.

(The “Trading with the Enemy Act” is still around; it was last amended by Congress a couple of years ago and the general consensus in the legal community is that it could happen again. Want proof? Try Professor Hank Holzer’s article in the 1973 Brooklyn Law Review: “How Americans lost their right to own gold and became criminals in the process”).

Can the government grab all of the gold? Probably not, at least not without paying just compensation – which is a small solace. But what happened in 1933 is that gold (valued at $20.67 an ounce) was turned in and paid at face value – a double eagle or $20 gold piece received 20 bucks from Uncle Sam in paper, or coin – but not gold.

When all of the gold that was going to be got was turned in, FDR devalued the dollar 59 percent – from $20.67 an ounce to $35 an ounce. (In 1971, Nixon raised it to $38 an ounce, and in 1973 it was raised to $42.22 an ounce. The entire American gold reserve of $11 billion is figured on that artificially low figure (i.e., if Fort Knox were emptied with other storage sites, the government would really have about 30 times the figures quoted today as being part of the reserve.

That means over $400 billion in gold is presently in government hands. Billions of dollars more in gold now in the hands of the people would move to the government. Once in hand, the gold’s official dollar price could be revalued or left on its own. Either way, though, the average citizen now, as then, would lose out.

There were exceptions then. Treasury Secretary William Woodin, himself a coin collector (and originator of Adams-Woodin pattern coinage citators, allowed everyday people to keep $100 in gold coin (it was the Depression, after all) and also allowed retention of “rare and unusual coins” having a “recognized special value to collectors.”

Those who did not want to turn it in (the current argument is that the government lacks the resources to make it mandatory): the executive order provided for Draconian criminal penalties for non-compliance: a $10,000 fine or 10 years imprisonment, or both. You have to be really unafraid or believe that the government would not prosecute.

Some said that the government only tried to capture a single 1933 $20 gold piece. Not true. They went after all 1933 double eagles – they sued or were sued by collectors who sought to retain the rarity. James A. Stack was involved in lawsuits in federal and state court; Barnard, in Tennessee, was, too. Both lost, even though they had paid a lot for the coin which was both rare and unusual.

But there were other cases, too. A sampling going back to the Civil War, when the Act of July 13th, 1861, allowed Treasury Regulation, No. 22, forbidding all transportation of coin or bullion to any State or section declared by the President’s proclamation to be in insurrection (a Supreme Court case affirmed that right); in 1969, an airman was sentenced to seven years at hard labor for possession and hoarding of gold coin and bullion (U.S. v. Whitfield, 1969 WL 6253 AFCMR, 1969).

In another case, “An indictment against Gus Farber, a diamond and jewelry merchant of San Francisco, charged ... that on or about Feb. 21, 1939, he willfully, unlawfully, and knowingly acquired 13 genuine $20 gold coins of the United States without a license in accordance with the President’s Order No. 6260, as amended, 12 U.S.C.A. 95 note”, (Farber v. U.S., 114 F.2d 5 , C.A.9, 1940). He was convicted.

In another instance, a 206-troy-ounce gold rooster was forfeited to the United States “Richard L. Graves ... was the owner of certain properties in Sparks, Nev. Included in these properties was the ‘Dick Graves Nugget Casino’. As part of the operation of that establishment, Graves ran a dining room in which the specialty was fried chicken. This room was known as the ‘Golden Rooster Room’. For various reasons, including, among others, the advancement of the interests of his business establishment, Graves developed the idea of acquiring, and showing, a solid gold rooster as a main object of attraction in this room.” (U.S. v. One Solid Gold Object in Form of a Rooster, 208 F.Supp. 99, D.C.Nev. 1962.)

In sum, there’s ample authority – and many cases – allowing for seizure of gold coins and bullion. What of the exemptions? I’ll take that up next column.

10. (July 29, 2010) Avoid This IRA Ripoff - Part 2 – The “bid” side of the coin market is simply what major market makers will pay for any given coin. Many of these market areas become specialized, especially if sold by large telemarketers who have the ability to buy virtually everything on the market. While this is common in the coin business it is not necessarily good because it can lead to volatility. I hate to place the cat among the pigeons but have warned consumers a number of times about placing proof gold eagles in their IRA accounts. Telemarketing activity has distorted prices and abuse by a few large and well-known firms could destroy your retirement savings. Recent fraud investigations concerning two firms in the LA area is the latest and continuing saga in this sad story. The negative pricing action works like this: The Los Angeles DA investigates two prominent firms for overcharging uninformed customers. The public gets wind of what is going on and begins to question paying $3000 to $5000 for a proof gold eagle that can be purchased from any major dealer for $2000. Wholesalers in proof eagles stop getting orders from their big telemarketing accounts because the fraud investigation silences the phone banks and so pull their strong “bids”. This, of course, reinforces the downward price spiral of proof gold eagles. I think placing any gold in your IRA is not a good idea because it does not produce interest which can be deferred. But if you are a fanatic about this idea simply choose the bullion US Gold Eagle (small premium) and avoid the over hyped Proof US Gold Eagle (large premium) unless you are eager to make consumer comments about getting ripped off at the upcoming congressional hearings.