Drop in bullion stirs up new ideas

While I would certainly prefer to write about older U.S. coins, I cannot help but pay attention to the greatest overall force in the current coin market. Gold has declined 3 percent over the last month, silver a rather substantial 8 percent and platinum over 3 percent. Many are now calling an end to the bull market of the last 11 years and they have certainly gained some credibility with recent market action. The current cause of weakness is the release of the

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Federal Open Market Committee minutes for March; these are the gurus who set monetary policy for our nation and in a broader sense much of the free world. Actually there was very little said directly but what was not said was an indication of further monetary easing, or QE3.

However the idea of no QE3 actually creates the fear of higher interest rates down the road, and of course, that will eventually happen. My take is that there is little chance of it before election day, and in fact if my gut is correct, there will be some softening of the somewhat better economic reports we have been hearing of late and therefore some further reaction by the Fed. While many say there has been or will be no QE3 the Fed did do a monetary dance in the form of a twist where they swapped short-term debt for long-term debt to lower long-term interest rates and therefore lower mortgage rates. Housing is the key to recovery and jobs so lower mortgage rates help, but alas the big banks have made a deal to settle those bad foreclosure claims and that will increase the supply of unsold homes. The deal includes debt relief to those underwater in their homes who are behind in payments and ultimately it will be transferred to the U.S. taxpayer and if necessary the Fed will print more dollars. The point is stick with your precious metals assets as insurance, but don’t bet the farm on them.

Bullion is good, but coins with high bullion content and nice grades and rarity are much better. In the event that bullion does decline your coins will maintain their numismatic value. Currently there are many items from several dollars to a few thousand dollars that are great hedges as bullion and real numismatic values.

An MS-60 1920 gold $20 had a 15 percent premium five years ago and now has none. An MS-60 1922-S has seen the premium decline to 20 percent from 130 percent. You can find similar examples among silver half dollars.