Old gold better than bullion

Today there is a little known area of the gold market, undiscovered by the general public, which is still undervalued. While my clients have acquired these treasures over the years many new investors are just now learning about them.

For years many have warned that increased debt and deficits would lead to a weaker U.S. dollar and a higher cost of living. We at Swiss America have advocated the purchase of physical gold as a hedge against inflation. Although this philosophical argument was practical, the vast majority of investors did not participate.

Despite the gold price rising over the last seven years, investors were more comfortable in financial assets. Recent events have changed investors' mindset, which has now created an excellent opportunity for these little treasures.

The day that changed the gold market forever

On Sept. 17, 2008, gold had its biggest one-day price rise ever in history. While this did not come as a surprise to goldbugs, it shocked most financial journalists. The equivalent would be a 1,200-point rise in the Dow in one day! This sudden dramatic rise of gold prices along with the turmoil in the stock market as well as the recent government bailout has changed the gold market forever.

The current demand for gold and silver has overwhelmed the physical cash market. Most local coin shops and larger national companies have not been able to deliver one hundred ounce silver bars and silver eagles and they are charging more than $100 over the paper price for a one ounce gold eagle bullion coin, if even available.

The U.S. mint recently announced suspension of production of the gold buffalo bullion coin and half and quarter ounce American Eagle bullion coins. At the same time the paper, or COMEX, price of gold and silver has dropped.

This disconnect has been widely reported, most recently by Dan Norcini at jsmineset.com. Commodity future contracts are generally settled in paper dollars rather than the metal itself. So in essence, average investors are purchasing the physical metal while a cartel of banks and commercial entities are selling the metal short on the exchanges.

After the bailout bill was signed into law last Friday, the stock market swooned. In the short term we do not know if this was the public's reaction to an unpopular law or a serious underlying problem. A certain amount of uncertainty should plague the markets well into next year. This leads me to believe demand for gold and silver will increase and put additional pressure on the thinly capitalized coin market. Based on these assumptions I believe these "little treasures" will no longer be a big secret!

$20 gold pieces better than bullion

I am referring to the $20 Double Eagle Liberty and Saint Gaudens gold pieces. These coins were minted by the U.S. government between 1850 to 1933. Each coin has .9675 troy ounces of gold and in uncirculated, or mint condition, have an extrinsic, or collectible, premium above its intrinsic, or metal, value.

Since Sept. 16, 2008, the paper gold price has risen approximately 7 percent while the price of MS 63 and MS 64 Saint Gaudens have jumped about 25 percent! This in itself is significant but not reflective of what I believe we will see over the next several years.

Over the weekend I was able to visit and speak to some of our Valley's gold dealers. One dealer commented that the general public is still not aware of these gold pieces. I believe the gold price will continue to rise over the next several years and we will see increased demand for all physical gold coins.

Now that I have exposed the secret of these little treasures I cannot predict how long these coins will be available at affordable prices. Despite the most recent weakness in the paper gold price; supplies of these coins are diminishing while premiums are rising. Act quickly as price and availability are subject to change due to unusual market conditions.

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Fred Goldstein is a senior broker with Swiss America.