Having for the last decade worked for US companies the USD/Euro and USD/GBP exchange rates were crucial to European profitability. In 2001 we could not sell product at a margin that was sustainable to the business long term, as the Euro was worth only 85 US cents. The perceived salvation was to move production to China to reduce product costs, however that was still very marginally and in the IT industry consumer prices were tumbling. The real salvation was that USD dollar weakened and the Euro and the GBP strengthened, until the Euro almost doubled its 2001 exchange to $1.60 in 2008. Despite the continuing fall of retail prices the exchange rate ensured we kept our heads above water.

The following is extracted from an article by Dominic Frisby from Money Morning describes how we should not think of gold in the same way and become obsessed with the dollar spot price, but hone in on the gold Euro index, where gold now costs more than €800 an ounce and will be strong against the Euro as it struggles with the Greek crisis.

In early December, the euro was trading at all-time highs against the US dollar, somewhere north of $1.50. Across the continent, be it in Rome, Frankfurt or Paris, US nationals were seen to wince each time they reached into their wallets. Meanwhile German exporters grumbled about their lack of competitiveness.

Yet barely two months later, the euro has fallen by 10% or more. The sustainability of the currency has been called into question. Talk of the break-up of the eurozone is prevalent. And by Friday, short positions (people betting it will fall) against the euro on US futures exchanges had risen to $47.6 billion, the largest ever recorded net short position.

Greece makes up just 2.6% of the entire eurozone’s GDP. If it can threaten the currency and its banking system by running a 12.7% of GDP budget deficit, what damage might Spain do? She is running a marginally lower budget deficit of 11.2% of GDP. But she makes up almost 12% of the eurozone’s GDP – six times higher than Greece. Then there’s France (which makes up over 21% of eurozone GDP), looking positively prudent in comparison, with her deficit of ‘just’ 8.3% of GDP. Yet the eurozone deficit limit is supposed to be 3%!

Only Germany appears to be showing anything like fiscal sanity.

Hold on to gold – sterling’s turn for a fall will come

But those in the eurozone who bought gold will be happy. Gold had a huge day yesterday. It rose some $25. Yet it’s still almost $100 below its all-time dollar high of $1,216, recorded last December.

But if you measure gold in euros (see chart below), the yellow metal has broken out to all-time highs and now costs more than €800 an ounce.

I am forever saying that gold should be viewed not as a commodity but as another currency. Given the stress in the eurozone, is it any wonder that gold has been rising against the euro? I am also forever saying we are too obsessed with the price of gold in US dollars, when it is the price of gold in our own currencies that is important. Gold is your hedge against the fiscal irresponsibility of your own government.

Krugerrand- the first bullion coin obverse

The South African Chamber of Mines had an inspired idea to help market South African gold. It was to issue a one ounce bullion coin, to be sold at a very low premium over the intrinsic gold value. The Krugerrand was introduced in 1967, as a vehicle for private ownership of gold. It was actually intended to circulate as currency. Therefore it was minted in a more durable gold alloy ( the same as the British Sovereign), unlike most other bullion coins and contained 2.826gms of copper  to resist scratching and gives the coin its golden hue. The Krugerrand was the only accessible gold investment opportunity for the everyday buyer, it was the first coin to contain exactly one troy ounce of gold, and was intended from its inception to provide a way for the private investor to purchase gold.

Despite the coin’s legal tender status, economic sanctions against South Africa for its policy of apartheid made the Krugerrand an illegal import in many Western countries during the 1970s and 1980s. These sanctions ended when South Africa abandoned apartheid in 1994, the krugerrand once again regained it status as one of the worlds leading bullion coins

Originally only one size was issued, which contained one full troy ounce (31.1035 grams) of fine gold. This was originally known as a Krugerrand, or Kruger, for short. From 1980, three other sizes were introduced, namely a half, quarter, and tenth ounce size. The Krugerrand derives its name from combining the names of Paul Kruger, a well-known Boer leader and local hero who went on to become the last president of the Republic of South Africa, and the “rand” – the monetary unit of South Africa. The obverse side of the coin is detailed with a profiled bust of President Paul Kruger and features the name of the country, “South Africa,” in the country’s two native languages, English and Afrikaans. The reverse side of the coin features the image of a springbok antelope, one of the national symbols of South Africa.

By 1980 the Krugerrand accounted for 90% of the gold coin market. Although not a beautiful coin, many millions have been sold since its introduction as the 1 oz coin can be purchased at very little premium over gold bars. The success of the Krugerrand led to many other gold-producing nations minting their own bullion coins, such as the Canadian Gold Maple Leaf in 1979, the Australian Nugget in 1981, the British Britannia coin in 1987 and the American Gold Eagle in 1986.

The South African Mint Company produces limited edition proof Krugerrands intended as collector’s items. These coins are priced above bullion value, although non-proof Krugerrands also have a premium above gold bullion value. They can be distinguished from the bullion Krugerrands by the number of serrations on the edge of the coin. Proof coins have 220 while bullion coins have 180.

Maurice Hall

Reverse of the Mexican 50 Pesos featuring winged victory

The Mexican 50 Pesos gold coin is not very well known in the UK, but its many qualities are more than enough reasons to make it an excellent investment if you are looking to invest in gold coins for the long term. This coin has great aesthetic value, large mintage (now ended), strong historical value and a very low or non existent premium.

Let’s begin with its characteristics.  The beauty of the coin is initially striking.  It is 20% bigger than a one ounce Eagle, its American sister making it a large “bullion” coin.  It is 22 carat  with 10% copper to ensure that the coin is hard wearing and has an attractive colour.

The image of Winged Victory makes the 50 Pesos Centenario one of the most beautiful coins in the world

A small history lesson is required to explain the image – in 1910, Mexico celebrated the 100^th anniversary of the beginning of the war of independence with Spain. To commemorate the centennial, a huge victory column was erected in the centre of Mexico city, crowning the column is a 6.7 metre sculpture in bronze covered in 24 carat gold  and representing winged victory is   “ El Angel de la Independancia”, the Angel of Independence.  The angel represents Athéna Niké (Athéna brings victory), the famous Greek winged Goddess.

Located on the reverse of the coin, she holds a laurel crown in her right hand to symbolise victory and holds a broken chain in her left hand, to symbolise  liberty.  Two famous Mexican Volcanoes, Popocatépetl and Ixtaccihuatl, are situated in the background.  The date located in the bottom right is the year the coin was struck whilst 1821 is the year of independence.

Mexican 50 Pesos obverse with the national emblem

The obverse features an image of the national emblem – an eagle perched on a cactus eating a snake.

The edge of the coin reads « INDEPENDENCIA Y LIBERTAD »

Engraved by the artist Emilio del Moral, it was first minted in 1921 by la Casa de Moneda de Mexico to mark the 100th anniversary of independence (hence the name “Centenario” for the 50 Pesos coin).  The 50 Pesos coin therefore pays homage to the independence of Mexico.

More than 12 million coins were minted between 1921 and 1972.  The majority are dated 1947, but this is mainly due to 3 975 654 coins being re-struck between 1949 and 1972.  Only 309 000 coins were actually minted in 1947.  Re-struck  coins and coins dated 1947 are always of a very high quality however coins from earlier years are often rarer and therefore more expensive.

The 1943 dated coin of which 89 000 examples were  minted has a bigger diameter of 39mm but the same weight.  Very rare!

Today, the coin is a great success in the Hispanic world, mainly in Spain and Latin America.  The increase in popularity of the Kruggerand in recent years has however somewhat overshadowed the attractiveness of the 50 pesos coin for other investors.

A long term investment choice

Even if the differential premium for this coin is very low, it is a wise choice for investors looking to invest in gold coins for the long term.  It is in fact one of the lowest premium coins and as such can be purchased for practically the same price as gold.  It is obvious that in the case of a crisis, even the premium of this coin will rise, in particular in Hispanic countries.  In contrast to the Krugerrand, production of the 50 Pesos has finished and therefore the coin will one day become rare.  Avoid buying this coin directly from individuals as it has been widely copied and there are a large number of often crude fakes in circulation.

Buying 50 Pesos today to resell them when the premium has risen could prove to be a very wise choice.  You just need to be very patient and must not buy from just anyone.

Diversify when buying gold coins and consider  the 50 Pesos Centenario as  it has everything you need.

Did you know?

When Americans regained the right to own gold on the 31st December 1974, the Mexican 50 Pesos coin rapidly became one of the flag bearers for the physical gold industry.  The Krugerrand was not well known enough at the time.

Many transactions between Mexico and the USA were carried out using gold coins.  These gold transactions no longer occur today, but who knows, perhaps bank notes will become unfashionable some day and then…

Don’t be put off by last weeks sell off in gold as it was not physical gold that was sold but paper gold.  No one sold their sovereigns, eagles ,napoleons, kuggerands.  Nor did the Chinese, Indian or Russians sell gold from their national vaults. Do not think we are about to experience a reversal in value of gold.  World output of gold has declined by 1 million ounces annually since 2001.

All indications are that we should expect an impending gold shortage. Total ETF holdings of the yellow metal now exceed total world production. South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US.

Here’s a chart that goes back over 30 years. It’s clear that gold output from South Africa is steadily falling and the rest of the world has not yet taken up the slack.
South African mines are, overall, getting so deep, hot and dangerous that they are on the edge of a major rapid decline in gold output. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce. It takes a lot of labor, fuel, and heavy machinery to get gold out of the ground, and none of these are getting any cheaper.

Political risks are heating up. In the meantime, the financial crisis has driven a surge to the safety  of physical gold pushing demand for gold bars and coins to all time highs. The big gold players China, India and Russia are building their reserves so that they can meet international commitments with gold as they are carefully moving away from the waning USD, the fallback international currency.

Last year, the US Treasury ran out of blanks for one ounce $50 American Gold Eagle coins and major mints in Europe reported dramatic increases in production in the latter half of 2009. This shows that American citizens are waking up to the need to own some gold and when they are fully awake it will drive a  huge increase in demand. Some  European countries and notably the French, are fully aware of the power of gold and in particular gold coins, that hedged currency devaluations and political turmoil throughout  the 20th century. Consequently they continue to put their faith in gold to hedge financial instability in the 21st.  Competitive devaluations by most central banks mean that currencies are not performing as the hedge that many had hoped. It all has the makings of serious gold shortage for the future. The current downturn has to be just a blip in the long term bull market.

Now is the time to carefully watch the spot price as it is possible that gold may fall as low as $1030  and that will be time to buy, as it is predicted that we could be seeing $1500 the fourth quarter as demand increases.

British gold is rare indeed. Unlike the vast mining industries in Nevada, China and South Africa, gold reserves in the UK are modest. Most mines have been alluvial where the precious metal has been sifted from rivers and silt rather than dug from rock. Gold has been mined in the UK since around 600 BC when the first mine was opened in Wales. One of the reasons the Romans invaded Britain was that they believed it to be rich in precious metals. More Roman gold artefacts have been found in Britain than anywhere else in Europe.

Wales

Gold has been mined in Dolaucothi Wales since prehistoric times. The pre-Christian Celtic chiefs wore fine gold torcs and armbands and became wealthy as a result of metal trading. The Romans later controlled some of the mines, developing large-scale mining operations. During the Roman occupation, British metalwork was widely circulated. Reaching their peak during the great expansion of the Celtic Church in the 8th century AD, Celtic goldsmiths produced work of unrivalled craftsmanship. Later, the Welsh princes became wealthy and powerful rulers due to rich supplies of metal ores.

The Acts of Union passed in 1536 and 1542 made mining rights the property of the English Crown and royalties of 4% are still payable to the Crown on any gold mined in Wales. Welsh gold, which is mined by hand, is found in an area stretching from Barmouth, past Dolgellau and up towards Snowdonia. Welsh gold-bearing rock lies in seams, like coal, and has been known to yield up to thirty ounces per tonne.  Gwynfynydd Gold Mine in Dolgellau opened in the 1860s and was one of the richest gold mines in Britain with a recorded output since 1884 of more than 2,000 ounces of fine gold. Gold was first worked on a serious scale at. In 1862 a small scale British gold rush was triggered by the Clogau mine, which excavated more than 165,031 tons of ore and was a key producer of gold on a serious scale

Welsh gold due to its rarity is very expensive and has a distinctive rose colour.  The Clogau and Gwynfynydd mines are the only mines to have recently produced significant quantities of gold, and it is from these two mines that gold for the Royal wedding rings, traditionally made of Welsh gold, has been obtained. In is rumoured that the queen obtain a kilogram of welsh gold many years ago to ensure sufficient remained for more royal rings

Scotland

Scottish Highlands are famous for many things: ancient mountains, sparkling lochs, whisky and wildlife. But now a new and highly lucrative attraction has been found in the Highlands - gold.

An Australian-funded mining company has made several large finds of gold, potentially worth hundreds of millions of pounds, around the small village of Tyndrum.

The company, Scotgold, already owns a small mine near Tyndrum known as Cononish. First drilled 20 years ago, Cononish has never been commercially worked, until now where it is estimated that 4.5 tonnes of gold lie buried worth £100m..

The local community trust and tourism officials are discussing plans for a gold mine visitors centre in the village, gold panning “experiences” and jewellery boutiques selling rings, brooches and necklaces of “Tyndrum gold” to passing tourists at premium prices.

Chris Sangster, the director and CEO of Scotgold, said Cononish is expected to start producing 200kg of gold a year at the mine site when full-scale mining begins in 2011 – enough to produce 30,000 wedding rings a year – and another 500kg each year by sending rocks for processing elsewhere. Cononish will also produce roughly 17 tonnes of silver.

But Sangster said Cononish may only be the start of a major gold mining operation in the area. The company has a licence to explore a 2,200 sq km area of the southern Highlands for gold and it now believes there could be up to five times as much gold in the Tyndrum area.

The one-kilometre long shaft at Cononish has remained dormant until now because of the technical difficulty and cost of extracting the particles of gold from the quartz rock, which traps it. For every 10g of gold – roughly the weight of one wedding ring – about a tonne of rock will need to be crushed.

Most Tyndrum gold will be sold on the open market. The mine’s commercial value has been transformed by the sharp surge in its price during the recession.

Northern Ireland

The UK’s largest gold mine is in County Tyrone Northern Ireland, where 14 tonnes have been discovered in shallow deposits beneath a peat bog at Cavanacaw, in the same Dalradian rock strata that runs across the northern UK to the mine at Cononish in the Scottish Highlands.

In January 2007, after modern prospecting techniques discovered recoverable gold at Cavanacaw near Omagh in Co Tyrone, the first modern gold mine came into production. “This is Ireland’s first for two millennia”, announced Galantas, the Canadian company who owns and operates it.

It announced that Galantas expected to produce 30,000 ounces of gold a year – which alone would net close to 15 million pounds. Deposits were claimed to hold 14 tonnes of Irish gold. While most was to be sold as gold concentrate, a small part of what the company billed as “rare Irish gold” was to be used to make a range of branded 18-carat jewellery – Galantas Irish gold jewellery.

In addition to the Omagh gold mine, there are at least three other projects that are being explored.

Maurice Hall

Britannia gold bullion coin 1987

Britannia is an ancient term for Great Britain derived from Greek, and also a personification of the island and by the 1st century Britannia was known throughout the Roman world. She first appeared on coins issued under  Hadrian, where a female figure labeled BRITANNIA was depicted as a goddess. Britannia is portrayed as a beautiful young woman, wearing the helmet of a centurion, and wrapped in a white garment with her right breast exposed. She is usually shown seated on a rock, holding a spear, and with a spiked shield propped beside her. Sometimes she holds a standard and leans on the shield. On another range of coinage, she is seated on a globe above waves: Britain at the edge of the (known) world.

Britannia long survived the Roman withdrawal from Britain in the 5th century but the name fell into disuse until the 17^th Century when Britannia was used as an emblem of British imperial power and unity.

Britannia’s first appearance on British coinage was on the farthing in 1672, though earlier pattern versions had appeared in 1665, followed by the halfpenny later the same year; the model used, then and later, was Frances Teresa Stuart, the future Duchess of Richmond

Britannia £100 gold coin

In 1987, Britannia finally received the accolade of being promoted to a gold coin for the first time since Roman times and must rank amongst the worlds most beautiful bullion coins.
Britain decided to compete with the successful South African krugerrand bullion coin which had been minted by the million since introduced in 1967.
The gold Britannia was born and is produced in 22 carat gold, and is currently minted in 1/10 oz, 1/4 oz, 1/2 oz, 1 oz Weights. Various depictions of the goddess Britannia are on the coin, including the sitting Britannia, Britannia in helmet, Britannia with the lion, the Britannia and chariot and the standing Britannia.

The Britannia is classified as investment gold and thus free from VAT; but in addition as legal tender (like the Sovereign) is also free from Capital Gains Tax which is advantageous over other bullion coins and bullion bars as an investment instrument.

The Gold Britannia coin was originally alloyed with Copper, but from 1990 the decision was made to alloy with Silver.  This is why the earlier Gold Britannia’s have the deep Gold colour, as opposed to the lighter yellow gold colour of the Britannia since 1990.

Composition: 1987 – 1989: 22ct        (0.917 gold, alloyed with Copper)

1990 – present: 22ct    (0.917 gold, alloyed with Silver)

Designers:

Obverse – 3rd Portrait : Raphael David Maklouf, FRSA (1987 – 1997) / 4th Portrait :Ian Rank-Broadley, FRBS (1998 onwards)
Reverse -  Philip Nathan

Technical Specifications

Maurice Hall

The gold was stored in large compartments about ten feet wide, three meters high and six meters deep.  The stacks of gold bricks filled the space to the ceiling, each that brick is approximately the size of three bars of chocolate. They weigh a dozen pounds each and were worth in those days, fourteen thousand dollars. It was 1940, six years after  gold was officially thirty-five dollars per ounce. Even at this value the pile was worth  up $ 2 billion, a sum sufficient at that time to  buy the total output of goods and services of the United States for four days. It was, however, in a small secure volume, lying in five floor’s under the  traffic of the streets of New York. The contemplation of  more than one hundred miles of gold ingots stacked to the ceiling and under the bright lights was an experience both chilling and unforgettable.

This gold was not owned by the  United States. It belonged to France, England, Switzerland and many other countries. For a long time, these countries kept some of their official holdings of gold in the Federal Reserve Bank of New York, both for reasons of safety and convenience. Each bar was recorded and  bore the stamp of its owner and any other identifying mark. This process of marking is called “earmarking,” a phrase which undoubtedly refers back to the method  used to indicate membership of animal herds. This marking avoided each nation the  worry and expenses associated with the transport of gold from one country to another (especially if it had to cross an ocean), when for one reason or another, gold changed owner. For example, if England had to pay gold to France, an employee of the Federal Reserve just took a cart to the compartment assigned to  England, loaded the appropriate ingots and transported them to the  French compartment, changed the signs on gold bullion and noted the change in a book.

I landed a job in the documentation department of the Federal Reserve Bank of New York at the heart of the financial district. One day, as a favor, my boss took me to see the gold that was stored in the sanitized vaults of the bank, five floors underground. They were dug deep into the rock to deter burglars building an access tunnel. We entered the secured area by heavy cylindrical stainless steel doors, waterproof and airtight, which unlock automatically at nine o’clock in the morning and lock automatically at five o’clock in the evening. A basket was placed inside, just after entry, with fresh sandwiches, renewed daily, for any unlucky employees who sometimes found themselves locked in, when the doors automatically locked at the end of the day. A little further, there was a scale for weighing gold. It was so sensitive that a small speck would set it in motion. With gold, even dust counts.

These movements of a few meters from one compartment to another, often corresponded to significant changes in the distribution of wealth between countries, with profound impact on the level of living. However, citizens of each country never saw the gold of their governments. If all this gold, for example, had been submerged in the Hudson and we have continued to keep books of accounts the same way as before, the economic and financial implications for each nation would have been exactly the same and just as profound as when gold was physically moved from one compartment to another.

From the book The Power of Gold by Peter L. Bernstein

See our other article on “wealth is static“

The current consolidation shows signs of weakness in dollar terms but not in Euros or pounds. The Euro is currently  11% stronger against the dollar and the British pound 16% stronger, so investors in those zones have seen that percentage increase over the gold price rises since the start of 2009 in real terms My technical indicators would be flashing warning lights if USD 1,091 were not to hold. Theoretically, we could fall back to the USD 1,000 – 1,030. In pounds terms, if £670 were not to hold, we could fall back to £620 – £640.

If USD 1,091 holds or if we have a false breakout, then the upward trend that started last autumn will probably continue until April / May 2010 and we can still expect to reach an objective of USD 1,400 – 1,500 (which is equivalent to about £900 per ounce, depending on exchange rates). If the consolidation continues downwards, this means that the last peak of USD 1,226 (£742) represents the end of the intermediate bull trend that started in September and indicates that we can expect an extended consolidation period before a new bull market develops. The maximum fall that we are likely to see will be 10% from the current level and will be due to panic selling from the £605 – £610 support zone, which also corresponds to the very long term moving average for this bull market (moving or rolling average = technical method of smoothing a graph showing an upward price trend to provide an average price that eliminates the highs and lows ).

As is always the case, the best strategy for a long-term investor is to buy the panic (when price is driven down by panic selling) and sell the excess optimism. Nevertheless, there are two important comments on this strategy. The last peak of USD 1,226 was not due to extreme optimism or, at least, nothing like what we saw during the previous peaks of May 2006 and March 2008. It should also be noted that the difference in % terms between the price and its long-term moving average has remained quite small in comparison to the differences that were present in May 2006 and March 2008 and this shows that there is still a certain upward potential to complete the bull trend. Additionally, as the difference is much smaller than during previous bull trends, the likely fall from current levels is also much smaller. It’s this that makes me suggest that liquidating one’s investment to avoid a possible fall of 10% whilst possibly missing a 30% rise in few weeks or a month is not a good strategy at all.

It’s the very long term moving average (the 325 day moving average) that has always allowed me to identify the best purchasing opportunities in this bull market. Only the 2008 crash has broken this moving average during the last 7 years but we should not have our heads in the clouds as a new crash on the market would not involve the gold price this time in the same way as in 2008. Why? Because institutions and traders sold their assets in a panic sell off in gold due to deleveraging (mainly hedge funds and other institutionnals) and perhaps central bank manipulation. During that time, most people weren’t aware of the dangers and did not think we were on the verge of a collapse of the financial system. The resulting bank closures would leave them prisoners to a possible monetary revision with a massive devaluation of paper money, the cash, that everyone was accumulating. Most people were unaware as to how serious the situation was! If a new crisis were to occur, I believe that gold will not be sold in the same way because the institutions and central banks, alerted by the 2008 crisis, are now much more aware of the terrible risks related to their system. Obviously, if there were to be a new crash, traders looking at the short term, speculators looking for margin calls and other weak individuals will sell all their positions on gold and this may cause a temporary decline, at the start of the panic. This will then be followed by many professionals and bankers taking advantage of the situation to make MASSIVE purchases of gold metal.

The 2008 crisis was financial but the next will be monetary because the financial health of countries will be in doubt with the possible bankruptcy of several of them. I don’t have to tell you what the best thing to own in a monetary crisis is –  gold . We could see massive selling of government bonds and people seeking refuge in anything tangible which retains its value. Under these circumstances, the leading beneficiary will be gold!

The weakness in the gold’s price that you have detected recently is due to credit conditions being tightened in China. China dominates the markets these days. World markets often undergo a strong correction in the two to three months following a change in its monetary policy. Traders are anticipating this at present and have sold their assets in raw materials and emerging markets, which is the reason for the weak gold market. If the correction on the stock markets is only 20 – 30 % then this is not the start of the next crisis but only a market correction. In practice, all the money that was used to support the economy in 2008 will eventually end up in the economic circuit and this is why stock markets have continued to be bullish despite poor economic indicators.

Inflation will inevitably reappear sooner or later. The next crisis too, but it could occur later than the pessimist are suggesting because the re-launch plans and monetary injections are still supporting the markets. We are currently in the eye of the storm. We can expect to see the price of some agricultural products increasing during the following months, for fundamental reasons, and this will have a negative effect on the lives of many people who have already been severely hit by the crisis. Violent demonstrations can be expected. Some people, who have lost everything, simply have nothing more to lose, as Gerald Celente said.

In short, my view is that we have two options for the gold market, the best and the worst, either gold returns to the bull trend that started in September and reaches an intermediate peak of USD 1,400 – 1,500 in April/May or gold will continue its correction as a zigzag until June with an average floor of about £630 then stay flat during the summer before rising again in the autumn with an objective that exceeds USD 1,500 as the first signs of inflation returning become visible or we see the first effects of the sovereign risks that will effect some countries at that time. One thing is certain, 2010 will not be boring on the financial markets!

based on an article by Léonard Sartoni up dated by Maurice Hall

The Napoleon to the French is what the Sovereign is to the British, their most revered coin and this “national” coin would be  each countries prime choice  for investment.  Both coins share the same principal of good design, quality minting and 22 carat gold. The Marianne Cockerel ( on reverse ) illustrated here is French coin  emblematic of a time when golden Franks shone all over Europe. The original design was by Jean-Clement Chaplain and is used on both the obverse and reverse. Because of the quantity produced they are traded as bullion coins and demand little premium except in times of crisis

There is a huge difference between the two countries in our attitudes towards gold and gold coins and this is historic. In short the French are gold hoarders and the British are not. French citizens hold approximately 10 times the amount of gold that is in the UK national reserve. Due to the uncertainty and trauma of war and occupation over the last 100 years , the French transferred a proportion of their wealth into a tangible asset, mainly gold Napoleons. Conversely the British have never suffered in this way so had no need for gold insurance and in fact were actively discouraged by the government making it difficult for UK citizens to own gold coins.

Why is this of any interest to someone in the UK who may want to invest in gold coins?. The French will always turn to gold as insurance to protect their wealth and this creates issues of supply and demand causing the premium on the Napoleon 20 FRF and the half Napoleon 10 FRF  to rise in times of crisis.  During October 2008 when financial panic was dominant in the world the premium differential ( the difference between the normal premium and the highest sell price) on the half Napoleon rose to over 80% as the French sought refuge in gold. There is a similar history with the Napoleon during the panic in the eighties the premium on the Napoleon ran to 100% and in October 2008 it rose to 48% for a short time; but in the table below we use the regular premium in that period.   In the UK a premium rise on Sovereigns in time of crisis is far more conservative. It follows that buying Napoleons at a time of normal premium and holding for a time when there is unrest be it political or financial would generate a very good ROI.

The table shows the premium that coins attracted at the hight of the crisis in October 2008. Remarkably some coins can be bought at very little or even negative premium in certain times and there is then the potential of a premium rise.  Coins that are in short supply, are difficult to mint and or are minted in small numbers generally attract a higher basic premium

A very attractive mechanisms is  to buy the Napoleons and store them in secure third party vaults in France or Switzerland where they are fully insured, you have an independent certificate of ownership and they are in your control.  Even better is to belong to a community that allows you store your investment in a vault; but at the same time allowing you to buy and sell amongst  that community, without moving the coins, thus simplifying the whole process and removing any dealer cuts.

Maurice Hall

Recently gold has taken a significant correction from a high of $1,226 an ounce it fell to $1,075 – about 12% in two weeks. It fell by more than $50 in one day the greatest fall ever.  Should we be jittery that this is the end of the dramatic rises we have seen so far in the 21^st century or is it a correction that will recover and rise above the high recorded in December 2009?

Recent History

As gold has been with us for 6 millenniums , recent history could be described as very recent but lets stick to the last 30 years, Golds previous high, where it rose to $850 per troy oz.  in 1980 was subsequent to the Russian invasion of Afghanistan. If the thought of gold rising to over $1200  made people nervous it is put into perspective by remembering that by taking inflation into consideration, the $850 in 1980 is around $2500 today so the price has to more than double to reach the previous high. In 1980 gold was in a bull market with only a few currencies. Now the bull markets contain all major currency and the new giants of India and China.

Historic correction pattern – I would suggest that the current correction follows a historic pattern as the chart below taken over the last 10 years shows.  The December  correction from high to low was 12% that has now almost halved with the current price of $1140 to 7%.  Below the chart shows four quite brutal corrections ranging from 10 to 22% from the highs to lows followed by a period of consolidation and subsequent rises usually for around 9 months .

Historic dips and recoveries are a repeated pattern (rise 6-9 months, heavy correction. Consolidation before upward trend

Current gold correction should ease and rise to + $1400 by mid year

Mechanisms for Investing

Paper Gold – 95% of the worlds gold business is unallocated in which you do not physically own your gold.

• Mining Shares – no different than speculating on the stock market
• Futures – is a way to trade gold at an amount and price decided today for a delivery at a time in the future. You do not have to pay the full amount, but the dealers margin usually anything up to 20%  and you do not own the gold. This is pure short term speculation and subject to market moves and if you do know what you are doing your investment will evaporate
• Gold backed Exchange Traded Funds (ETFs) are securities designed  to accurately track the gold price.  Under an ETF a trust owns the gold, and you are a beneficiary of a debt owed by the trust and backed by its gold. This form of investment is better than a future but  probably more appropriate for investment institutions. If there was a panic and gold ETF investors try to take delivery of gold in exchange for their paper shares, gold funds may find it difficult to meet that demand.
• Gold Certificates – are normally unallocated gold with an option to convert to allocated but at a high cost. An investor in unallocated gold does not own that gold and is subject o the insolvencies of the vendor
• Bank Gold – this is always unallocated in effect you become a bank creditor and do not own the gold so any problems with the bank and your investment is at risk or total loss

Physical Gold

• Jewellery – Not an investment mechanism
• Large Bullion Bars - The main argument is that you can buy and sell your gold for very little premium and the rising gold price is great for ROI,  at the same time you hold a tangible asset. Bullion is not subject to VAT but is subject to Capital Gains.  The main disadvantage is that a large bar has a large value to initially purchase, your asset is not mobile and has moderate liquidity. If you own a 1 kilo bar it is not easy to sell off 100 or 200 grams
• Small Bars – Similar to Large bars but require a greater premium to purchase but do not require such a large initial outlay.
• Bullion Coins – e.g. krugerrands.  These are relatively new coins that are purchased for the value of their gold content and are of defined weights, they are in effect the same as small bullion with a small premium over the same value of gold in a bullion bar. Many bullion coins are not particularly attractive so is no different from bullion and are not subject to VAT but are subject to Capital Gains Tax unless they are legal tender.
• Semi-Numismatic – Sovereigns, Napoleons etc.  These are beautiful coins that have aesthetic, historic value.  Due to supply and demand they attract a premium ( value over and above the gold value) and depending where they are bought and their condition, the premium varies. The quality of the coin is an essential aspect, those which are in poor condition ( unless extremely rare), are only worth their gold value less dealers cut and are melted down. Sovereigns which are legal tender are VAT free and also free of Capital Gains Tax. Beware of Uncirculated and Proof coins as though undoubtedly high quality the premium is such that for a proof coin you pay double the gold value and that could never be recovered on resale.
• Numismatic – collectors coins that attract high premiums due to their collectability which is subjective in the collectors eyes and can only be re sold if wanted. Rare Sovereigns can be numismatic and may be VAT free if the premium is less than 180%.

Type of Investor

• Speculator – someone who is looking for short term gains and would normally use one of the gold instruments rather than physical gold.
• Investor – Again may be looking at the longer term gold instruments but may well want to take advantage of the rise in the gold price by owning physical gold
• Saver – Will want to own physical gold, take advantage of any upturn but whose prime purpose is to insure their wealth for the future

Reasons for investing Physical Gold

• Tangible Asset - Gold cannot  be printed like money. Governments worldwide are debasing their currencies as they print money.  It’s the oldest form of wealth in the world and does not rely on any third party promises. Gold is a “currency”
• Limited Supply – Less than 2000 tonnes per year Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.
• Demand greater than supply –  A World Gold Report said that investor activity had picked up strongly in the 4^th quarter of 2009. An important part of this demand is long-term in nature, likely driven by positive sentiment toward gold’s supply and demand fundamentals and the corresponding price outlook.
• Diversification – Portfolio protection -Most experts  agree that investors should be diversifying between 5-10% of their portfolio into gold
• Insurance What is the purpose of insurance? Of course, it is to protect you against the unknown and the unexpected. You can’t risk not having it in your life, even if you never have to use it. Gold is an insurance policy just like on your car or your home. Given the current financial uncertainty are you comfortable with owning gold through a paper deed, especially if there is no formal audit procedure to verify your share. The primary and most obvious advantage to owning physical gold over paper gold is that it’s yours unequivocally. Gold and particularly recognized gold coin is universally accepted as money anywhere in the world, regardless of culture, language or local currency and can be convert it to goods and services.

Even in a relatively stable environment but with turmoil in the stock market gold has performed very well. It can be said that gold performs well in bad conditions but stocks and shares performance rises in good times. We are now in a bad time with economies struggling to rise out of depression so gold is very attractive and safe form of investment.  According to a recent article in the Sunday times gold was the only investment that beat inflation over the last 10 years. One of the best ways to beat inflation is to own real assets

Recommendations

Gold Coins – Modern bullion coins such as Krugerrands represent good value as they can be purchased at only a little more premium or even similar to small bars; but we believe that older semi –numismatic coins such as Sovereigns, Swiss Francs, French Napoleons, American Eagles etc.  are a better buy. In the UK the coin of choice will always be the Sovereign. For small quantities these coins will cost more than bullion coins but in larger quantities the if they can be bought at 2-3%  above the premium on Krugerrands, they are the best buy.

In times of crisis when the demand increases the premium will rise under the law of supply and demand, thus on top of the gold value you may be able to sell at a higher premium.  The Sovereign is a beautiful coin, so has aesthetic and historic value, insures your wealth and has a liquidity that is recognised through world

Summary

• Gold is the best way to protect your wealth
• Gold should account for 10% of diversified portfolio
• Every one should hold some gold coins to hedge against systemic failure

Maurice Hall

There is no better time than now to invest in gold coin. Historically UK citizens have never been hoarders of gold unlike many other countries in the EU and the rest of the world as we have never suffered the trauma of invading armies, currency crash or totally destroyed economies. In countries where this has happened or threatened, people have turned to gold to protect their wealth knowing that no matter what happened they can exchange their gold coins for essential goods. E.g.  French citizens personally hold 10 times the value of gold that is currently held in the UK gold reserve. We also to not inherently have the “survivalist culture” that exist in the USA where apart from arms, food and shelter, it is seen as essential to own tangible liquid assets such as gold eagles.

Until this century the UK government had discouraged the owning of gold by making it difficult. Until 1971 it was illegal to buy more than four gold coins without a collectors license and then in 1973, VAT was applied to gold coins, which dampened any new found enthusiasm. In common with the EU, the UK removed VAT  from investment gold including  specific coins in 2000.

We have seen a steady increase in the gold price this century until the all time high of $1227 in Dec 2009  after which it dropped rapidly by more than 10%. Is this a concern?. Any downturn is bound to incline towards nervousness; but this is purely a correction as has been exhibited over the last ten years, where there have been savage corrections, followed by periods of consolidation for a few months then the upward trend continues.  Also when gold reached is last all time high in 1980 of $850, the equivalent with inflation is $2200 today.  Experts agree that the gold price still has a long way to go.

The demand for gold coins rose sharply in 2009. This was a result of investors hedging against financial failure or diversifying portfolios into gold as there is a continuing lack of confidence as economies struggle to pull out of the worst recession in most peoples living memory. They also attract a premium over the value of gold which is dependant on supply and demand and currently world mints cannot keep up with demand. The Royal Mint quadrupled production in the last quarter of 2009 and we have seen increased production in Germany, Austria and US where there was a shortage such that “Gold Eagles” were on allocated supply

It is not just panicky individuals but professional investment advisors and sophisticated traders who are purchasing 50 or more coins at a time.

Gold coins are a tangible asset that can quickly and easily be realized and many such as Gold Sovereigns have liquidity that is recognized world wide. However, the sophisticated investor should view gold coins as an insurance policy within a diversified portfolio

Experts agree that somewhere between 5-10% of an investment portfolio should be diversified into gold.

Now in the UK we now have the best environment in the world for owning gold coins and particularly gold coins of legal currency, like Sovereigns as they are now VAT free and provided they were minted after 1817, free from Capital Gains Tax.  Plus you will own beautiful coins that have historic and aesthetic value to insure your wealth and provide a tangible asset that has world wide liquidity.

Maurice Hall

Sovereigns of England and France were to thought to have  the God given power of   healing by touch and they  practised this power to cure sufferers of Scrofula an unsightly tuberculosis commonly known as the “King’s Evil”.In France it was called the “Mal De Roi” . The ceremony and cure was a “laying of  hands ” by the monarch and the touching piece was the talisman of the monarch healing power.

Gold Angel

This developed into crossing the sore of the sick person with a Gold Angel, which was a currency piece that portrayed the Archangel Michael slaying the dragon. This was good overcoming evil and the gold itself stood for purity.  The Angel which became known as a « touching piece » was then worn around the neck until cured. It was believed if the touching piece was removed the disease would return. The sovereigns of the House of Stuart also used the ceremony to help bolster the belief in the ‘divine right of kings’ . The practice peaked with Charles II touching over 100,000 people; but it was discovered that a good number of people were not sick but were attracted by the gold. It was a considerable drain on Royal Coffers.

Maurice Hall

The demand for gold coins has risen sharply in 2009. This was a result of investors hedging against financial failure or diversifying portfolios into gold as there is a continuing lack of confidence as economies struggle to pull out of the worst recession in most peoples living memory.

The Royal Mint more than quadrupled production of gold coins in the third quarter after demand increased as investors sought to hedge against a weakening dollar.

Output rose to 32,735.8 ounces from 7,500.2 ounces a year before, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production in the first nine months more than trebled to 100,391.3 ounces.

Sales of American Eagle gold coins by the U.S. Mint more than doubled in the first nine months to 954,000 ounces, its Web site showed. Harrods Ltd., the London department store, began selling gold bars and coins for the first time in October.

The strong demand for American Gold Eagles has lead to a shortage of blanks  forcing the U.S. mint to sell  on a weekly allocation basis thus dealers are charging a higher premium.

According to Muenze Oesterreich AG, the Austrian mint and the world’s largest marketer of pure gold coins, by the end of Q3 production was up 23 percent more last year’s total sales.

It is not just panicky  individuals but professional investment advisors and sophisticated traders who are purchasing 50 or more coins at a time The surge in investors is creating shortages in mints across the world as they struggle to meet demand driving premiums above normal levels.

Gold coins are a tangible asset that can quickly and easily be realized and many such as Gold Sovereigns have liquidity that is recognized world wide. However, the sophisticated investor should view gold coins as an insurance policy within a diversified portfolio.

Maurice Hall

The Gold Sovereign is a highly collectable investment coin.  Introduced in Britain in 1489 at the request of King Henry VII, the modern version first appeared in 1817 featuring the now iconic image of St George slaying the dragon engraved on the reverse.  Today’s sovereign contains 0.235421 ounces (7.315 grams)of gold and is sought after the world over.

History of the Sovereign from 1489 to the modern day

The first gold sovereign was struck in 1489 for the then King Henry VII.  It depicted Henry VII on the obverse and a Tudor rose and the royal shield on the reverse.  No value was shown on the coin.  Sovereigns continued to be issued by monarchs up until the end of Elizabeth I’s reign in 1603.  The name sovereign is thought to originate from the fact that the reigning sovereign always appeared on the obverse of the coin.   The name was also thought to derive from the fact that Henry VII wanted to demonstrate Britain’s power and splendour.

The first modern Sovereign

Gold sovereigns were re-introduced as legal tender in 1817 as part of a major coin reform led by the then Master of the Royal Mint, William Wellesley Pole.  A young Italian engraver, Benedetto Pistrucci, was appointed to create the reverse design of the new sovereign coming up with the beautiful image of St George slaying the dragon.  This design has seen many alterations over the years but is essentially the same.  As a testament to its greatness, it still appears on sovereigns today.  Other reverse designs have at times been used during the reigns of William IV, Victoria, George IV and Elizabeth II.  A royal shield design, as used on the first sovereign of 1489, has often been used in various different formats.  The obverse of the sovereign followed the trend established for the original sovereigns and portrayed an image of the reigning monarch which remains the case even today.

Gold sovereigns were withdrawn from circulation at the start of World War I in 1914 although production continued at the Royal Mint until 1917.  They however continued to be produced in other mints of the British Empire but at lower quantities than before.  Sovereigns not produced at the Royal Mint in London carry a mintmark to show which mint they were produced in.  Production of sovereigns in other mints stopped in 1932.

Elizabeth II Sovereign

In 1957 the Royal Mint began producing gold sovereigns again to meet world demand and stop counterfeit production which had become rife since the Royal Mint had stopped production in 1917.  They were not however reintroduced into everyday circulation.  Prior to 1979 only gold bullion coins had been issued and it was in this year that the first gold proof sovereigns were issued.  Between the years of 1983 and 1999 the Royal mint ceased producing gold bullion sovereigns and only minted gold proof sovereigns.  Gold bullion sovereigns were re-introduced in 2000.

1989
To celebrate the 500th anniversary  a special 500 commemorative design was produced, showing Queen Elizabeth II seated facing on a throne. This was only issued as a proof and demand  has grown steadily over the past few years, because as a single-date type coin, it is in demand by both date collectors and type collectors.

2005 – New Modernistic design
In 2005, the Royal Mint issued another new sovereign designed by Timothy Noad a herald painter at the Royal College of Arms actually a modernistic version of Saint George slaying the dragon with the shield as a focal point. This coin was issued in both normal circulation (bullion) and proof versions for 2005 only

2007 – 2010

The Royal Mint have used re-cut dies to take the design  back almost two centuries to portray Pistrucci’s St. George and the dragon in its neo-Classical glory

Types of Sovereign

Aside from the full sovereign, the Royal Mint today produces the following sovereigns in gold proof and gold bullion versions for general sale: quintuple (£5) sovereign, double (£2) sovereign, half sovereign and for the first time ever, 2009 saw the general release of a quarter sovereign.

Sovereign designs and dates

Technical specifications of modern sovereigns (post 1817)

Gold sovereigns, to invest or not to invest?

As one of the oldest coins in the world the British gold sovereign is highly sought after by both investors and numismatists alike.  As with all gold coins, the price of sovereigns fluctuates with the price of gold due to the gold content of the coin.  However the price of sovereigns is not entirely based on its gold content alone.  British gold sovereigns generally fetch a higher premium than the price of gold for the same gold content.  For example the 2009 gold proof sovereign retails at about £299 for 0.23 ounces of gold.  The current price of an ounce of gold is around £680 therefore the price for 0.235 ounces is around the £160 mark.  Therefore the 2009 sovereign is worth almost twice as much as the price of gold.

The premium of a sovereign obviously depends on its quality and whether it is easily available or not.  Some sovereigns fetch a much higher premium than others.

Whilst there is no official grading system in existence, sovereigns are generally graded in the following manner in the UK:

FDC/proof  – perfect quality

UNC – uncirculated

EF – extra fine

VF – very fine

F – fine

(see article on quality of gold coins)

Whilst older sovereigns were produced in much larger quantities than those produced today it is much more difficult to source a good quality sovereign from these times.  Sovereigns from the reigns of George III, George IV and William IV are extremely rare in good quality.  EF quality coins can be found but are quite rare and as such would fetch a high premium.  FDC and UNC coins are extremely rare for these periods and when sold fetch very high premiums.  A George IV sovereign from 1825 made £14950 in a sale in March 2004.  Early Victorian shield sovereigns are also highly sought after and therefore an EF quality coin would fetch a high premium whilst extremely rare FDC and UNC coins would fetch incredibly high premiums.  Later Victorian sovereigns are less rare than the earlier coins in good condition, however they are again fairly rare in top condition therefore sovereigns of UNC and FDC grade would fetch a high premium.

Edward VII and George V sovereigns are also fairly easy to obtain in EF condition and were produced in very large numbers so do not fetch such a high premium.  As with later Victorian sovereigns, it is more difficult to find UNC and FDC grade coins and these would therefore fetch a higher premium.  No sovereigns were issued for Edward VIII, however a few official pattern coins were produced.  If any of these were ever to be sold they would fetch an incredibly high price due to their extreme rarity.  During the reign of George VI no sovereigns were issued apart from a very limited amount of collectors sets to commemorate his coronation.  This was a gold proof set and as such can be found today in FDC condition.  This set would today fetch around double the price of a 2009 4 piece gold proof set.  When gold sovereigns were reintroduced during the reign of Elizabeth II they were produced at much lower quantities than for other monarchs as they were no longer in everyday circulation.  However despite the fact that much fewer coins were produced they were all of FDC or UNC quality.

The majority of coins were released during Queen Elizabeth II’s reign and are not difficult to find in top condition.  For this reason they fetch a lower premium than UNC or FDC coins from earlier periods, although they are still worth investing in as they do fetch a higher premium than the price of gold and are likely to become more sought after in the future.

Certain sovereigns are much rarer than others, some that are worth looking out for include:  1817 sovereign – the first modern sovereign and any other UNC or FDC coins from the reigns of George II, George IV and William IV (or even EF graded sovereigns from these periods), 1838 the first Queen Victoria sovereign, 1841 the rarest Queen Victoria sovereign, 1917 London minted sovereign (very few in existence as it was the year London stopped producing sovereigns) and out of Elizabeth II sovereigns the 1989 special commemorative 500th anniversary sovereign.   British sovereigns are an excellent investment choice and will continue to be so. For as long as Britain keeps its currency, it seems inevitable that the Royal Mint will continue issuing sovereigns every year for collectors, investors and enthusiasts.  However, if the UK joined the Euro would this signal the end for this iconic coin? If that were the case gold sovereigns would surely become more sought after than ever and consequently represent an even greater investment opportunity.

How to spot a fake

Many fake sovereigns have been produced over the years.  In order to avoid buying a fake you should always buy from a reputable source such as AuCoffer.co.uk.  We have however, created a list of key things to look out for to avoid buying a sovereign forgery:

• The feel of the coin – fakes are often very smooth or can have sharp edges
• Be wary of coins that are too shiny and where the details are blurred. It’s the sign that they have been cleaned and worn away some gold
• Dates – check for missing dates or check that sovereigns were actually produced in the year stated in the design shown
• Mintmarks – if there is no mintmark check that the London mint produced sovereigns in that year, if there is a mintmark check that the mint in question produced sovereigns in that year
• Weight, size and depth – check these correspond with official figure

Premium

Sovereign Price= Premium + Price of Gold

In the United Kingdom, the current premium is dependant on source, quantity, supply and demand and currently can range from 5% to over 40% depending on source and condition.  But what is this premium for gold coins?

The premium is the difference between the current gold value contained in the coin and the price paid for the coin and is usually expressed as a percentage. The price and premium depend on market factors at the time and are constantly changing.

e.g. a Sovereign may contain gold with a value of £160 but be worth £199 and for a newly minted proof coin £299 . The difference between these two figures, expressed as a percentage, is the premium thus a the proof coin is sold at approximately 46% premium

The premium for a coin is linked to several criteria:

· production: The smaller the coins and the harder they are to produce, the more chance there is that they will have a high premium, this principle that explains why the smaller half sovereign have a higher premium .  The quality of a proof coin usually demands a higher premium

· speculation: the premium changes to reflect supply and demand. In a period where more coins are being sold than are being bought, the premium is zero or slightly negative (in this situation, coins of moderate quality are often melted down). When there is high demand or excess speculation, the premium resulting from this speculation climbs sharply. The premium is therefore a very good indicator of the balance between supply and demand, the latter’s potential and also what actions should be taken. A negative, zero or slightly positive premium should stimulate purchases whilst a high premium of should lead to selling.

· conservation: a quality coin that has no trace of being handled will retain all its premium. Poor conservation conditions (contact with fingers, scratches, wearing…) results in a reduction of 4 – 10% and can lead to a negative premium. When this happens the coins are melted down and sold for the price of their precious metal

· collectors: some coins are rarer due to them being minted in small numbers or because they have special characteristics related to numismatic rarity criteria. In certain years where very few coins were minted a sovereign can cost several thousand pounds depending on its rarity and its condition. This value is therefore completely unrelated to the value of the coin’s gold content.

· geographical location: gold coins are not equally popular in every country and generally speaking coins that were the currency of a country are more popular in that country e.g.: Napoleons are very popular in France but are much less well known in China or the USA and people there prefer to buy local coins the exception is the Sovereign which is the most popular in the UK but also has an international reputation.

Premium differential: This the differential between the basic (normal ) premium and the highest sale price usually in times of crisis where there is great demand.

Below is some translated correspondence that occurred with our partner in France:

LORetLARGENT.info editor and a reader about the premium:

Xavier (blog reader): Why do you consider that the ingot is “banal”? Although its premium is not high, or even zero, isn’t this the simplest means of buying investment gold at its market price? When the price goes up (very high, I hope), the deal becomes interesting. A coin currently has a high premium so is interesting if you want to sell but not necessarily if you want to buy…

LORetLARGENT.info: If you want to invest 2,000 Euros, don’t buy an ingot. Wait until the premium for Napoleons drops below 5% to develop your position.
The premium has a real lever effect. Consider the cases of buying, in a few months, an ingot or the same value of 20 FRF Napoleons with a premium of zero. If you sell when you need your capital (don’t forget that gold is an insurance against the crisis but not against life’s challenges – in this latter case, other investments are better), you will have at least 20% more for equal weights with your coins (the premium) without considering the greater ease of selling them.
In summary, starting from the principle that gold coins are an anti-crisis investment, an insurance where you get back what you pay (normally insurance is lost money), you have to take account of the concept of the premium from the start, especially the premium differential. You must buy gold coins with the greatest potential growth from their base premium (the average premium outside of crisis periods) and the highest premium recorded during a crisis. There is a differential of 5% for an ingot but 76% for a half Napoleon. Consider what this means for our investment of 2,000 Euros when we come to sell. Obviously, the coins must be in excellent condition. (Above all, avoid buying via generalist on-line auctions where about 1/3 of the coins are good for the smelter even if the photos are flattering).
Bear in mind that the only thing that should determine your gold purchase (coins or other) is its resale (when and how). Usually, you should do it quickly and at the best price. The ingot is not a winner in this type of competition…

Xavier: (…) Can the premium fall as the value of gold increases or if we see, as at present, an explosion in the demand all over the world, especially in France?

LORetLARGENT.info: Trying to compare the changes in the price of gold with the premium on a Napoleon is like trying to compare the ethics of American and English bankers with those of French households. My proposition is a bit exaggerated but it is a good reflection of the fact that the criteria leading to an increase in the price of gold are not the same as those determining the premium on a Napoleon. To confirm this, look at the sharp rise in the price of gold in March 2008 and the dead calm for the premium during the same period. In March, the French only had a vague idea that a crisis was coming and continued to sell Napoleons until September. You should be aware that our own bankers were using every conceivable method to try and sell gold coins to us in January 2008 whilst they had no difficulty in offering us LYXOR GOLD. In summary, we are talking about the same precious metal but certainly not the same investment instrument and the premium is an excellent indicator of the difference between the price of gold on the markets, linked mainly to changes in the price of oil and the US Dollar, and the value of gold coins sold in France, which is more linked to the moral of small investors with tangible values such as the readers of this blog.

Xavier: OK, I accept your arguments, which are logical. It’s a question of investment instruments and we can consider that the moral of small investors has not yet bottomed out whilst the price of gold already reflects the decline forecast by the major speculators (or the beginning of the end of the manipulations on COMEX). The future will give us the answer.