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The Bret Leifer Rare Coin Letter
February 2008 NEWSLETTER
Investment-Quality Rare Coins

When Money was Really Money

Dear Collector,

In 1861, during the Civil War, the United States started using paper as money. In those days no one was dumb enough to accept paper as money so the Treasury had to print on the paper "payable in gold or silver coin." This made the public accept the use of paper as money. Up until this time, all money was silver, gold or copper coins.

A funny thing happened in 1933 during the Depression. The federal government decided that it would be a bad idea to offer the population gold or silver for their "so-called money." After four generations of accepting this new paper money, the whole population has been indoctrinated. They have learned to believe that paper is money. The public trusts and accepts paper money.

As you know, there are all kinds of paper. There are Euros, dollars, dinars, perhaps Ameros? Nigerian dollars, pesos from South America - take your pick. No one in their right mind would accept a paper napkin as money - or would they? Robert Mundell, the originator of the Euro, has come up with the idea of a global currency. Would that level the playing field?

Each country has its own version of paper. Each nation relies on the confidence that its citizenry and the world population have in that country's paper. It's all about confidence. IT IS A CONFIDENCE GAME.

The following was taken from an article I wrote in 2000.

"The pace of metal prices over the past decade or so has been dismal for collectors. For hedgers or insurance players, it doesn't matter so much. By insurance players we mean those who bought gold, silver or semi-numismatic coins as a hedge against financial calamity. For these people, owning the gold isn't a matter of growth, it's a matter of insurance protection that you only pay for once. They have their gold, so if the price goes down, they do not feel as bad as those who bought gold for growth. The underlying reason for hedgers and insurance players to own gold is for protection. It seems to me that the newer, younger collectors don't have the same sort of mindset about gold. The people that I talk with like the coin-collecting aspect as a means of having fun.

The pure trend of metals, as mentioned, has been down. However, as one looks at the components of the government's inflation index, one sees that the government continues to delete specific items. I remember years ago when the government did not count the freight on imported goods. What this did was reduce the import imbalance. No wonder that our inflation rate, as reported, keeps going down. However, if you've noticed the prices we pay for everyday necessities, you see that these are somehow missing from the data. There has always been a built-in inflationary reality to our economy and money process.

The prices of homes, automobiles, college tuition, health care and other realities that many of us take for granted, keeps going up. All you have to do it look from one generation to the other to compare the above categories. How can metal and coin prices be lower? One of my wholesalers said it in its purest form. The demand is low! When did the correlation of metals prices and consumer price increases drift apart? It seems to me 1991-93. Our last recession, perhaps? Gold was $300.+.

Now, gold is about $255-265 an ounce. That is approximately what it costs to get out of the ground. At this moment, friends of mine think that, at least gold bullion and maybe some coins are at near bottom. They are long gold futures. Friend, Elliott Wave phenom Bob Prechter, told me he thinks the first quarter of 2001 will be the bottom for gold. If he's not right, I think he's extremely close. Most commodity prices are low now. It seems to me that the risk of owning metals is now much lower than it used to be." 

Times have changed. Now, here we are in 2008 and gold is $900. + the ounce. Looking back, gold bottomed at $255 in April 2001.

So, if you are sitting with a pile of coins which do not have any particular focus, perhaps now is a perfect time for you to look at them again. You may want to get the value out of them by trading for more meaningful coins. You need to own coins that have a fundamental reason to increase in value. Remember, trading coins does not require any new cash. You want coins that will give you enjoyment over the years. Building a meaningful coin collection has immeasurable pleasure. At a time in the future, giving the proceeds to a loved one might be a good idea also.

You should government-proof your gold portfolio! Since coin grading is a subjective process, there is a risk in acquiring coins that have not been independently graded by one of the leading grading firms. You can be assured that our numismatic portfolios only include coins that have been graded by the top two grading companies.

The premiums on many numismatic gold coins are less today than the premiums were in June 2006 - when gold soared to over $700 an ounce. The premiums are even less today than they were in the late 1980's, which is an anomaly that should be taken advantage of, especially if you have bullion coins to exchange.

People ask me all the time about the relationship between the price of gold and the price of numismatic coins. Will the value of my coins go up the same amount when the gold market takes off or, conversely, will the value of my coins go down when the price of gold drops? The simple answer is that coins can go up even when the price of gold goes down.

As an example, an MS66 St. Gaudens $20 gold piece has fluctuated between $2,000 and $12,000 from 1986 to 2006. During that time, gold prices ranged from $255 to $725. When gold bullion was $725 in June 2006, MS66 St. Gaudens were only $3,750. The $12,000 price was reached when gold bullion was approximately $430 an ounce. As you can see, by this example, other factors were at work besides the price of gold. The prime mover at that time was the incredible demand outstripping the supply. Demand makes prices rise.

We must have confidence in our paper money or in gold coins, or both. The economy must function properly. As long as we continue to accept and exchange our U.S. $20 bills for goods and services, everything will be fine. You must own some kind of gold coins. The alternative is unlimited pain.

Best Regards,

Bret Leifer
President - Member ANA / Member PNG

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