Beware: The Ide(a)s of 'Rare Coin' Dealers - Pt. II

By Jeffrey Bennett, Publisher

Jeffrey Bennett, Publisher & Collector

Following is a continuation of an e-mail dialog, which I have been conducting with a potential client from the east coast. If you have not read Part I of this series, I invite you to do so now as a preface to that which follows. You may find the original entry here - J.B.

Whew, what a great and educational response to our questions. Please refer below to my response and/or questions to your comments. We appreciate the time and consideration that you're providing us.

I appreciate The Two Rules of Thumb. Yes, we want to invest in gold and silver primarily to prepare for a potential collapse of the US dollar. Other websites have indicated that one should avoid buying gold and silver bullion because the government could do again what it did during the Roosevelt years and confiscate it, but the Gov't can't legally confiscate coins. We take this with a grain of salt, so can you shed light on this issue. You say that in a crisis the weight of gold and silver is what anyone will care about; thus, bullion would work as well as coins, right? Also, my brother-in-law says that buying w/gold and silver during a financial crisis would likely invite aggravate theft. There's truth to this logic, so would it be wise to retain gold and silver in a bank safe deposit box or in the home under lock and key? Also, we've read that banks can legally deny its customers access to their safe deposit boxes during a financial crisis. Yes? No?

As you know, I'm an IRS employee and have participated for years in our Thrift Savings Program. Though my funds are providing excellent returns, I'm reading and sensing that it'd be wise for me to take a loan on a portion of these funds to apply towards the purchase of gold and silver. Some folks think I'm fool hardy (because the price of gold is so high right now), but we think it's a wise move because it's an investment that'll provide an added and lifelong sense of security for us, our children and grandchildren. I'm awaiting word on my loan application that will provide $10,000-$15,000+ for these investments.

On the face and delivery of your response, you seem like a damn nice guy and a straight shooter, and this observation comes from a guy who served in various capacities as an Army recruiter for 10+ years.

Your response to these questions will be appreciated.

Thanks again,

(Names omitted for privacy)

Mistakes do happen and given the time of year it is for you - I'll allow it. The name is Jeff - not Bill. Just funnin' ya' so don't be concerned.

I also am happy that you took the time to read before we got together - it clears up a lot of detail early on - and I hope has answered as many questions as it raised - and it sounds like it has.

I'm going to take you one step further in my commentary of the other evening, a story....

A Modern Horror Story: Recently, I had a gentleman contact me from Texas, who in the year 2000 came to a personal decision that he wanted to diversify his investments into gold. He set out to find a dealer who would provide the basic, simple "ounces of gold" that he felt would fit his needs. Because of an ad he had heard on the radio, he contacted a "Rare" Coin firm in New Jersey, who smoothly convinced this gentleman to purchase a selection of certified (slabbed) "rare" coins, promising him untold multiples of profit in the few short years to come. The profits never came - even though he had been told that, "when gold doubles in value, these rare coins traditionally have tripled or quadrupled in value."

Since 2000 gold has MORE than doubled in value - and yet the value of his "rarites" had declined by over 52% - in part because he had purchased common-date, generic coins at industry standard over-inflated prices (estimated 40% markup). His $19,000 investment brought no more than $9,052.00 in October of 2005 - and yet - if he had only placed his original investment into common pre-1933 British Sovereigns (genuine "coin of the realm") - his holdings today would be valued at approximately $38,000.

In late November of 2005, my new client has started over and is on his way to recovering the losses of an ill-advised "investment" - and the barter or exchanging of a quarter ounce of gold will be much easier than swapping an MS-65 common-date Double Eagle for a Double Cheesburger at Mickey D's.

What you have just read has been incorporated into my comments to you of the other evening. I have taken the liberty - for educational purposes, of combining all of it and posting it on my web-site to offer further education to my readers. I have omitted your names, of course.

On to your next set of questions: As a rule, I make "bullion coins" available to clients who are absolutely insistent, however I do not personally own any for the reasons everyone in "the industry" acknowledges - a fear of the ghost of Roosevelt. In 1975, when our "privilege" was restored, allowing us the ability to "own gold" once more - it was just that - a "privilege" granted by Big Brother. It is commonly believed by most that, at the time of FDR's dastardly deed - that we were the only ones being raped - in fact we were the last. The die had been cast amongst the "free nations" of the world - and the global depression was upon us all.

Paragraph 2, Section ‘B’ of Roosevelt’s Executive order, specifically exempted coins having, “recognized special value to collectors.”

From my Catalog: The provisions of the Gold Reserve Act of 1934 and the Executive Orders and banking laws of 1933, which originally demonetized and confiscated all outstanding gold coin in the United States, prohibited the individual possession of gold bullion (or any other recognizable use of gold as a store of value). However, they ... permitted the retention of gold coins of "recognizable numismatic value." Failure of the original legislation to define adequately what constituted recognizable numismatic value caused considerable confusion for some years, but in general, the parts of the gold regulations concerning numismatics were not rigidly enforced - at least not to the point of harassing collectors of gold coins.

In 1954, the Treasury Department recognized at last that the time had come to legitimize the numismatic gold market. Consequently, an amendment was made to the Gold regulations, to the effect that all gold coins minted prior to 1933 would subsequently be presumed to be rare and of recognized special value to collectors, without the necessity of further specific determinations by the Treasury. All U.S. gold coins and the vast majority of foreign gold coins were thus freed from the overhanging threat of confiscation...

Anyone who says that “THEY can’t take it” is a fool. Just consider the economics of the land today and the indebtedness of our nation to the world – the Piper must be paid at some point – and gold has proven to be the answer throughout history.

“Would it be wise to retain gold and silver in a bank safe deposit box or in the home under lock and key? Also, we've read that banks can legally deny its customers access to their safe deposit boxes during a financial crisis. Yes? No?”

Your brother-in-law is not totally incorrect, however if I am to own specie, I want as few people to know about it as possible and I most certainly would not put it into the hands of the International Banksters. Get your own safe. As relates to the bank’s ability to block you from your goods during a financial crisis, the answer that question of course is, “yes!” If you do nothing else, don’t wait until next Christmas – watch the movie, It’s a Wonderful Life as you consider your own question. Fear was put into the minds of the depositors of the Bailey Building and Loan – and it created a run on the institution. It’s just a small example of what Roosevelt did during his first week in office – and a sign of what was to follow.

This happened in about 1992 to a bank in Texas – on a Friday afternoon, when the F.D.I.C. took possession and prevented depositors from gaining access to their accounts until later the following week – and that included their deposit boxes full of their “goods.”

Stating what I have about bullion and overpriced (by most dealers) numismatics; please allow me to suggest several alternatives for your consideration. Given the statements made within the above section from my catalog, there are alternatives – small, fractional gold coins from around the world, which are considered to have “historical” value – and would include carefully selected, affordable American issues.

Once again, I am not against putting funds into certified, high-grade coins, however with the funds you have suggested that you are going to work with at this time, prudence would be wise. If you had ten times that amount to begin with, my recommendations would be the same – except that I might suggest 20 to 25% of those kinds of funds going into selected true rarities. I may cover this more toward the end of this lengthy response.

I think that there are numerous variables, which I am not privy to at this point, which can make a difference in one’s decision. Your age; how close to retirement; the ages of your children; short-term goals; long-term goals (financially and otherwise) and your own honest opinion of where you believe that the economy of this nation is headed. In your case – it must be difficult to separate “church and state,” so to speak. I do not envy you in that respect.

As to gold being high priced right now – as compared to what? Five years ago? Of course. The reality is that while gold has more than doubled in the past five years, the dollar (at this time, still the international currency of choice) has lost half of it’s REAL purchasing power. Your wife can see that when she goes to market. You can both see it at the gas pump. Neither of these two items are included in the REAL inflation figures being dispensed out of Washington as they were 25 years ago, when inflation was acknowledged at twenty to 22% - at the time gold went to $850.00 per ounce. The truth is that the Great Wal-Mart of China is both a blessing and a curse to this nation; providing products at lower cost than anyone else on the planet – all while we finance our own demise by selling our country to China. If they cash in their American chips – we might as well cash in ours – but not in the same fashion.

For over six millennia, gold and silver have provided a stable foundation for any family, merchant or nation, who have had the wisdom to hold onto it. Why do governments teach us to believe that gold is an archaic relic – but they clearly hold over 70% of the world’s known supply. They still trade with it amongst themselves and yet they tell us to “do as we say, not as we do?”

My personal goals are for my grandchildren as I continue – no matter the cost – to add to their own holdings. As with your own children – what are their chances in the future if we do not lay down a solid foundation for them today?

Economist’s from around the world – those who have nothing to gain by the sale of gold or silver – believe that we have only just now entered the second leg of this long term upward trend. Some estimate that gold may reach as high as $2,000. to $3,000. an ounce. I pray not or it’ truly is all over. I tend to be more conservative at a $1,000. to $1,500. Yet, if all gold should do is reach it’s previous peak ($850.00), silver should go from it’s present value of (about) $9.00 per ounce to $50.oo per ounce or more. I’ll let you do the math.

Does that mean that you should do a complete turnaround and put it all into silver? I don’t recommend it. Silver is much heavier and too bulky to transport “quietly.”

Based on general assumptions and not having answers to the rhetorical questions I posed to you above, my recommendations to you might include the following:

1. Approximately 15 to 20% of your designated funds into silver. As to what type? Either “junk silver” or pure 1 oz. silver rounds. Sorry Uncle Sam – there is too high of a premium on American Eagles.

2. Approximately 60 to 80% of your funds into a diversified selection of gold coins, offering your family security against the continual foolishness and mismanagement by pollyanna-ticians, growth potential, minimal down-side risk and the beginning of what could prove to be a life-long love of “coin collecting.” We’ll talk about that more in detail when we speak.

3. There are some exceedingly spectacular arenas in high-grade numismatics, which no one has probably shared with you. We can talk about them and you might find them of interest due to the fact that you can acquire higher grade than in gold – for far less money – and historically they have outperformed – whether gold or silver have moved or not, therefore you MIGHT consider earmarking up to 20% of your funding into that arena.

I’ll tell you about my 5 1/2 year old granddaughter when we speak – she has grown up in my offices and studio and knows what REAL money is. When she comes over, she asks, “do you have any gold monies Daddo?”

Once again, I hope that my commentary has enlightened your thoughts on this subject and I hope that I have answered your questions.

I am looking forward to speaking with you at your convenience.

Regards,

Afterword: Coming Next - Beware: The Ide(a)s of 'Rare Coin' Dealers: The Conclusion

Jeffrey Bennett is the Editor/Publisher of The Federal Observer and has been a purveyor of gold and silver bullion and numismatic antiquities for sixteen years and is President of Kettle Moraine, Ltd.. He may reached by telephone by calling 1-623-327-1778 or via email at jeff@federalobserver.com to arrange a no-obligation consultation.