The Moneychanger
Daily Commentary
Wednesday, 26 February a.d. 2014 Browse the commentary archive

A reader asked me to explain why some bullion coins, like Mexican 50 pesos & Austrian 100 coronas) are cheaper than others (like American Eagles and Maple Leaves, etc.).

The simple answer is found in the immortal words of Yogurt in the movie Space Balls: "Moichandizing!"

Copying the Krugerrand's success, all the modern coin mints distribute through 20 or 25 major wholesalers, and enforce a high premium (profitable to the mint) on the coins, higher as the coins get smaller. Without this cartel enforcing those high premiums, they collapse, as we saw in early 2000 after pre-Y2K buyers sold back all those American Eagles they had bought, knocking premiums down to zero.

If you remember nothing else, remember this: OVER TIME PREMIUM ALWAYS DISAPPEARS. As a bull market keeps sending silver or gold up, it also grinds away at those premiums. At the market peak (I've been there) NO COIN carries a premium. At peak, nobody asks what KIND of ounces you have, only "How many?"

Therefore you are throwing away money when you buy premium, like the higher premium on American Eagles & other modern issue coins. You will NOT recoup that premium when you sell. Same applies to so-called numismatic coins like US $20s & $10s. I have, by the way, charts of those premiums back to 1998 to prove that numismatic coins DO NOT outperform bullion. ("Numismatic" here means the common, plentiful semi-numismatic stuff some companies companies push, like US $20 golds. It doesn't include genuinely scarce coins like an 1804 dollar.) Generally they mark those coins up 45% so they can pay the salesman a 25% commission, unlike bullion dealers who work on a 3.5% to 1% markup.

Don't bother sending me emails correcting me with some boiler room salesman's sales pitch about confiscation, non-taxability, numismatic outperformance, non-reportability and other myths. I have 34 years' experience in this business, not one year's experience thirty-four times.

So why are Austrian 100 coronas & Mex 50s cheaper? Because their premiums are not supported by a marketing cartel. Those were the most popular gold coins in the world until the Krugerrand was introduced in 1968 with one marketing ploy: it contained an exact ounce of gold, not 0.9802 oz (A100c) or 1.2057 oz (Mx50p).

A coin can lose all its premium on the sell side, but arbitrage keeps them up on the buy side. If they fall much below their spot gold value, dealers will begin buying and melting them. That's why at wholesale no gold coin every falls much below a 2% discount (98% of melt value), since they're profitable to melt about there.

Often dealers "talk their inventories." If you ask about the lower premium coins, they'll badmouth them because they don't stock them and want to sell you what they have in stock. (Sorry, it's a fallen world.) But it's always in your interest to buy the lowest cost silver & gold you can get, because OVER TIME PREMIUM ALWAYS DISAPPEARS.

And no matter how many times I explain all this, some people still buy high premium American Eagle gold and silver coins, and that's fine. I tell people, "I'm your servant, not your master. Buy what you're comfortable with, not what I'm comfortable with."

How much do you save with the Austrian or Mexican coins? Today about $40 an ounce. Not much if you're buying one ounce, but you get nearly a quarter ounce free on ten ounces, nearly three ounces free on a hundred.

Some dealers will also say that the Austrian or Mexican or other coins are hard to sell back (aren't liquid). That is not true. Also, they'll tell you the Mexicans have been heavily counterfeited. There have been a few counterfeits, but not good enough to fool any dealer worth his scale, so that's no problem.

Now to markets:

Stocks were flat today. S&P500 rose 0.04 to 1,845.16 against yesterday's 1,845.12. Who-hoo. Dow rose 18.75 (0.12%) to 16,198.41. Dow is refusing to confirm new highs in other indices, and those others are stuck.

Today's tumbles in silver & gold took the Dow in metals up. Dow in gold rose 1.08% to 12.18 oz (G$251.78 gold dollars). Dow in silver rose sharply, 3.62% or 26.68 oz, to 763.36 oz and above the 742.91 oz 200 DMA.

US dollar index awoke today, but not like a giant refreshed with wine. Climbed 25 basis points (0.31%) to 80.44. It is still range trading in the lower third of its range, below all its moving averages. Today may mark a change in attitude, but the dollar index will have to show us.

Didn't take much from the dollar to knock the stuffing out of the euro. It fell 0.43% to $1.3686 and trying to turn down. Yen dropped 0.22% to 97.7 cents/Y100 & no change.

Gold and silver fell back sharply today. Silver lost 70.9 cents or 3.23% to 2125.4 cents. Gold gave up $14.80 (1.1%) to end Comex at $1,328.20.

Gold reach roughly it's October high ($1,361.80) with today's intraday high at $1,345.60. Whither from here? The 200 DMA stands at $1,305, major support/resistance at $1,300, and the neckline of the upside down head & shoulders gold broke out of stands about $1,380. Any of those might be targets, but gold will likely see several days of correction. A 50% correction of the end-December intraday low ($1,181.40) to today's intraday high ($1,345.60) would take gold to $1,263.50.

Biggest nailbiter is whether Gold will hold on here, or make one last plunge below the double bottoms of June & December. I don't expect that, but it is a possibility that I must confess.

Silver's rising flag was already making me nervous yesterday, & I should have paid closer attention, especially with the RSI overbought. Today it dropped all the way down to the 200 DMA (2106c).

A 50% correction from the December low (1872c) to the move's high (2218) would pull silver back to 2045c. Coincidentally, 2050 is where silver made its giant breakout on 14 February. A 62% correction would send silver to 2000c.

These aren't prophecies, only forecasts & thinking out loud.

Right now we just wait to see where this will stop.

One good thing about this drop: it took the gold/silver ratio up to 62.492, so you have a little more time to swap gold for silver above 60:1. I heartily recommend that swap.

On 26 February 1863 the genocide Abraham Lincoln added to his other crimes the debasement of US currency by singing the National Currency Act authorizing issuance of the Greenbacks, a purely fiat currency.

Argentum et aurum comparanda sunt —
Silver and gold must be bought.

— Franklin Sanders, The Moneychanger

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Market Snapshot See more charts and market data
26-Feb-14 Price Change % Change
Gold, $/oz 1,328.20 -14.80 -1.10%
Silver, $/oz 21.25 -0.71 -3.23%
Gold/Silver Ratio 62.492 1.343 2.20%
Silver/Gold Ratio 0.0160 -0.0004 -2.15%
Platinum 1,428.20 -13.85 -0.96%
Palladium 731.50 -4.60 -0.62%
S&P 500 1,845.16 0.00 0.00%
Dow 16,198.41 18.75 0.12%
Dow in GOLD $s 252.11 3.07 1.23%
Dow in GOLD oz 12.20 0.15 1.23%
Dow in SILVER oz 762.13 25.46 3.46%
US Dollar Index 80.44 0.25 0.31%
IMPORTANT NOTE: The following are wholesale, not retail, prices. To figure our retail selling price, multiply the "ask" price by 1.035. To figure our retail buying price, multiple the "bid" price by 0.97. Lower commissions apply to larger orders, higher commissions to very small orders.
SPOT GOLD: 1,329.00      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,364.88 1,375.52 1,375.52
1/2 AE 0.50 677.28 700.05 1,400.10
1/4 AE 0.25 338.64 356.67 1,426.68
1/10 AE 0.10 139.44 145.53 1,455.26
Aust. 100 corona 0.98 1,296.17 1,305.17 1,331.54
British sovereign 0.24 315.19 319.94 1,359.15
French 20 franc 0.19 249.99 252.97 1,354.98
Krugerrand 1.00 1,344.95 1,354.95 1,354.95
Maple Leaf 1.00 1,344.00 1,359.00 1,359.00
1/2 Maple Leaf 0.50 764.18 697.73 1,395.45
1/4 Maple Leaf 0.25 338.90 355.51 1,422.03
1/10 Maple Leaf 0.10 140.87 144.86 1,448.61
Mexican 50 peso 1.21 1,594.23 1,605.23 1,331.37
.9999 bar 1.00 1,333.65 1,348.00 1,348.00
SPOT SILVER: 21.30      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 25.50 27.50 35.95
VG+ Peace dollar 0.77 22.50 24.50 32.03
90% silver coin bags 0.72 15,658.50 15,908.50 22.25
US 40% silver 1/2s 0.30 6,091.75 6,241.75 21.16
100 oz .999 bar 100.00 2,135.00 2,185.00 21.85
10 oz .999 bar 10.00 213.50 218.50 21.85
1 oz .999 round 1.00 21.40 21.90 21.90
Am Eagle, 200 oz Min 1.00 22.80 24.00 24.00
SPOT PLATINUM: 1,428.20      
Plat. Platypus 1.00 1,443.20 1,460.20 1,460.20
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© 2015 Little Mountain Corporation, d.b.a. The Moneychanger. All rights reserved. May not be republished in any form, including electronically, without our express permission.

Warnings and Disclaimers

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary trend is up, targeting 16:1 gold/silver ratio or $195.66; stock's primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 16 ounces of silver. US$ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

Be advised and warned:

  • Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short-term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.
  • NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.
  • NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.
  • NOR do I recommend buying gold and silver on margin or with debt.
  • What DO I recommend? Physical gold and silver coins and bars in your own hands. For additional information, please see our Ten Commandments for Buying Gold and Silver.
  • One final warning: NEVER insert a 747 Jumbo Jet up your nose.

Explanation of Terms

The US DOLLAR INDEX is the average exchange rate for the US dollar against the Euro, Yen, Pound sterling, Canadian Dollar, Swiss Franc, and Swedish Krona, weighted for each country's trade with the US. It gives a general measure of the US dollar's performance against all other currencies.

The DOW IN GOLD DOLLARS measures the Dow Jones Industrial Average in gold dollars (0.048375 troy oz. by law). The DiG$ depicts the Primary (20 year) Trend of stocks against gold. When the DiG$ is dropping, gold is gaining value against stocks in a trend that should last 15-20 years. The DiG$'s chart is identical to the Dow in ounces of gold, but gives us one unvarying measure all the way back to 1896. Because it shows the primary trend ("tide") of gold against stocks, for investors it is the single most important financial chart in the world today. Since its August 1999 high at G$925.42 (44.8 ounces), the DiG$ has trended down, targeting a G$80-G$20 (4-1 oz. of gold will buy the whole Dow).

The DOW IN SILVER OUNCES shows how many ounces of silver are needed to buy the entire Dow. The DiSoz is trending down with a target of under 36 ounces.

The GOLD/SILVER RATIO is the gold price divided by the silver price, and shows how many ounces of silver it takes to buy one ounce of gold. The Ratio shows us the Primary (20 year) Trend of gold's value against silver. When the Ratio's trend is dropping, silver is gaining value against gold. This trend targets a gold/silver ratio of 16 ounces of silver to one of gold within the next 5-10 years. That implies that silver will massively, vastly outperform gold before this bull market ends. When both metals are rallying, the ratio often (but not always) drops, confirming the rally.

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