Rare Gold Coins Vs. Stocks: Five Clues Why Gold Coins Are The Best Bet As Of Late 2007
If look and feel have anything to do with it, rare gold coins would beat stocks every time. They are charming, beautiful, have a pleasant weight, and because they have been around for a while, they represent an intriguing part of history.
But there are other reasons, timely reasons, to add more gold coins than stocks to your portfolio today … although making a claim like that can come dangerously close to blasphemy for traditional stock investors. However, ignore the available clues at your own risk. For example…
Track n. # 1 – Call options point to higher gold. This analysis is by Prieur du Plessis and Adrian Douglas. In summary, these two men noted that the December 2007 gold call option contracts were indeed sizable, currently numbering about 122,000. What’s more, they outnumbered the puts 2 to 1.
On the basis of this “positive increase in gold”, both du Plessis and Douglas believe that gold is on the threshold of a large price increase. It is not the first time that Douglas believes this way. In November 2005, he predicted an increase in the price of gold from its $ 460 level, based on a similar accumulation of gold call options. Two months later, gold was $ 100 higher. Next …
Track n. 2: the demand for gold continues to rise; The supply of gold continues to decline. The situation here has only gotten worse. According to a recent report by the World Gold Council, global demand for gold is 30% higher than a year ago, while supply continues to move south. The world’s largest gold producer, South Africa, hit an 84-year low despite high gold prices. And the world’s leading gold producers have seen a nearly 20% reduction in production since 2001.
It goes without saying that higher demand and lower supply lead to higher prices.
Track n. 3: “Triple Threat” of the Housing Dilemma. Harvard economist Martin Feldstein warned that we face a triple threat from the real estate recession. According to Bloomberg’s Sept. 2 report of his Jackson Hole speech, “Feldstein described a ‘triple threat’ to housing: a ‘sharp drop’ in home and construction prices; higher borrowing costs and a “freeze” in the credit markets stemming from prime mortgage under-losses and fewer home equity loans and refinanced mortgages, leading to lower consumer spending.
The overall effect, it goes without saying, will have terrifying consequences. “The economy could suffer a very serious recession,” he added. All the more reason to branch out into the shiny stuff.
Clue # 4: America follows the path of the Roman Empire-Comptroller General, David Walker. Oh! You know you’re in trouble when the guy in charge of government accountability finds “striking similarities” between the United States and the Roman Empire. The end of the Roman Empire. Among his comments, the United States suffers from “a decline in moral values and political civility at home, an overconfident and extended army in foreign lands, and the fiscal irresponsibility of the central government.” It is so serious that it even refused to approve the government’s “books.” Oh again!
How does this relate to gold and stocks? When high-profile members of our own government come out and warn us of the next “economic tsunami,” it is time to seek refuge in gold.
Clue # 5: Inflation, inflation and more inflation. Despite all the government statistics in the world, we all know that inflation is on the march. We know it every time we fill our tanks. And somewhere in our minds, we know that rising energy prices have to be bad for the economy, affecting everyone and anyone who sells something. That intuition, unsurprisingly, is ingrained indeed. According to the Federal Reserve Bank of Dallas, “nine of the ten recessions after World War II were preceded by a sharp rise in oil prices.”
With the Fed rushing to postpone a recession by cutting rates, we also know, somewhere in our psyche, that the dollar will only weaken further, perhaps dangerously, due to its current historical weakness with each of these cuts. And the end result of all this change is inflation. We will need more dollars to buy what yesterday’s dollars used to buy.
You’ve no doubt heard the saying: “In 1911, an ounce of gold could buy a very nice suit. Today, you still can.” That is by way of saying that gold is keeping up with inflation. He did it in 1911. He still does it now, almost a hundred years later. Which is what makes gold the weapon of choice for fighting inflation.
But why stay on the defensive with gold?
In 1995, a Penn State economist, Dr. Raymond Lombra, conducted a study that he presented to Congress. This 40-page report “proved” that rare coins, including rare gold coins, were among the best performing assets for the past 25 years (and that included stocks). It also reported that “rare coins dominate gold bullion as a diversification asset.” These “numismatic coins” do this by reducing volatility and providing better returns.
Lombra’s most recent study from 2003 found the same situation. From 1979 to 2003, rare coins, such as rare gold, had the highest average annual rate of return and outperformed gold bullion as an investment and inflation hedge.
But whether you prefer to take a more aggressive position with rare gold coins rather than stocks or just want a proven financial safe haven, the time may be right for gold. And that may be an understatement.