In reference to the stock market and what it might do, over a century ago, American financier J.P. Morgan had the pithy quote, “It will fluctuate.” Words from 120 or 130 years ago ring especially true today. By the way, around 1900, when Morgan was amassing his wealth, the Dow stock average was barely 70. As of this writing, it is a bit over 39,000. It has certainly fluctuated – upward.
More contemporarily, 94-year-old Warren Buffet – known as the “Oracle of Omaha” for his legendary prowess at stock picking – stated, “When major declines occur, they offer extraordinary opportunities…” He cautioned that was meant for people not in debt.
There have been fewer prognostications about precious metals. There are plenty of “gold bugs” out there, (a term for those who put much or all their fortune into owning or investing in gold). But, trying to forecast what the precious metal will do has long been an unknown....
In the early 1980s, when gold made headlines due to its run-up (hitting $850 per ounce), many prophets touted gold rising to $2,000 or even $3,000. At the time, that sounded absurd. It took four decades but the yellow metal has eclipsed that price. As of this writing, gold is at $3,341 – even climbing over $100 in 24-hours. Collectors and investors have taken notice.
What’s significant about all this is the global difference between gold and stocks. US stocks are primarily owned by US citizens, companies and funds. Reportedly, the richest 10% of American households own and control 93% of the total stock market wealth. That means, US investors have the greatest impact on daily stock prices.
Conversely, gold is universal. The largest gold exporter is one of the smallest countries – Switzerland. The largest gold producer is the largest country – China. Other foreign countries such as Russia, Australia and Canada follow China in gold production. (The US is the #5 producer.) Even Ghana, Brazil, Mexico and Uzbekistan are players in the gold producing world.
What all this means is that gold prices are far more universally based. That’s significant for collectors and investors – particularly with gold now at its highest price in history.
As I’ve written before, citizens in India – be they rich or poor – affect the price of gold. Women in India take great pride in wearing as much gold as they can afford. If they are not wealthy, Indian citizens purchase gold as small as a one-gram bar. That’s smaller than a Tic-Tac breath mint. Doesn’t matter. In India, owning gold in any size or amount is considered essential.
More and more, as prices rise, this will come into play in the global gold market. In the US, or most anywhere in the western world, the form in which people buy gold as an investment is key.
Many investors around the world look to American Eagle gold coins as the beta for what’s globally sought after and traded. The thing is, prices for those and/or other gold coins can vary.
A prime example would be a one-ounce US gold Eagle coin. At the current gold price of $3,300 per ounce, you might expect a one-ounce Eagle or any similar gold coin to cost about that. Not quite. There is always a mark-up to cover the manufacturing of the coin. Consequently, at today’s price, dealers are selling one-ounce gold Eagles for $3,400 – well over the “spot” price. Conversely, for those selling a one-ounce coin, dealers are paying about $3,300 making the current spread about $100.
But, wait. On the US Mint’s website at www.USMint.gov, the cost of a one-ounce gold Eagle is $4,100 plus shipping. That’s a huge premium over the spot price. If you look closely, what the Mint is offering are highly polished “proof” coins. Those are specially struck and packaged primarily for collectors. Standard “uncirculated” specimens – the type most gold bullion investors acquire – are sold by coin independent dealers or gold traders.
The same holds true for gold coins from Canada and other prevalent gold producing countries. Most all produce highly polished proof versions packaged in specially designed presentation boxes. All look great and are impressive. And, the gold content is the same in either uncirculated or proof coins. But, for collectors or investors looking to own gold, buying standard uncirculated coins instead of the proof versions makes the most sense and can save substantial money.
One last thing…currently, 42 states do not impose sales tax on gold purchases – be they in proof or uncirculated condition. It’s clearly best to source from one of those.
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