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U.S. Rare Coin Market Update - BiMonthly

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Gold and Silver Bullion Offer Real Value
(January, 2001)

These are certainly turbulent times in which we live.  The question for investors and collectors in U.S. rare coins over the past decade plus has always been what will happen when the U.S. economy goes into a recession.  Historically, recessions have not been particularly good times for rare coins, but I have previously discussed this topic in these pages (see Special Bulletin) and I have not changed my opinion that, "This time will be different!"  Granted, I cringe when I hear today's financial market investors repeat this phrase, but these are hardly ordinary times.  I stand by my very positive outlook for U.S. rare coins over the years to come, but they are not the topic of this Market Update.

If one is concerned that a bad economy will cause investors and collectors to shy away from numismatics, then one has to look at alternative means of protecting one's nestegg from either inflation, a prolonged bear market in equities (underway), financial system stress (confirmed by Greenspan's 50 basis point cut), a run on the Dollar, and a whole litany of other possible outcomes today.  Since the Greenspan Fed created massive liquidity in the Fall of 1998 and has actually primed the pump ever since, I have become convinced that the inevitable consequence of limitless credit and money creation in the U.S. would be eventual inflation and potential systemic stress to the U.S. financial system and economy.  At one point, I was only one of a few "bears" that held this believe, but currently I have some very esteemed company in such exalted names as Warren Buffet, Robert Rubin, Robert Hormats of Goldman Sachs, and George Soros.  All have pointed out the frailty of the current financial system to deal with the unprecedented leverage and speculation that has reached epidemic levels.  Comparisons to 1929 and the days before the Great Depression are frightening at best, but one does not have to be an eternal pessimist to see the problems lying just below the surface of the New Economy.

Much has been written of these threats to U.S. prosperity, and I will not list them all here.  Suffice it to say that more and more evidence of one of the most reckless periods of monetary expansion has just occurred over the last 5 years under Alan Greenspan.  Basically an academic and an average economist with a poor record of economic forecasting, he has failed to grasp the dangers of the unregulated and uncontrolled proliferation of exotic financial instruments such as derivatives.  He has masked his lack of first-hand knowledge of Wall Street's internal workings and the rampant credit creation by Government Sponsored Enterprises (GSE's) such as Fannie Mae and Freddie Mac with an almost reverent embrace of technology, productivity, financial engineering, and whatever passes for key ingredients to the New Era.  To trust blindly in the free markets to accurately discount the future and operate with 100% efficiency is to trust that human beings will always do the right thing.  History has proven otherwise.

But once again I digress.  I am trying to paint the background for my current recommendations for gold and silver bullion being in virtually everyone's investment portfolio.  I am neither a "goldbug" or a "silverbug" as traditionally defined, but an investor and former investment advisor with over 25 years of experience who had managed millions of dollars of other people's money and that sees history about to painfully repeat itself.  No period ahead will be exactly like any prior period in U.S. or world history.  We are on the edge of one of the most significant periods in U.S. financial and economic history.

Here are just some of the events I see unfolding in the next several quarters and years that strongly support hedging a portfolio with both gold and silver bullion:

1. The U.S. Federal Reserve will use every means possible to avoid a collapse in the stock market, and hence, the U.S. economy and the financial system.  Liquidity will continue to be provided in massive quantities to attempt to prevent bank failures, corporate defaults, consumer bankruptcies, and the onset of a very severe recession, semi-depression.  Strong stuff, I know, but the Fed is already in panic mode.  Watch their rate cuts and other pump priming actions in the months ahead.

2.  With lower and lower interest rates at least on the short end, the U.S. Dollar will continue to retrace from its recent high and increase the cost of all imported goods, especially oil.  There may even be actual dumping of Dollars for the Euro, the Swiss Franc, and eventually alternatives such as gold and silver, as the attractiveness of U.S. investments wanes with future losses from investments in American equities and companies directly.

3.  We will enter our 4th banking crisis since 1980, as bank loans go bad in record numbers at the corporate and consumer  levels, and all the unparalleled leverage, "risk management", and derivative positions piled up over this decade-long expansion come home to roost.  Once again Americans will be called upon to pay the price for the unsound judgment and lack of business experience of the banking and financial community.

4.  Inflation will continue to accelerate well beyond the levels of official CPI numbers as way too many Dollars chase a decreasing demand for goods and services.  Consumers and businesses are tapped out, having leveraged themselves to the point that debt service without the assistance of ever expanding equity portfolios or new debt no longer permits incremental discretionary or capital spending.  Spending must be cut to service debt and to counter shrinking bottom lines.

I am going to leave my forecast points at only four so I don't get accused of being verbose, but there are many risks today such as conventional war in the Middle East, expanded terrorism both in the U.S. and globally, and political uncertainty in the United States that paint a rarified environment.  Now to the better, if not good news.

There traditionally are assets that have protected investors in such times of upheaval, and we are talking about millenniums of history, not just centuries.  Gold and Silver, with such outstanding traits as being widely recognized stores of wealth; mediums of exchange; highly portable assets; globally accepted; historic hedges against currency devaluation, inflation, and deflation; and individually beautiful metals.

To consider precious metal bullion products in either minted bullion coins form such as Gold American Eagles from the U.S. Mint or registered refined bars from Credit-Suisse, Engelhard, or Johnson Matthey is to invest in the gold and silver markets on a scale tailored to one's individual resources and level of risk tolerance.  There is no doubt that these can be highly volatile markets, but so have been global stock markets over the last several years.  And I would add that the fundamentals for gold and silver are improving as we go forward, not deteriorating like so many, telecommunications, and technology companies today.  The fact that the units of weight for these products are standardized in either troy ounces or kilograms, the relevant mints or refiners guarantee the purity and metal content of their products, a global marketplace exists to provide liquidity, and reporting requirements are minimal or do not exist at all for many gold or silver bullion products only add to their appeal.  When an asset class has been in the doghouse since 1980 and is disdained as an "ancient relic of the past" by today's tarnished financial wizards, one's interest has to be peaked.

In November, 2000, I took all of the information contained in this brief ezine and much more, and decided that Wexford Capital Management should broker both gold (1.3% fee) and silver (1.7%) bullion products utilizing the internet.  Please go to our WCM Bullion Products page for more information, and don't hesitate to call me at 877-855-9760 or email me at to discuss investing in gold and silver bullion products.  This month's ezine is obviously intended to promote this new service, but I feel strongly that in addition to building a portfolio of certified gold and silver U.S. rare coins that will never be minted again and have proven their worth over centuries of collecting, a component of bullion products makes imminent good sense also.  Healthy squirrels always bury their acorns ahead of the first signs of winter.





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