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Gold an Asset of Last Resort
in Time of War
from
NUMISMATIC NEWS magazineFebruary 25, 2003
Written by David
L. Ganz
Gold's
price has gone to six-year heights, closing in on $400 an ounce, as America
is on the verge of war over Iraq. The asset of last resort with its traditional
hedge against inflation. and against destruction, has kicked in, even
before the battle has begun - and the coin market has followed upward.
For
more than 2,000 years, gold's price has risen and fallen based on world
events and economics. Contemporary American history shows that the price
is not especially stable, but rather prone to movement based on political
as well as economic circumstances - and that coin prices tend to follow.
One reason for the follow-the-leader factor is
that the coins contain a weight of precious metal in addition to the numismatic
value. The intrinsic value for $20 gold pieces in uncirculated condition is substantial,
because each coin contains nearly a full ounce of gold (the actual weight is
0.9675 troy ounces).
With gold at $370 an ounce, a $20 gold piece contains
$357.97 worth of gold, regardless of condition, date, or mintmark. A relatively
common 1907 Liberty head coin from Philadelphia Mint with a mintage of 1.4 million
pieces has a selling price of about $710 in MS-63 and around $500 in MS-60 condition.
(The 2003 US. Coin Digest lists the coin at $440 in MS-60, but that was when
prices were lower).
The difference between MS-60 and MS-63 in condition
is not that substantial (though the MS-63 is a prettier coin); but in terms of
portability of gold in case of disaster, the lower-grade is the better buy. Here's
why.
If you are buying gold for the event of cataclysm,
or disaster, portability is the key. Instead of a brick of gold weighing a kilo
or more, your gold $20 gold piece weighs just under an ounce.
There are better buys in the market place, however,
if the only aim is gold coin that is also a legal tender as opposed to American
Eagles, Canadian Maple Leaf pieces or the other bullion coins. (Bullion coins
in that regard offer the best of all worlds, with just a two or three percent
margin separating coin values from the raw metal content).
Gold's history in war, at least until the latter
part of the 20th century, was a good solid record. It failed when the
Russian government coup that tried to topple Gorbachov failed - and the price
of gold dropped $ 100 an ounce. It failed
the second time during the first Iraq conflict of a dozen years ago. As chemical
weaponry rained down on Israel, and
world war threatened, the price of gold dropped $50 an ounce.
Beyond that, gold's history is generally one of
stability if you look at it from 1789 until 1933. There was talk of a 16:1 gold
to silver price ratio at the time of the creation of a U.S. Mint in 1792, but
the machinations of Alexander Hamilton were miscalculations - and the wrong price
for the gold caused a major out flow of American gold coin.
One of the major reasons today that early U.S.
gold coin is so scarce is that very outflow; it went abroad and was recoined
into less expensive (less metal) foreign coinage. (That is also why the gold
and silver weights were changed so many times between then and 1837).
The Coinage Act of 1837 set the value of gold at
$20.67 an ounce, and for nearly a century it was maintained at that level - not
until 1934 when the dollar was devalued was the price changed to $35 an ounce.
During the Nixon years gold was revalued officially to $38 and then to $42.22
- still its official price.
America's fortune and its world leadership, its
economic engine and its $11 billion plus gold reserve (valued at the
official price, of course) have helped shape the 20th and early 21st century
golden age and golden rules. (To get an idea of the real value of America's
gold reserve today, multiply it by 9 and you get an approximation of its current
value - $ 100 billion).
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