Gold Rush
March 20th, 2009
Gold prices are rising--currency is being devalued. Is now is the time to rush and buy gold? Utah Stories talks to a local coin dealer and offers a lesson on the history of currency in Utah and the United States.
by Richard Markosian
Gold is advertised as the best hedge against currency devaluation and a means to maintain savings despite our current risk of falling into a depression. Goldline advertises its services on the popular national radio program Glenn Beck. Goldline offers mostly rare gold and silver coins as an investment. But are rare coins really a good investment? I went to a local coin dealer to find out.
Ed Hajj at Rust Rare Coin, says rare coins are a decent investment but as collectables they tend to depreciate in a bad economy. "The price of gold is a barometer of fear," said Hajj. Hajj punches up Amark.com on his computer. Immediately we see the fear over currency displayed before our eyes. The Dow Jones is down, the dollar's value is way down, other currencies are sinking but gold and platinum are soaring.
Tom Jensen, President of the Utah Numismatic Society, joined our conversation about gold as an investment. "Gold is a great hedge, if you own stocks and the market is volatile, it's a good idea to have some gold." Jensen pointed out that after the 1930s, the stock market lost 90 percent of its value, investors who had just ten percent of their portolio in gold broke even due to the huge increase in gold prices.
Using tangible rare assets to back up or hedge currency is nothing new.
Mormon Money
Rust Rare Coin has money dating back to when the Mormon pioneers first settled in the valley. Under the direction of Brigham Young, Pioneers minted their own currency which allowed them to exchange apples for wheat and other necessities. The ten cent note was good for products at the "Bishop's General Storehouse". This note had value because the note was backed by goods that were previously traded at the storehouse.
Brigham Young could have built many more rooms in the Lion House if he had printed these 10 cent notes indefinitely, but he didn't because Young knew that doing so would devalue the currency and put the pioneers into a panic. It seems today our federal government doesn't have the common sense that Young had.
The current $4 trillion spending package allows for the US Government incur a greater percentage of debt in proportion to GDP (gross domestic product) than anytime prior in history. Government debt was limited until Richard Nixon removed our monetary system off the gold standard when the government could only incur as much debt as they could put into either treasury bonds or print. Printing money was limited because there had to be enough gold or silver to back up every dollar printed.
Unlike the pioneer system and the gold standard, our currency is no longer backed by anything tangible. Instead the Federal Reserve controls the amount of money in circulation by raising or lowering interest rates. The cheaper money is for banks to borrow and lend to customers, the more money in circulation. This system allows the government to incur huge amounts of debt; then through currency devaluation the debt burden placed on the government is lessened. Currency inflation is essential another hidden tax.
But there is a problem with this modern economic policy that defies common sense: monetary value does not come out of thin air.
The reason why gold prices are rising, and places like Rust Rare Coin are seeing increases in business is because people are afraid that our currency will be devalued in an extreme manner in the near future. Government actions to print more money and incurring more debt will expedite this failure, which is why President Obama and Congress aren't as popular as they were a month ago.
Goldline Assessment
So the question boils down to: Is the price of gold high because of unjustified fear in economic projections? Or is the theory that our currency is only as valuable as how much gold we can buy true--as Goldline and Glenn Beck espouse? If you believe the latter, then every world currency is severely plummeting in value, and it would be wise to buy gold; but not necessarily gold coins. As Hajj points out, gold bullion is much different than collectible coins.
It's my conclusion that Goldline is earning a premium on marketing rare coins as bullion. This is a misleading tactic because they cause naive invstors to believe by purchasing rare gold coins, it's as good as buying gold bullion. One is a commodity the other is an antique.
I believe gold prices are rising mostly based on fear, but people have a reason to be afraid right now and gold bullion is a good hedge, as long as you don't bury it in your backyard then forget where you put it.
Hajj says he has more customers both buying and selling with volatile market changes. Some believe volatility marks a time to sell, others believe that it means its a time to buy. Regardless of who is correct Rust Rare Coin is happy to accommodate all transactions.
It is best to wait for gold prices to get high before selling gold to a reputable buyer.
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