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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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Uncertain Times Require Certain Diversifications

Topics [ gold investing financial crisis gold prices ]

WHAT OTHERS ARE THINKING

 

Mark O’Byrne, head of research and executive director of GoldCore,
provides a European perspective on gold.

 


"
Gold is serving as a valuable hedge and safe haven, particularly in times when tail risks predominate

On hedging with gold, a leading institute has recently stated: “Gold can serve as a hedge against declining values of key fiat currencies.”

These are not the words of some so called ‘gold bug’ warning that fiat currencies are losing their value. Rather, they are part of the recent findings of the UK’s influential and respected Chatham House, or the Royal Institute of International Affairs.

“Holding gold – the world’s only independent currency – gives you some protection against the incompetence and idiocy of Europe’s bickering politicians. So keep it.”

The second quotation is from one of the Financial Times’s personal finance columnists – Money Week editor Merryn Somerset Webb.

Chatham House and Ms Somerset Webb are part of a growing band of journalists, advisers, investors and institutions who realise and acknowledge the importance of having an allocation to gold as part of a diversified portfolio.

We are living in volatile financial times and investors in the UK and internationally face tremendous challenges in the coming years.

History shows that debt crises tend to lead to currency devaluations. The one common thread that runs through the majority of economic crises throughout history is that gold protected people’s wealth from declining values in stock, bond and property markets and from currency devaluations. Similarly in recent years and again in 2011, gold has been one of the very few assets to have risen in value in all currencies and preserved people’s wealth.

Gold rose by more than 9 per cent in 2011 against the pound, the euro and the dollar or rather all fell against gold. Most currencies have fallen sharply against gold so far in 2012 and gold is consolidating around £1,100/oz, ¤1,300/oz and $1,700/oz.

Investors, pension funds and many creditor nation central banks are diversifying into gold in order to protect themselves from the real risks posed by a possible global recession, by the intractable EU debt crisis and the risk of a US and global debt crisis.

They are also diversifying into gold to hedge against financial and systemic contagion and from currency debasement.

A bubble or off to $3,400/oz?

Is gold a bubble today at close to £1,100/oz, ¤1,300/oz or $1,700/oz? Or will it rise to more than $3,000/oz and the equivalent in sterling and euros in the coming years?

Respected investors who foresaw this economic crisis such as Jim Rogers and Marc Faber say that gold will rise to thousands of dollars, euros and pounds per ounce in the coming years.

While gold has risen six times in 11 years, it is worth remembering that in the 1970s gold rose 24 times in nine years.

The financial and economic risk of today is of a much greater degree than that of even the 1970s.

Gold will have to reach $2,500/oz or the euro or pound equivalent just to reach the actual real price from 1980 – adjusted for inflation. Today gold remains more than 35 per cent, or $800 per ounce, below its real high in 1980 of $2,500/oz.

JPMorgan and UBS recently forecast gold would reach $2,500 (from $1,700/oz) before the end of 2012. Citigroup recently said that gold will rise to $2,400/oz in 2012 and by $3,400/oz in “the coming years”.

It is not just large pension funds, hedge funds and central banks who are buying gold today. Rather, there is broad based global demand. In particular, interest from China, India and the rest of Asia has grown very significantly.

The growing middle classes in Asia believe in and trust in gold as a better store of value than their local paper currencies deposited in domestic banks.

In China especially, chairman Mao banned gold ownership in China in 1950, and the ban continued until 2003. This means that the per capita consumption of 1.3bn Chinese people is increasing from near zero levels.

Importance of real diversification

The stipulation of ‘Investment 101’ – diversification – remains less understood when it comes to gold. Gold should be owned as part of a diversified investment portfolio.

Besides the evidence of history, there is a large and growing body of academic evidence pointing to gold’s importance for investors.

This was illustrated in November in an academic paper on gold by Constantin Gurdgiev of Trinity College Dublin, who is a member of the GoldCore Investment Committee, at a conference hosted by the Bank for International Settlements (BIS), the European Central Bank and the World Bank. The research paper clearly shows gold’s importance as a long term diversification tool due to its “unique properties as simultaneously a hedge instrument and a safe haven”.

Financial, economic and monetary history shows that gold protects people in uncertain times – be that from natural disasters, wars, economic collapse, sovereign default, bank holidays, deflation, hyperinflation, inflation, stagflation and currency devaluations.

While cash has been king in recent years, the recent past only goes to show that cash can become trash through currency depreciation and devaluation.

Gold is less volatile than many stock indices internationally but is somewhat volatile and has the same volatility as the FTSE All-Share index at 20.05 (January 1970 to December 2011).

A 5-10 per cent allocation gold as a safe haven is prudent in these uncertain times.

Chatham House correctly concluded in their recent report that gold may “continue playing a significant role in the international monetary system, serving as a valuable hedge and safe haven, particularly in times when tail risks predominate”."

(This article first appeared in FT Adviser.)



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Limited Koala Bullion Release Features ‘Berlin Bear’ Privy Mark

Topics [ buy silver online silver bullion coins Australian Koala ]

BULLION BARS AND COINS

A limited 2012 Australian Koala Privy Mark 1oz silver bullion coin will be available to investors shortly.

The new coin was released last February at the 2012 World Fair of Money in Berlin.

Its reverse portrayal of a koala asleep on a tree branch incorporates a Privy Mark depicting the Berlin bear – a symbol of Germany's capital city-state.

Issued as Australian legal tender, the coin is struck from 99.9% pure silver and presented in a protective acrylic capsule.

 

Available 2 April 2012

A maximum of 50,000 of these Koala Privy Mark coins will be released worldwide. A limited number are available for purchase via the bullion website commencing at 8.30am on 2 April 2012 (Perth time).

Standard 2012 Australian Koala silver bullion coins are sold in 1 kilo, 10oz, 1oz and 1/2oz sizes. No mintage limit applies for 12 months.



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Simple Rule For Buying Gold

Topics [ depository services bullion coins gold bullion bars ]

IN THE NEWS

Perth Mint Treasurer Nigel Moffatt has a simple message to anyone worried by the possibility of buying fake gold. “Make sure you know where you’re buying it from. It’s got to come from a reputable supplier and an organisation you can put your trust in.”

Watch Nigel’s most recent interview with The Street in New York.



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Fake Bars - The Facts

Topics [ gold bullion bars ]

IN THE NEWS

On the weekend the gold blogosphere picked up on an ABC Bullion blog post about a gold bar cored with five tungsten rods, including Zero Hedge, Reuters, Screwtape Files, Bullion Baron, and Jo Nova.

The ABC Bullion blog was based on an email from MKS/PAMP sent to their distributors about a fake bar that a UK scrap dealer had received. The dealer thought the bar was suspicious due to a weight discrepancy and as a result they cut it in half, revealing five tungsten rods inside.

Typically, Zero Hedge over play the significance of the story with this statement: “So two documented incidents in two years: isolated? Or indication of the same phenomonenon of precious metal debasement that marked the declining phase of the Roman empire.” Other bloggers, such as Felix Salmon of Reuters, have been quick to speculate that such fakes may be common and present a “serious tail risk for anybody in the physical-gold market.”

In the experience of The Perth Mint, such fakes are a rare occurrence. In the 20 years our Refinery Manager has been working at the Mint, he has never seen a fake bar come through our operations. If investors buy coins and bars made by reputable refiners and mints and from a reputable dealer they are highly unlikely to be sold fakes.

Reputable dealers are familiar with how the common brand name bars and coins should look and thus fakes are unlikely to be resold. Note that the dealer referred to in the ABC Bullion story suspected the bar and cut it before it even reached the refinery.

As to the frequency of fakes, note that the previous “incident” that Zero Hedge referred to was this post of January 2010. As I pointed out in on my personal blog at the time, the Argor Heraeus video showed a fake bar received more than ten years prior. So sorry Zero Hedge, this is not two incidents in two years. Argor Heraeus said that “counterfeit bars are extremely rare, our colleagues from the foundry cannot recall a single instance in the last years in which such a bar was delivered to Heraeus for processing.” This agrees with The Perth Mint’s experience.

In the retail market turnover of physical product is relatively high. This is because retail investors do tend to exhibit herding behaviour, which means when there is selling it usually overwhelms any retail buying demand at that point in time. The end result is that in a net selling situation dealers do not sit on gold due to the high holding costs and uncertainty as to when buying demand will return, so they liquidate that net selling excess back to refiners, where it is melted.

Even in the professional market, which deals in 400oz bars, there is a fair bit of turnover. While central bank holdings are quite stable, large bars held by private investors are traded and ownership changes often. As a result, there is a good chance a bar will eventually be melted for use by a jeweller, mint or refiner and as such there is a high probability of any fakes being caught out.

In the case of The Perth Mint, we melt every non Perth Mint bar and coin we buy back. We also melt a fair number of our own coins and bars if they are too old or damaged to enable resale. The point is that with such turnover of physical, the lack of fakes appearing in our and Heraeus’ operations indicates to us that fakes are few and far between.

With regard to identification of fakes, the most reliable non destructive testing method is ultrasonic and would easily show any insertions. XRF and other tests generally do not penetrate very far into the surface of a bar, so are only good for testing plated bars. This link provides an insight into the sort of testing performed at refineries and for those interested in the technical aspects here is a quote from KK&S Instruments:

“The 1090 Flaw Detector allows you to look into the Bar for voids/defects as well as UT velocity which is determined the products elastic modulus i.e Tungsten Velocity is 5183-5460m/sec and Gold is 3,240m/sec. For example if you calibrate for Au then the testing Tungsten bar of the same thickness, the UT thickness would read approximately half the actual because of the speeding-up of the sound through the Tungsten.”

GoldMoney also has a good video on the ultrasonic testing they perform on their bars. Interestingly, they only found ten bars out of 1,377 with “inconclusive scans were identified but assays of these bars confirmed they contained the gold content stamped on the bar.” [link] These bars are 400oz professional market bars and is yet more proof that fakes are not common.

Investors buying recognised brands from trustworthy dealers should not have any cause for concern. For those looking for more information on the various brands and bars and coins available, and what they should look like and their specifications, this website http://www.goldbarsworldwide.com/ is a good reference site to bookmark.


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10 Kilo Dragon Gold Coins In The Making

Topics [ coin production Australian Lunar gold bullion coins Year of the Dragon ]

PICTURE OF THE DAY

 

In a prelude to a video we're shooting inside the Mint factory, here's a photograph of a 10 kilo pure gold Lunar bullion coin in the making. The freshly minted coin is about to be removed from the press and from here we will continue to work on it in the finishing area. Stay tuned to see more of the process and the final product alongside its 10 kilo silver Dragon counterpart.



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Platinum Gains 20 Per Cent

Topics [ Australian Platypus platinum bullion coin platinum prices ]

IN THE NEWS

Platinum climbed for a fifth day on Tuesday, its longest run of gains since October 2011, driving the price higher than gold for the first time in six months.

The white metal has gained more than 20 per cent since the start of the year, driven by supply disruptions in South Africa, the world's largest producer.

Platinum is now enjoying a premium of around $30 to gold, with spot metal down on Tuesday’s high of US$1,687.50 an ounce.


Chart: Platinum Today

Bullish on Platinum

Nic Brown, head of commodity strategy at Natixis told Reuters his firm was “ragingly bullish” on platinum, stating lacklustre demand from the European auto market could be offset by jewellery demand in Asian countries such as Japan and China.

Telephone Sales

The Perth Mint released a new 99.95% pure platinum coin for investors in 2011. With a limited mintage of 30,000, the initial 1oz Australian Platypus is sold out.

A 2012-dated version, issued last December, has sold approximately half its mintage.

The 2012-dated Australian Platypus 1oz platinum bullion coin is available from our Bullion Desk during trading hours on the following number:

•   1300 201 112 Australia Only (local call cost)
•   +61 8 9421 7218 International Callers

The coin is also available from The Perth Mint Shop and your authorised Perth Mint bullion coin distributor.



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