Are Perth Mint damaging their reputation?

Those of you who follow my posts on bullion forums that I frequent might have picked up that I'm not a huge fan of purchasing bullion Chinese Panda coins. This has nothing to do with their designs. Having seen several in the flesh I would agree with many of the enthusiasts that they are a stunning coin. 

The main reasons I avoid Pandas are:

- They have a reputation of many fake coins circulating and I think this will make them difficult to resell.

- The mintage has been announced and then increased part way through their production year (they did this in 2010 and 2011).

- Slight variations in many of the designs due to being minted across multiple locations each with their own set of dies (although to be fair this has actually increased the value of some anomalies).

- There are lower mintage coins available (such as those from Perth Mint).

So two of the key things I am looking for when choosing bullion Silver coins to buy is a consistent product and a mintage number that can be trusted.

Are Perth Mint keeping to their previously high standard in these areas or are they releasing opportunistic products which harm existing collectors and investors who hold their products?

The Russian Red Back Spider

Most collectors who are familiar with high value modern numismatic coins would know of the Perth Mint Red Back Spider from the Deadly & Dangerous coin series. It was a 1oz Proof coin released as the first in the series. The price soared with some paying in excess of $1500 for the coin and prices now are still well elevated at around $1000 for a coin which contains $31 worth of Silver. The coin was released in 2006 with a 5000 coin mintage:

Original Red Back Spider Coin, 1oz Silver Proof, 5000 Coin Mintage

What you may not be aware of is that the Perth Mint produced a "copy" coin especially for the Russian market 5 years later in 2011 (2000 coin mintage):

Russian Red Back Spider Coin, 1oz Silver Proof, 2000 Coin Mintage

So they've slapped an extra ring around the existing design, imprinted some Russian text and then they are flogging this off as a new coin? In my opinion this sort of activity reeks of a Mint who do not have respect for their collector coin customer base.

But are such tactics only a problem for their numismatic coin releases?

The Privy Mark Dragon

The Perth Mint has had strict mintage limits on their bullion coins over both 1st and 2nd Lunar Series coins. The limits having been set at 30,000 coins for 1oz Gold and 300,000 coin for 1oz Silver. These (previously strict) limits have made them a popular choice for both collectors and investors given that most other bullion series coins have much higher limits (which in most cases range from 1 million to tens of millions).

A couple of weeks ago I wrote about the forthcoming Privy Dragon design (on SilverLunar.com), little did I know at the time that this was to be a bullion release rather than a low mintage premium coin. As pointed out by a user on Silver Stackers and later blogged on at Silver Lunar this coin is being produced with a 200,000 mintage limit and is being sold for bullion prices. Assuming that these coins sell out (or have already been minted in full), it will result in a 1oz Silver bullion coin mintage of 500,000 rather than the 300,000 of previous years, with only a small lion privy separating the two.

Spot the difference: 2012 Perth Mint Bullion Silver Lunar Dragon vs Privy Mark Lunar Dragon

In March 2011 Stephen Ward of the Perth Mint blog had this to say in relation to the 1oz bullion coins:

"For investors, we offer bullion quality versions in capsules. These coins are made in much larger quantities, enabling us to keep the sales premium to a minimum. Even though Lunar bullion coins are made for investors, we do acknowledge that they attract significant collector interest in many quarters.

1oz Lunar silver bullion coins have a maximum mintage of 300,000 each." Perth Mint Blog

This statement is now void as there will be 500,000 Silver bullion coins.

Then in September last year Ron Currie said this:

"Throughout the course of the first 12-year Australian Lunar bullion coin series and also during the second 12-year series, 1oz releases have been limited by mintage: 30,000 gold and 300,000 silver. As well as investors, these mintage quotas have also attracted collectors to the series.

To increase mintages of 1oz coins during a particularly popular year could be interpreted as opportunistic and possibly damage our credibility as a Mint." Perth Mint Blog

While the bullion Privy Dragon is technically a different design to the standard bullion coin, it is obvious to investors and collectors that the Perth Mint has used a backdoor technicality to workaround their own mintage limits and this is (as Ron Currie hints above) an opportunistic action which has the potential to damage the Mint's credibility.

As I pointed out in a recent blog post on Silver Lunar it appears that this Privy Mark coin will continue in the Year of the Snake (2013), so assuming the sale of these coins goes well we can expect the mintage of bullion 1oz coins to be permanently increased for the rest of the second series (and maybe the Perth Mint will even work on getting the previous Series 2 releases, Mouse, Ox, Tiger and Rabbit also minted with the Privy)...

There are other examples of opportunistic behavior from the Perth Mint, but to list/describe them all now would take more time than I have available to write this post.

It seems to me that of late the Perth Mint strategy is to squeeze every dollar they can out of their customer base, releasing as many designs as the market will soak up with little regard for those who have already purchased based on expectations previously set by the Perth Mint and it's representatives. 

While pumping out these releases might improve their bottom line in the short term, it's more than likely going to make buyers a lot more wary about purchasing their releases in the future and in my opinion has the potential to devastate a well established reputation which the Perth Mint has spent a long time building. Here's hoping they can get things back on track.

BB.

 

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Warning: Fake/Counterfeit Silver & Gold

A warning posted recently on Silver Stackers is worth sharing. You can read it in full here. Goldpelican writes:

It has come to my attention that a Chinese website is advertising counterfeit Perth Mint 2012 Year of the Dragon 1oz silver coins, and is currently shipping to Australia. It has been disclosed that at least one shipment of 500+ coins is on its way to Australia, presumably intended for resale.

No photos of the Dragon coin were available, but a photo of a replica Perth Mint 2011 Gold Kangaroo was shared:

Click Image to Enlarge

Members on Silver Stackers picked some discrepancies between the above fake and the real coin:

- Background on Queen side doesn't have proof like finish

- No earring on the Queen's ear

- Lettering under the Queen's neck differs

- Kangaroo's mouth appears different

Of course there's no guarantees that other Kangaroos aren't circulating without these differences.

Here is another photo of some Silver 1 ounce Ingots being sold as Silver when they are only a plated Zinc alloy:

Click Image to Enlarge

Here's a video shared by ozcopper showing some fake Silver bars:

Unfortunately there are many items sold (particularly on auction sites like eBay) which are not real Gold/Silver and should be avoided at all costs. Some examples include:

German (Nickel) Silver: This is a copper alloy with nickel and often zinc. The usual formulation is 60% copper, 20% nickel and 20% zinc.

100 Mills/Mils: Refers to a Silver (or Gold) plated product. While the very thin exterior layer *might* be real Silver or Gold, the inside will be something else (usually copper).

HGE Gold: Stands for Heavy Gold Electroplate and consists of a base metal that has been plated in Gold.

Gold Flakes: Often sold in vials this alloy is unlikely to contain significant amounts of (if ANY) real Gold.

Columbiam (Niobium) / Molybdenum Bullion: Other metals may be manufactured into bars and coins and sold as a “precious” metal, but ultimately they are of little value to the investor.

Other keywords to look out for when avoiding products which are likely to be fake and contain little or no real Gold/Silver: Copy, Replica, Plated, Layered

However not all fake products will be labelled as such. The easiest way to avoid fake, replica or otherwise worthless metals is to buy from a reputable source (such as a well known and respected dealer, one that sources their bullion direct from the distributor and/or one that appropriately checks/tests products when buying back).

BB.

 

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Valuables at risk - Safe Deposit Box? Is it safe?

There are risks associated with owning physical metals. There is no counter party risk, but that's of little assurance if they are stolen.

Those keeping tabs on the news may already be aware of the story of two thieves who were recently caught with $6.5m in cash and valuables ($4m cash, bullion, jewelery, etc):

A father and son faced a Melbourne court yesterday after NSW Police uncovered a ''treasure trove'' including $4 million in cash, a large amount of foreign currency, 120 kilograms of silver bullion and thousands of pieces of jewellery worth up to $6.5 million at a Sydney storage facility.

Police said thieves had broken into a storage facility in Ivanhoe and more than 100 homes and businesses on Sydney's north shore, cleaning out safes and leaving them looking like they had never been tampered with.

Christopher See, 56, and Phillip See, 33, were each charged by Victorian police with one count of burglary and one count of theft in relation to a robbery at Kennards storage depot at Upper Heidelberg Road, Ivanhoe, between December 3 and December 10, where it is alleged they accessed 36 security boxes. The Age

It's concerning enough that these thieves were able to get in and steal the contents of safes without the owners knowing let alone that they managed to (allegedly) burgle 36 safe deposit boxes at the Kennards facility. If nothing else this story should act as a reality check for those that think it's worth saving a few dollars for a cheaper storage facility when it comes to protecting your assets.

Here are a couple of benefits that Kennards suggests they have over a bank facility:

The Kennards Safe Deposit Boxes are available in 3 sizes and have several clear advantages over Bank operated safe deposit facilities:

- No 100 point I.D. check. Kennards is not required to enforce 100 point I.D. verification.
- Access 7 days a week – banks limited operating hour’s means you are restricted and cannot attend when it is convenient for you. KSS.com.au

While these might look like advantages to some, the convenient access (24/7) and privacy offered (no 100 point check for customers) is potentially as useful to thieves as it is to the legitimate customers who are using the facility.

I think safe deposit boxes are safer than storing your metals at home, but ensure you are trusting the right company and facilities with your business and where it isn't already provided it's best to consider insurance as well.

A home safe might seem like a good option, but in the case you were threatened with a knife or gun by an intruder the level of security the safe provides will be of little benefit if you are forced to open it.

Buying, holding and storing physical metals isn't without its risks, ensure you investigate the best solution for your personal situation before buying metals.

BB.

 

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Preparing for Collapse

A quick reminder that this blog is written from an Australian perspective. Suggestions I make or preparations I am taking may not be suitable in countries where the situation has degraded further and more precautions are necessary.

My coverage of the precious metals bull market has predominantly been about taking advantage of the speculative opportunities that present themselves as a result of appreciating metal prices. Generally this has consisted of reviewing well positioned mining companies, looking at prices or ratios for medium term targets as the metals head into the parabolic/public phase of the bull market, looking at what the spot price might do short term (which I get wrong as often as I do right!) and even some posts on specific coins.

While I have at times traded Gold/Silver proxies on the ASX (PMGOLD and ETPMAG) and even sold some of my physical Silver position between $35 and $50 (after going large on Silver when it was under $20), my core physical Gold position has remained largely untouched and I even added to it over the middle months of the year (when Gold was around $1500).

As much as I see opportunity to increase wealth in this bull market, I also understand there is a dark side to some reasons for the precious metals moving higher. Gold isn't just rising because that's been the trend for the last 10 years, there's also a growing mistrust in governments and regulatory authorities which has led to questioning the worth of monetary units and assets (currencies, shares, housing, bonds, etc). 

There may come an inflection point where the public has had enough and turns away from regulated markets and look to store their wealth where there is no counterparty risk. Such a change in perception could bring around many devastating consequences. A meltdown of the banking system. Collapse of currencies (hyperinflation). Failure of government (sovereign default). Breakup of political/economic unions (such as the European Union). Many of these monetary and political systems are intertwined, so their breakdown could occur in tandem or one could lead to the other.

Four years ago this would have all sounded like nonsense. Come another four years I suspect that some events like this could have played out. Of course the effects on you personally will likely vary hugely based on where you live, how you live and whether or not you are prepared for such events.

Regardless of whether you think a collapse is likely or not, it doesn't hurt to be prepared. The most basic of decision matrices provides an overview of consequences from being prepared or not (your matrix may differ, I suggest drawing one up and listing the consequences of each scenario as they apply to you):

CLICK TABLE TO ENLARGE

To be prepared costs little. You may lose a little interest on cash stored outside of the banking system. You could buy some Gold and it falls in value. You could buy long life food and some of it goes to waste (obviously some of these costs could be reduced, such as rotating large stores of food so that it gets used).

To be unprepared could have dire consequences. For example if you have large loans for assets that fall significantly in value and you are forced to liquidate (from job loss, lack of liquid assets to get by, etc) then you may find yourself with outstanding debt and no assets to show for it. You might struggle to provide for yourself and family.

The preparations I have taken to date are fairly basic:

- Reduced debt to virtually nothing

- Obtained & safely stored (deposit box) physical metals & cash

I think keeping some physical cash out of the banking system could be a good move, as if we saw collapse or even measures are implemented to protect the banking system (such as limiting account withdrawals) the use of cash would still be widespread, I don't think a change to physical metals would happen overnight.

Some others advocate further preparation such as food storage. I don't believe we are at the stage that such preparations are necessary (in Australia). Not to say that we couldn't see food shortages like anywhere else, but a quote from Michael Ruppert's movie 'Collapse' comes to mind:

"If you are in a camp and a bear attacks, you don't have to be faster than the bear, you only have to be faster than the slowest camper." - Michael Ruppert, Collapse

Some may prefer to prepare for any situation. I would like to think that I had enough foresight to see the need for storing food as the situation developed.

There is a common misconception that Australia's banks sailed through the GFC with barely a scratch, some even going so far as to say that they didn't receive government bailouts:

John Taylor, founder of FX Concepts LLC, the world’s largest currency-hedge fund, says Australia’s banks, which remained profitable throughout the financial crisis without government bailouts, are now overextended and will cut back on credit, helping spark a recession. Bloomberg

What they often fail to mention in such comments is that:

- Australian banks tapped the US Fed for billions in emergency funding

- Australian banks were extended deposit and wholesale funding guarantees

- Australian banks benefited from increased lending stemming from the FHOB

- Australian banks were supported by the RBA (who bought RMBS)

- Australian banks were protected by ASIC with a ban on short-selling shares

So while our banks didn't receive a direct capital injection similar to that seen in the US, I think suggesting they weren't bailed out is just ridiculous.

It's interesting to note that in the case of recent stimulus, insider documents point to the stimulus being designed to prevent the collapse of the housing market:

The short term stimulus was designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market. FHSA FOI Doc

In my opinion this initiative (and others aimed at first home buyers) was not introduced to 'help' first home buyers, but rather to protect the Australian housing market and all the leeches that hang off it (banks, construction, retail).

While our banking system in Australia appeared strong during the last financial crisis, it is clear that it was propped up.

The stop gap measures were not limited to Australia. As we all know, banks in many counties were and still are being propped up in a non sustainable fashion.

This weekend there is further talk of a Greek default. If allowed to occur, we then face the unintended consequences. What will they be? Are global governments prepared to bring the banking system back from the brink like they did after the chain of events leading on from the bankruptcy of Lehman Brothers? I don't have confidence in their ability to do so. Collapse may be years away or it may just be around the corner...

BB.

 

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Pascoe (Gold) Indicator - Update

Earlier this year I posted a chart showing how Michael Pascoe's articles on Gold could be seen as a contrarian indicator (h/t SaturnV on HC for the idea) with many of them bearish on the metal yet appearing at lows or lulls in the price before a large spike higher.

Here is the previous post (LINK) and below is a summary of Pascoe's Gold commentary over the last several years:

1. On September 27th, 2007, Pascoe had the following to say about Gold:

Gold bugs losing their bite

The more reliable truth is that gold is really just another commodity, albeit one with a rich history. The good news is that demand for gold continues to rise and production doesn't keep up – but there's still a big overhang, thanks mainly to European central banks that still want to sell down their holdings. Super Living

2. This was followed by the below, 2 years later on September 14th, 2009:

Gold drops 25%!

As gold sceptics know, the yellow stuff occasionally has a day in the sun when there's fear and loathing in the financial system or when the herd decides to make gold the next candidate for a speculative bubble, but its price is mainly a reflex currency play for the US dollar. The Age

3. Pascoe was still talking Gold down 10 months later on July 28th, 2010:

Time for gold bulls to feel a little fear

But there are signs that the tide of fear might be about to turn – an event that would be precipitous for the gold price and all who ride on her. It could be the gold bulls' turn to feel fear as pain instead of pleasure. The Age

 4. New year, another negative Gold articlefrom Pascoe. March 18th, 2011:

Buy iodine, sell gold and forget the Aussie

I have been wrong about the gold price for the past several years [At least he's honest! BB], but that still remains more a matter of timing than fundamentals. The major leg of the gold rally was based on a reasonable reason – the need for those with US dollars to get out of them as the American economy and the greenback plunged.

Since that first leg, gold has risen primarily because gold had risen. The momentum trade kicked in, the exchange traded funds (ETFs) took off to capitalise on that and the great gold bubble bubbled on. The Age

5. Only a month later and Pascoe is again laying in the boot. April 27th, 2011:

Rich rust beats dull old gold

The uninvolved might be under the impression that the price of gold has been soaring to record highs lately, some using that as an excuse to bid up the price of shares in Australian gold miners in the hope that higher gold price might flow through to them.

Wrong. Gold actually has been doing nothing much for the best part of a year and remains well below its record high. That's gold in Australian dollars, of course – the only measurement that means something if you're wealth is in Australian dollars to start with. SMH

 6. Then again on May 24th, 2011: 

No silver lining in this cloud

Gold in US dollars is up 28 per cent over the past year, but it's done nothing for Australian investors. As I write, it's trading at $A1,441.03 an ounce – within a few cents of what it was worth this time last year. It's still roughly doubled since the start of 2006 with 2008 the star year as the GFC had its full impact.

Where the speculation in precious metals goes to next is as much a matter of faith as fundamentals, or perhaps fundamentalist faith for the harder core gold bugs, but it has currency plays going for it as long as US economic policy remains an afterthought of a political standoff and Europe fails to face up to its sovereign debt inevitabilities. SMH

7. Finally only a few days ago (September 7th, 2011) Pascoe had more to say on Gold (LINK). His latest commentary comes following a $300-400 spike higher in the metal, so at this point it's difficult to gauge whether the "Pascoe Indicator" has broken or whether we are perhaps at the base of another solid move higher.

Gold bubbling higher is still a bubble

But the fact that the gold price has gone up doesn’t mean that it’s not a bubble. To rephrase that and take out the double negative, the gold price going up is part and parcel of it being a bubble.

In the 1630s when the price of tulips rose from 1000 florins to 2000 florins – several years’ average wages – it just confirmed there was a bubble, not that tulips enjoyed any particularly intrinsic value or that tulips would continue to rise indefinitely and/or hold their value.

Pascoe has been calling the rise in Gold a bubble for years, but for something to be in a bubble that would indicate it is overvalued. I have yet to find any analysis from Pascoe as to what he considers it overvalued against. If Gold rises to nominal peak of $3000 and then following falls back to a low of $2000, was it still a bubble when Pascoe called it one at $1250 and lower?

He suggests the bubble is similar to the tulip mania... does he understand that Gold's rise from undervalued to overvalued is a move that is cyclical in nature? He seems unable to comprehend the difference between a one time speculative mania and the cyclical nature of investment/monetary assets.

He goes on:

Gold’s true believers think gold is different, that it does have some mysterious intrinsic value, rather than its price just reflecting the interaction of speculative supply and demand, with some physical jewellery demand on the side.

I have no doubt that there is speculative buying in Gold driving the price at times, but given that some of the largest demand over the last couple of years has been Central Bank buying, does Pascoe also consider this to be speculative buying? Or does this demand fall on the jewellery side whereby Central Bank officials are turning the Gold bars into bling and wearing it around town?

Pascoe claims that the intrinsic value of Gold is a mystery, but it's really not all that difficult to work out where Gold's intrinsic value comes from. Probably one the best explanations I've seen is in the first minute of this clip from movie "The Treasure of the Sierra Madre" in which a prospector provides the example of 1000 men that go looking for Gold. After 6 months only 1 of them is lucky. The value of the Gold not only represents the value from the labor of the one man, but also that of the 999 others that didn’t find anything (total 6000 months, 500 years worth of labor).

We do things a little differently these days, but the principle remains the same. We have Gold miners today digging up 5-10 tonnes of earth (sometimes more) to retrieve an ounce worth of Gold let alone all the processing and refining that follows. For each company that succeeds there are thousands that fail (as pointed out in this post of mine two weeks ago).

Later in the article Pascoe says:

Aside from those hording physical gold, the latest figures from Standard Bank show 14,450 tonnes of gold are now held by exchange traded funds. That’s an extraordinarily large of amount that would weigh more heavily than its physical weight on the gold market if the metal started to lose its shine. Yahoo Finance

Now wait just a minute here... that number sounds a little high given that GLD (the world’s largest gold exchange traded fund) hold only 1240 tonnes. Wikipedia suggests that "As of 25 June 2010, physically backed funds held 2,062.6 tonnes of gold in total for private and institutional investors". I think Pascoe better check his sources more carefully!

Toward the end of the article Pascoe suggests that an "outbreak of rational economic management in the US and Europe" will see to the end of the Gold bubble, which he says will come about with US spending cuts and increased taxation as well as a bailout in Europe. Wow, it all sounds so simple, I wonder why they haven't thought of that already and implemented the changes to resolve the western debt bubble which has caused all this global instability...

Here's the chart with the articles numbered at the time of the above articles:

CLICK CHART TO ENLARGE

BB.

 

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