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The Gold You Should Be Buying

 -- Published: Wednesday, 11 May 2016 | Print  | Disqus 

By Jeff D. Opdyke

The Gold You Should Be Buying - interest rates

My first girlfriend — and we’re talking eighth grade here — was Persian. Maybe that’s why I’ve had such a fascination with the Middle East most of my life.

This fascination manifests itself today through three primary channels: Middle Eastern cuisine, Middle Eastern travel (I’m trying to arrange a research trip to Iran at the moment, with a side trip just for giggles to Kabul, Afghanistan) and ancient coins from Middle Eastern empires.

You can guess, probably, that this is a story about coins.

In particular, it’s about two gold coins that I recently purchased in London … and why ancient coins such as these not only represent great value in the market today, but they’re also one of the best assets you can own in a world where interest rates will remain low well into the next decade and, here in the U.S., could slip into negative territory in coming months.

Gold has always had one shortcoming that gold bears point to with enthusiasm and for which gold bulls have no counterargument: Gold generates no earnings and no income. It is, effectively, a dead asset — or, in being a bit more generous — it’s a hibernating asset.

In a world where interest rates allow traditional income investments such as CDs, bonds and money-market assets to kick off income for which investors are happy, gold has little allure.

But in a world in which interest rates are negligible — even negative — then the only knock against gold is suddenly neutered.

The Low Interest Rates Conundrum

That’s our situation today. I’ve been writing since at least 2012 that we would remain in a near-zero interest-rate environment through late in the decade, if not into the 2020s. That’s looking more and more probable with each passing economic report and each passing Federal Reserve meeting in which Fed governors opt to leave rates unchanged.

We face two massive and undeniable problems that have no easy fix:

  1. The economy is fundamentally reorienting itself to a technology-driven jobs market. America is creating fewer jobs for the middle class and above, and is, instead, creating an overabundance of low-wage, low-skill service-sector jobs. That’s largely a function of technology’s impact on employment (as well as a litany of job-killing regulations at the federal level). That’s why U.S. GDP has no traction.
  2. The size of the U.S. debt is so large that if interest rates move up to just over 4% (which, by the way, is still below historical norms), America’s interest costs will double to nearly $440 billion annually by 2019 … and will jump to more than roughly $830 billion a decade from now. That’s according to the nonpartisan Congressional Budget Office.

But that’s just America.

As I mentioned last week, I spent three weeks in Europe on a research mission. All the economists, think-tank officials and corporate officers I spoke to said that Europe cannot afford meaningfully higher rates for the same reason … which is why so much of Europe now operates under a negative interest-rate policy.

So, here we sit — a Western world in such dire financial straits that governments (the very cause of the ailment to begin with) have no capacity to afford higher interest rates, even though it’s higher interest rates that would cure economic malaise by righting so many financial wrongs.

Instead, we’re looking at years and years and years of überlow and negative interest rates.

Which means there’s no reason not to own gold, and trillions of reasons (Western debt) why you should.

Which is why I was in London adding to my collection of ancient Middle Eastern gold coins.

History and Wealth in the Palm of Your Hand

These are the two coins I’ve recently added to my collection:

Gold Coins - Interest Rates

The one on the left is a Mongol coin minted in Afghanistan in 1221/1222 under the rule of Genghis Khan, one of about 200 such coins known to exist. If this were a U.S. coin of similar rarity, it would go for 10, 20, maybe even 30 times the $10,000 I paid — and one day I’m betting it will.

On the right: a coin minted in 1688 under the rule of Aurangzeb, an expansionary Mughal ruler of an empire that stretched across of parts of what are currently India, Bangladesh, Pakistan and Afghanistan. This coin cost me just $900 — a bargain when you consider that it’s nearly 330 years old, it looks as though it was minted yesterday, and India is not long allowing them out of the country.

Though they’re not as rare as the Genghis Khan coin, “they are sufficiently rare that there’s a limited supply of them,” Graham Byfield told me on a sunny London morning during my recent European research trip. Graham is my go-to expert in these coins at one of London’s premier coin dealers, Baldwin’s, a division of Stanley Gibbons, the stamps-and-coins company where my friend Geoff Anandappa works.

To me, these are the kinds of coins all collectors and investors should own: rare, underappreciated, unique and priced well-below what more popular coins of a similar rarity would fetch.

I’m not implying that these coins will soar in value, though I do think their price appreciation will be quite dramatic in time. I am saying, however, that they’re good value. And that’s what I want from gold coins today.

Gold Is Not Dead

The argument that gold is a dead asset no longer resonates when cash is just as dead. And in a world where interest rates will hover barely above zero for years — and could very well turn negative here in the States — gold is the asset to own because it will ultimately play a role in revaluing the world’s major currencies.

As I have pointed out numerous times, you want to own physical gold, not paper gold … and you want to own coins that will escape confiscation orders, if those emerge as part of a currency refloat.

So, I want gold coins that are clearly numismatic instead of bullion, so that in the event we do see gold confiscation at some point, my coins are safe. And I want to buy those coins at prices I think are cheap relative to the coin, its history and its condition. To me, those factors all come together in coins of the ancient Middle East and India.

Until next time, good trading…
interest rates
Jeff D. Opdyke
Editor, Total Wealth Insider


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