GOLD AND THE DEBT BOMB OF 2024

 

Everyone knows that the US government is drowning in debt.  US debt including unfunded liabilities is at about 120 trillion dollars.  

But everyone also knows the US government owns the global printing press.  It is true that China,and Russia are leading an international coalition that now include some of the world's largest oil and commodity producing countries in developing bilateral trade agreements and perhaps even a commodity backed currency to settle trade outside the dollar.  But still the dollar is the world's reserve currency for the foreseeable future

BUT - many seem blissfully unaware that US publicly traded companies will have to refinance about a trillion dollars of debt in 2024 and another trillion in 2025.   This is debt they acquired at around ZERO percent that will now have to be refinanced at 6, 7, 8, 9 percent depending on the deals they can get from banks that are very reluctant to lend right now.  Banks whose own balance sheets are suspect.

The effect this will have on the Quadrillion dollar debt derivatives market is entirely unkown.  Because that market is over the counter, unregulated, and often poorly understood even by the experts who design and sell the instruments.

Debt and debt derivatives are now  in the portfolios of most of the nation's pension funds - both public and private.  If you think the managers of these pension funds have any understanding of the instruments they buy from the largest Private Equity Firms who market these things - well, I have a bridge in Brooklyn I"d like to sell you.

These companies and funds do not own a printing press.  They will go bankrupt unless the Fed bails them out.  Which means flooding the market with tons of printed dollars which will cause inflation to shoot to the moon.  Hyperinflation.

DEBT DEFLATION OR HYPERINFLATION.  Take your pick.   I know what the Fed will choose.

And the global Eurodollar market is comprised of over another 5 trillion dollars of dollar denominated debt, much of which was also borrowed near zero must be refinanced at much higher rates in the next two years.  And none of these other countries own a printing press that prints dollars.

A debt bomb is going to explode in 2024 and continue through 2025.

And the only thing I know that will protect you from this is gold

AN OLD MARKET IS REDISCOVERED

 

Una and the lion medallion sold at heritage auctions for $144,000 in 2021

Medallions, especially in gold have always been the prized possessions in the cabinets of Kings and Queens, Emperors and Tzars.   If you go to the British Museum, or the Hermitage or the Louvre for example you can see large gold medallions that were once the prized possessions of Royalty.

When you think about the idea of Intrinsic Value it's not hard to understand.  Medallions were struck for the pleasure of monarchs by the great engravers of their eras.  They celebrate momentous occassions: Coronations, Victories of War,  Peace Settlements, Artistic and Scientific acheivements, and the like.  Most any large gold medallion you can buy would have been originally owned by an historical figure of note.  

But after the bullion price of gold collapsed after Volker crushed inflation in 1980, which coincided with an activist Federal Reserve Bank keeping real rates negative for the next 50 years along with the US government's systematic dismantling of its regulatory agencies and systems, a strange thing happened.  Momentum Trading began to replace Value Investing.  

Not all at once.  But persistently.  And as it did Hard Asset Investing took a hit and Historical Gold medallions took a back seat to the momentum trade herd mentality chasing whatever could be hyped.  In the coin world it was mostly US rartities like Lincoln Pennies from rare dates one of which sold for nearly 2 million dollars.   This happened as the price to earnings multiples of stocks rapidly expanded, debt to equity ratios blew up and new industries developed like the Leveraged Buyout Firms that sold junk debt to unsuspecting banks and insurance companies destroying value and killing jobs.  All the while the Fed kept lowering rates to make the debt fueled orgy more and more compelling. This moirphed into the Private Equity Business that now control and systematically destroys the value of Hosptals, Schools, Universities, Nursing Homes, Real Estate, Super Markets etc - making everything extraordinarily expensive while gutting these institutions of all value.

Is it any wonder that value investing in hard assets of intrinsic value took a hit.

But a strange thing has happened in the last few years.

People started to become wise to this cynical game.  And investors started to seek to protect themselves against the currency devaluation that accompanies the cynical explosion of debt and debt financings.

This coincided with the steady rise of the gold bullion price - and the rediscovery of Hard Assets and especially Historical Gold Medallions.

The Brtish Series of Coronation Medals began to catch a serious bid.  The Queen Anne gold coronation medal for example which as readily available for $5000 ten years ago now sells for $50,000 in High Grade.

Then the Holy Roman Emperors caught a robust bid.  This Leopold gold Coronation Medallion sold for $360,00 in 2021

Medallion of the Russian Tzars caught a bid. Medallions of French Kings, and here in the US Betts Medals and Indian Peace Medals and the Medals pertaining to George Washington were rediscovered

                                     Washingtom funeral gold medal $372000 at Heritage auctions 2023

To be sure, the momentum trading that had dominated the last 50 years of investing still has a hold on market psychology.

But the explosion of debt has finally resulted in a pernicious inflation that can no longer be disguised by fictitious government data.  Everyone knows real things are getting more and more expensive vis a vis debased currencies.

And more and more investors are seeking the safety of Real Things of Intrinsic Value.

So what exactly is the Intrinsic Value of Large Gold Historical Medals?

1) Most obviously large gold medals are comprised of a lot of gold of high purity.  As the price of bullion inevitably rises for many many reasons so must the price of high grade gold artifacts.

2) These medallion are historical artifacts.  As such they are objects of of Historical Interest - perhaps even historical importance.  

3) Beauty,  These medallion were most often engraved by highly skilled artists with unique and beautiful designs.

4) Absolute Rarity. Historical Gold Medallions were minted in amounts limited to the VIPS who attended the specific ceremonies.  Even commemorative medallions that were minted for collectors at or near the time of these events were issued in tiny mintages because those who could afford to pay for a large gold artworks were only the extremely wealthy.  Most often only a small handful - perhaps 5 to 10 pieces, perhaps less, are available in decent  collectable grade on the market.

But like the price of bullion gold, the Large Gold Medal Market is really only newly rediscovered.  There is so much room to grow - because the dirty little secret of modern debt financing is that the debt has reached sufficient levels that through the burden of Debt Service alone it must continue to spiral ever out of control.  And as rates spriral higher debt service becomes ever more expensive, currencies are debased,,,

And so Hard Assets of intrinsic value will become more and more valuable.

MODERN GOLD RARITIES - a New Market Comes of Age

 

Republic gold 100 Soles 1952 MS66 Prooflike NGC Price realized: 37,200 USD   

Heritage auctions 3 November 2023

The 100 soles coin above with a very low mintage of 126 pieces was purchased 4 years ago for $12,000.  It has tripled in value in the last 4 years.  SImilar coins from years of higher - but still limited mintages - in high grade have also tripled from values that 4 years ago were closer to bullion.

Coins that once were purchased from bulk dealers like apmex have now found their way into exclusive high end auctions.  

Not all coins that started out as bullion - as all coins once did - attain great collector value.  But modern rarities that strike collectors' fancy are attaining the high prices.

For example the coins above: France Republic gold Piefort 5 Francs 1960 MS67 NGC mintage: 50

Price realized: 9600 USD Heritage Auctions  3 November 2023

THis coin was purchaed only three years ago for $4200.  THe thing to realize is that the price of bullion gold over this period has been relatively stable.  UP a little down a little.  I think the bullion price will eventually break out when people realize the economy is too debt laden to do anything but sink over time taking the value of the dollar with it.

But meanwhile all sorts of limited issue high grade modern coins that were issued as novelty bullion issues have sky rocketed in value in the last few years.

Canary in the coal mine.  

These coins go up in value ahead of bullion because bullion is fungible.  One bullion coin is exactly like the next.  But bullion that has an atractive design (the famous Oscar Roty sower image above) and is issued in very limited numbers is catching a major bid.

Even coins issued in the last few years :

Elizabeth II (1952-2022), gold proof Two Ounces of Two Hundred Pounds, 2020, Three Graces, struck in 999.9 fine gold, sold for 15,000 USD in the Sovereign Rarities aucion of 26 September 2023

THats's a pretty hefty price tag for a bullion coin minted four years ago.  THe mintage was 335 pieces.  Not tiny - but the design is tremendously popular and the mintage is small enough.

This doesn't seem to be an abberation.  There are enough issues catching a greater and greater bid auction to auction year after year that the trend seems well established.

Many coins and medals from the mid 20th century that were once bullion pieces are now hotly pursued collector's items.

And Central Government mints in Paris, London, Utrecht, Jablonec, and British dependencis like Alderney, Ascension Island and St Helena and others are getting a piece of the action with new limited edition pieces sometimes with mintages as low as 20 pieces.

If you take a shot on an attractie low mintage design already graded as MS 70 and buy somewhere near bullion it's tough to see the downside.

More and more collectors are doing it.

And the trend seems sustainable as long as the world's major currencies are being debased to pay for astonishing debt service levels.

Which would appear certain into the foreseeable future.