Volume 11 Issue 12 Liberty Service’s Monthly Review of Precious Metals and Numismatics November 30, 2005 Gold Nears $500, Silver Tops $8, Platinum Close To $1,000!

• Gold Hits 22-year High, Silver An 18-year High, and Platinum A 25-Year High—Is The Next Major Bullion Boom Underway? • Huge Central Bank Gold Purchases Looming • U.S. Government Inflation And IMF Gold Deceptions Revealed! The prices of gold, silver, and plati- ering industrial and investment demand. Year-To-Date Performance num have roughly doubled over the past The platinum and markets don’t have long-term shortages. However, high-tech As of November 29, 2005 few years. Those who took our advice to build their gold and silver positions industrial demand for both metals is growing Asset Return have profited handsomely. rapidly. Palladium +42.2% This week, gold reached its highest Thus, a solid foundation has existed for gold Silver +22.6% closing price in U.S. markets since Feb- and silver prices to rise over time. Even higher Platinum +15.5% ruary 18, 1983. Silver closed at its prices for platinum and palladium make sense if Gold +14.1% highest level since August 4, 1987. you think that the continuing increases in supply S&P 500 +3.8% You have to go all the way back to cannot be sustained. NASDAQ +2.6% 1980 to find the last time that platinum This old information, by itself, would not be Dow Jones Indust Avg +1.0% traded near $1,000. sufficient for the accelerating price rises. How- ever, unexpected new and emerging develop- purchases and is preparing to disclose Questions— ments have provided the sparks needed to start them. Why have precious metals moved up the fire. Between Russia and alone, the so much in the past month? Gold: At a conference two weeks ago, an of- size of the central bank purchases could Is this a temporary spike that will re- ficial of the Russian central bank proposed that match or exceed all central bank sales verse? the bank increase its gold holdings from 5% to over the next two years. Thus, instead of Or is this just an appetizer for soaring 10% of total reserves. That would require the being a net major gold supplier as has gold and silver prices we might see in acquisition of 500 tons (over 16 million ounces) been true for the past several years, cen- 2006 or 2007? over the next two years or so. Eight days ago, tral banks are likely to be net buyers of Answers— Russian president Putin publicly endorsed this gold. This will make shortages even lar- Several recent developments all point plan. The November 23 issue of The Moscow ger in coming years. to growing demand or to declining sup- Times on page 5 shows a photo of Putin holding One implication of this strong Russian plies of precious metals. a large gold bar as he made this announcement. and Chinese demand is that other central In my judgment, there is little poten- This was the largest spark. On top of this are banks may be prompted to stop selling tial for a significant decline of 10% or continuing revelations that other central banks and maybe even to add to their gold re- more in gold and silver prices. are buying or may be adding to their gold re- serves simply to support their own curren- There is a good possibility that we serves. cies. have already started the massive jump Argentina’s central bank has already made Another new development was the an- in precious metals prices similar to what purchases. South Korea’s central bank is now nouncement by the Board of Governors of we experienced in 1979-1980. purchasing some. South Africa’s central bank the Federal Reserve System after the close officials announced that they may add to their of markets on November 10, that it would Why Are Precious Metals gold reserves. cease reporting the M3 monetary aggre- Last week, one of the Chinese state press out- gate effective March 23, 2006.This is the Rising Now? lets ran an essay urging that the China central broadest measure of domestic money sup- The gold and silver markets have both bank add to its gold reserves on the order of 500 ply, which includes all items in the M2 experienced long-term supply short- tons. If the pattern of recent years is followed, definition plus jumbo certificates of de- ages. The silver market has been in a this means that China has already made such deficit every year since the beginning of 1990; the gold market has been in a Inside this issue: Where Are Precious Metals Headed? page 3 shortage nearly as long. Newly mined BIS Reports Interesting Numbers page 3 metal, recycled supplies, and govern- A Holiday Wish page 4 ment sales have not come close to cov- (Continued from page 1) In order for this silver ETF to begin opera- SEC, there will likely be others in the fu- posit, repos, and some forms of Euro- tions, it would initially purchase 130 million ture. dollars. ounces of physical silver. That amount is Throughout history, perhaps 40 billion M3 is a key leading indicator of both greater than all of the silver registered on the ounces of silver has been extracted. Vir- economic activity and of inflation. The New York COMEX. It is such a huge quantity tually all of it is in forms such as indus- Fed did not explain the reasons during to move off the market at one time, that all par- trial products that are not recoverable at the announcement, but its public af- ties agree that the price of silver could sky- just about any price. At most there might fairs office stated, “M3 does not ap- rocket. be one billion ounces of silver inventories pear to convey any additional informa- When Warren Buffett’s Berkshire Hathaway that could be recycled at prices under $50. tion about economic activity that is not purchased 129.7 million ounces of silver in The eventual price explosion that I have already embodied in the M2 aggregate. 1997, that led to a 30% rise in the price of silver anticipated for several years may be com- The role of M3 in the policy process in one month. This time around, the Silver Us- ing soon. has diminished greater over time. ers Association, whose membership is made up Incidentally, industrial buyers of silver Consequently, the costs of collecting of manufacturers who use significant amounts had cut back on their purchases of silver the data and publishing M3 now ap- of silver in their products, believes that the price once it climbed over $7.50. They were pear to outweigh the benefits.” increases would be much greater. hoping for a swing back to lower levels. In October, the M2 money supply re- If this ETF went into business, there could be They will not be able to suspend their pur- port was $6.6 trillion. The M3 money an immediate shortage of physical silver on the chases of physical silver much longer be- supply was $10.1 trillion. It seems market. Within days, what silver could be ob- fore they have to buy some to avoid pro- unlikely that shifts involving this $3.5 tained would certainly cost more than it has in duction shutdowns, no matter the price. If trillion in assets would be unimportant. the past 20 years. they are forced to purchase silver at cur- The discontinuation of the M3 re- For years, the Silver Users Association has rent price levels, their entrance to the mar- ports may be an attempt by the U.S. tried to maintain that there was plenty of physi- ket could help push silver prices even government to hide rising inflation. cal silver around, which would justify a rela- higher. Since this spring, the M3 figure has tively low price for the metal. Their contention Platinum and palladium: As I said grown at a much faster rate than M2. was that analyses such as appear annually in this earlier, platinum and palladium have been For most of 2005, M2 has been grow- newsletter that show tight silver supplies were supported by rising physical demand, ing at around the 4% annual rate, wrong. Now, by issuing this new analysis, the even though supplies have been increasing while M3 has been rising at about 8%. Silver Users Association is contradicting their right along with them. Increasing gold If you take the M3 money supply past position and admitting that the supplies of and silver prices lend psychological sup- figures and back out the M2 compo- physical silver are limited. port to platinum. nents, one analyst found that the result As an aside, in order to prevent someone from For palladium, the has a high correlation with changes in directly trying to corner the existing COMEX this month debuted a 1 ounce palladium the Consumer Price Index (CPI). silver inventories, the exchange has specific Maple Leaf coin. The 2005 issue will The same analyst also finds that us- limits on the amounts of contracts on which any have a mintage of 40,000, which is not ing the inflation-adjusted M3 figures is one buyer can take delivery in a year. By pre- low. one of the most reliable indicators of venting buyers from taking any significant However, it is the only palladium coin coming recessions and generally is one quantity of silver off of the exchange, it is possi- in current production at any major mint. of the best leading indicators of future ble to pretend that there is more silver available The purchase of 40,000 ounces by itself economic activity. (By the way, if this than there really is. The silver ETF is the per- would not be enough to rock the market is accurate, the inflation-adjusted M3 fect way to circumvent this limitation. upward (this market still has a surplus of figure generated a coming recession The gold ETFs have already absorbed over 8 physical supply). Still, speculators have signal a few months ago along with a million ounces of gold, with a current value of jumped into the palladium market, hoping signal of a sharp increase in inflation). around more than $4 billion. At current prices, that the huge price difference between Just the act of discontinuing the re- that dollar amount would purchase almost one platinum and palladium might lead to porting of the M3 money supply is a year’s worldwide silver mine production. some increased use of palladium in place sign of possible inflation problems. A silver ETF could be more popular than of platinum. Even if nothing else changes, that those for gold because it eliminates two prob- The appearance of the Palladium Maple would make professional traders nerv- lems with owning a large quantity of silver—the Leaf has made the cost of physical palla- ous about holding paper assets and en- heavy weight of it and the space it occupies. dium less onerous for small investors, courage demand for hard assets like The shares in the gold ETFs each represent one- who can now acquire this metal for a pre- precious metals. tenth of an ounce of physical gold. Presumably, mium of 10% or less. The buy/sell Silver: The biggest news affecting each share of a silver ETF would represent an spreads are closer than they were for in- silver is the wider dissemination of in- ounce of silver. gots. formation about the Silver Users Asso- Even if the objection filed with the SEC by the However, because the physical palla- ciation opposition to the proposed Silver Users Association is successful in block- dium market is much smaller than for the creation of an Exchange Traded Fund ing the silver ETF from going into operation, other precious metals, and it is a market (ETF) to trade silver. the truth has now been acknowledged by insid- rife with speculative activity, I do not rec- A subsidiary of Barclay’s Bank filed ers that silver inventories are much smaller than ommend owning palladium. You may a registration with the Securities and previously alleged. purchase one or two as something of Exchange Commission (SEC) to create The Exchange Traded Fund for precious met- a curiosity, but it is a risky market. the first silver ETF to be listed in the als seems to be an idea whose time has come, Summary: The new factors pushing up U.S. on the American Stock Exchange, though I still recommend direct possession of the prices of gold and silver are not likely to operate along the lines of the exist- physical silver for your own protection. If this to stop or disappear. If anything, they ing gold ETFs. particular registration is turned down by the may help accelerate even higher prices in (Continued from page 2) make up a portion of your net worth. central banks confirm that they also count the near future. How much? That answer varies by each gold out on loan as gold in their vaults.

persons stage of life and financial circum- So, the gold reported as being in govern- Where Are Precious Metals stances. Here are some general guide- ment vaults is not necessarily there! Prices Headed? lines. An even more curious bit of data is the I don’t like to be sensationalist and con- First, determine your approximate net gold derivatives market. Over the past sider it poor judgment to make investment worth by adding up all of your assets and four years, the gold mining companies decisions in a rush, so I will try to mute subtracting your liabilities. Next, apply have closed out almost half of their pre- my new market forecasts: the relevant percentage to your net worth sold gold positions. One might expect that Gold: I think that there is a 75% prob- to your target for your holdings of pre- gold derivative contracts would likewise ability that gold will reach $600 by the cious metals and rare coins. decline. end of 2006, a 50% chance that it will top Here’s an example. If you have assets In reports released this summer by the $700, and a 25% chance it could reach of $250,000 and liabilities of $100,000, Bank for International Settlements (BIS) $1,000. Even though these numbers your net worth is $150,000. If you would the value of the over-the-counter gold de- might seem fantastic, I believe I am being like to put 15% into hard assets, that tar- rivatives of major banks and dealers in the conservative. get is $22,500. Up to $2,250 could be al- G-10 countries rose from $318 billion at Silver: I expect silver to reach $10.00 located to rare coins, $8,250 to gold, and June 30, 2004 to $369 billion at December by the end of March 2006. I give it a $12,000 to silver. 31, 2004. 75% chance that it will reach $15 by year For those averse to owning hard as- The simplest explanation of the increase end, and a one-third chance that it will sets—invest only 5-10% of your net of gold derivatives at the same time that pass $20. worth into gold or silver bullion priced the gold mining companies are reducing Platinum and palladium: I don’t see products. Shoot for about half of this in their hedge contracts is that it represents either metal deserving much of further gold and half in silver. new call options written by central banks rises in prices simply because there are For moderate investors—put 15-20% of in an effort to hold down (manipulate) gold not shortages of physical metal. My crys- your net worth into precious metals and prices. Since central banks now own less tal ball is too cloudy to predict prices for rare coins. Allocate no more than 10% of physical gold to loan than they used to either of these two metals. your hard asset total to rare coins, then have, the next best gimmick they could use Besides, with such attractive factors for about 60% of the remainder to silver. to influence the market is to sell these pa- gold and silver, there really isn’t any need For aggressive investors—devote 25- per promises to deliver gold. for most investors to poke into riskier 33% of your net worth into precious met- The rising demand for physical gold and markets. als and rare coins. Allocate about 25% of for gold held by the gold exchange funds Timing: Again, I apologize for maybe this total to rare coins, 25% to gold, and could bring down this whole paper scheme coming across as scaring you into action, 50% to silver. whereby central banks are pretending to but there is a very real possibility that we Please modify these guidelines to fit supply gold (that they don’t actually have) may already be on the upward slope of a your personal circumstances. to the market to help hold down prices. If breakout market. It is entirely possible this system cracks, gold could be at $2,000 that waiting a month to purchase your IMF Deception On Central almost overnight. gold or silver may cost you some profits. Bank Gold Holdings Re- Don’t get caught short. We all will know for sure later how vealed! BIS Also Reports Gold and Gold Coins much breathing time we had at the end of Interesting Numbers! 2005 before prices shot upward (and, of Gold closed today at $494.50, up a In October 2001, Canadian Andrew course, there is always the possibility that whopping $31.75 (8.8%) from the begin- Hepburn wrote to the International Mone- somehow prices stay at current levels or ning of this month! tary Fund (IMF) to ask why the IMF in- even drop), but I would not be comfort- Gold closed yesterday in the U.S. at sisted that members record swapped gold able waiting to add to your hard asset $499.00, its highest close in almost 23 as an asset (part of their reserves) when a holdings. Today might be better than years. Gold had earlier traded above $500 legal change in ownership had occurred. next week. in Asian markets. The reply he received from the IMF Precious metals prices tend to drop Although there has been an increase in stated, “This is not correct: the IMF in briefly as we get close to the next meeting liquidation of physical gold, there has been fact recommends that swapped gold be of the Federal Open Market Committee. a far larger increase in the demand to buy excluded from reserve assets. It then takes a few days to a week or so gold, much of it from novice purchasers. The website of the central bank of the for prices to return to “pre-meeting” lev- Also noteworthy is that the increase in Philippines contradicts this information: els. Their next meeting is December 13. selling is nothing like we saw in years past “Beginning January 2000, in compli- Don’t be surprised if there is some profit as gold neared or reached threshold levels. ance with the requirements of the IMF’s taking in mid-December that might bring It seems obvious that owners sense that reserves and foreign currency liquidity on lower prices for about a week. If so, their gold might be even more valuable in template under the Special Data Dissemi- that could be your best buying opportu- the near future than it is today and they are nation Standard (SDDS), gold swaps un- nity for at least the next few years. waiting for higher prices. dertaken by the BSP with non-central If you are looking to get the most gold Deciding How Much Hard banks shall be treated as collateralized for your money, the best low-premium Assets To Own loans. Thus, the gold under the swap ar- buys are still the Austria 100 Corona I view the ownership of precious metals rangement remains part of the reserves (3.4%) and U.S. American Arts Medal- to be akin to insurance. Owing gold and and the liability is deemed incurred corre- lion (3.6%). Continuing strong demand silver helps protect you from calamities sponding to the proceeds of the for the South Africa Krugerrand (3.9%) swap.” (italics added) hurting the value of your paper assets like (Continued on page 4) stocks and bonds. As such, it should only The European Central Bank and other (Continued from page 3) The Month the spot price topped $7.00, the refiner means that supplies are still tight, with the Handy & Harmon completely stopped ac- premium higher than it was two months Gold Range $43.00 9.3% cepting 40% coin so that they could concen- ago. Net Change +31.75 trate on refining purer forms of silver.

Among smaller coins, the British Sover- Thus, 40% Coin may have liquidity prob- eign (7.6%) is a low-cost favorite. It is Silver Range .82 10.9% Net Change +.75 lems that the purer silver forms do not have. perhaps the most widely traded Demand has steadied for Common Mint around the world, though not in the United Gold/Silver Ratio 59.7 State Morgan and Peace Silver Dollars. States.. Net change -1.8 If silver climbs above $8.50, expect to see Demand for the U.S. American Eagle Platinum Range 66.00 7.1% another round of feverish buying hit this (5.6%) is still so strong that its premium sector of the rare coin market. remains higher than normal. Even though Net Change +39.00 As I have said repeatedly this year, de- the premium dropped for the Ma- Platinum/Gold Ratio 1.97 mand for any kind of numismatic ple Leaf (4.4%), it still has fairly spotty lots, U.S. or domestic, is so strong that it is demand. Date Gold Silver Platinum Nov 02 462.75 7.53 933.00 almost impossible to find anything. Canada is just now releasing 1 oz Maple Nov 03 460.00 7.59 934.00 Fortunately we were able to pick up a Leafs made to .99999 purity standards, the Nov 05 456.00 7.55 927.00 group of Hand-Enameled 2000 Silver Ea- purest of all bullion issues. It is more gim- gle Dollars at such a low price that we can Nov 07 458.75 7.58 927.00 mick than substance as the most extra gold offer them for less than other dealers charge Nov 08 460.75 7.60 936.00 one might receive over a coin that is for the regular Mint State 2000 Silver Eagle only .9999 pure is currently worth about 4- Nov 09 466.00 7.65 948.00 Nov 10 466.50 7.68 958.00 Dollars. Please see our enclosed flyer. 1/2 cents. Nov 11 468.25 7.74 964.00 The roaring market for Common-Date A Holiday Wish U.S. Gold Coins over the past few months Nov 14 468.00 7.76 968.00 LCS has already enjoyed its highest sales has largely slowed. A couple prices have Nov 15 468.00 7.76 967.00 volume year since the bullion boom of even fallen from last month, though the Nov 16 478.00 7.98 980.00 1979-1980, and the year isn’t over yet! overall trend is up. Nov 17 486.00 8.08 973.00 With the prices of gold, silver, platinum, Nov 18 485.25 8.05 977.00 and rare coins at their highest levels in a What we typically observe in markets where the Common-Date U.S. Gold Coins Nov 21 488.00 8.12 973.00 long time, many of you have also had a run up quickly is that Better-Date U.S. Nov 22 493.00 8.17 972.00 prosperous year. Gold Coins tend to lag behind. Now that Nov 23 492.25 8.12 976.00 The new year 2006 will likely be an even the Common-Dates are taking a breather, I Nov 24 closed more exciting market for precious metals think the Better-Date issues are due to Nov 25 closed and rare coins. We welcome you along for

catch up. This month, our feature offer of Nov 28 498.25 8.35 992.00 the ride. Better-Date U.S. Gold Coins from the Nov 29 499.00 8.29 993.00 It is our privilege to serve you—the best 1870s and 1880s include the very coins Nov 30 494.50 8.28 972.00 customers in the world! that now look underpriced relative to their Thank you for your patronage. London Silver Market Premium To New more common pieces. See our offer for We wish you all a holiday season filled York Silver Market = 1¢ details. with health and the wealth of family and When we saw that the Modern $5.00 Gold, silver and platinum quotes are work- friends. May you be rich in the wonderful Gold Commemoratives in Mint State ing spots at 2:45 EST/EDT each day, quoted things on which you cannot put price tags. in U.S. dollars per troy ounce. and Proof Condition did not rise with the Merry Christmas increases in Classic U.S. Gold Coins, we higher, but not dramatically. Happy New Year quietly started to accumulate them. Now The low premium for U.S. 90% Silver Coin that the spot price of gold is starting to Patrick G, David, Bob, Janet, Pam, (2.2%) continues to make it the best value in Charlie, Barb, Paul, Tom, Allan, Pat move, you can actually own these coins at physical silver. In addition to the lowest cost pretty close to a bullion price. Since these per ounce of silver content, it has the greatest Call our Trading Desk Toll Free coins have far smaller mintages than the divisibility (a silver dime contains about 1/14 $5.00 Liberties and $5.00 Indians and you oz of silver), and is also the most liquid. The 800-527-2375 can own them for prices less than you 100, 10, and 1 Oz Ingots (5.1-5.9%) cost for current prices and to confirm trades. would pay for these earlier coins in circu- more but have a small advantage of occupying Call our Toll-Free Quotes Line: lated condition, we see little down-side slightly less space. risk and a whole lot of appreciation poten- Although U.S. 40% Silver Coin (3.2%) may 800-825-8930 tial. Check out our brochure. for a message with the spot prices at the seem attractive for its low premium and high Silver and Silver Coins face value, I do not recommend it. The high U.S. market close and price indications Silver finished today at $8.28, up 75 non-silver content means that postage costs are for U.S. 1 Oz Gold Eagles and U.S. cents (10.0%) from four weeks ago. higher, and it takes more storage space for the 90% Silver Coin Bags. We have not seen huge increases either same quantity of silver content. In early 1998, For a more detailed list of prices, when Warren Buffett squeezed silver short- check Daily Quotes on our website in the liquidation or purchase of physical silver in the past month. Activity is sellers and a lot of silver was liquidated when www.libertycoinservice.com

Liberty’s Outlook is published monthly by Liberty Coin Service, 300 Frandor Ave., Lansing, MI 48912. Telephone: National 800/527-2375 Fax: 517/351-3466 Website: www.libertycoinservice.com, E-mail: [email protected] Patrick A. Heller, Editor. Subscriptions are available at $79.00 per year (12 issues). Send subscription orders and changes of address to the above address. All information is derived from sources believed to be reliable, but accuracy cannot be guaranteed. No guarantee of profitability of any investment or recommendation contained herein is made or implied. Liberty Coin Service has been a dealer in rare coins and precious metals since 1971. The publisher, its principals and associates may, from time to time, have a position in items recommended here. Copyright 2005, all rights reserved.