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Gold Coin ATM

Written By Briton Ryle

Posted December 2, 2013

Asian investors love their tangible assets, land and precious metals being their most preferred. Where gold and silver are concerned, Chinese banks have their fingers on the pulse of investment demand, and they have turned to automation to fill their clients’ insatiable appetite for the metals. ATMs have recently been installed at Beijing’s Hua Xia Bank, giving customers a choice between withdrawing funds in cash or gold and silver coins and bars.

dec 2010 china gold coinThe rise in Asian physical bullion demand is pitting the Panda against the Eagle, as Chinese Panda coin sales have been growing at a faster pace than American Eagle coins, especially in the more affordable silver market. Where the U.S. Mint’s annual American Eagle silver coin sales have doubled from 20.58 million in 2008 to 41.5 million in 2013 so far, China’s Silver Panda coins have exploded in minting volume from 600,000 in 2010 to 8 million in 2012 for an increase of over 13 times.

But Chinese investors are not shy about forking out even larger sums of money for gold coins. While the one-ounce silver Pandas sell for the equivalent of about $40, Panda gold coin sets are vending for up to $3,800.

Chinese Demand Still Healthy

While the World Gold Council had assessed Chinese gold imports as having peaked earlier this year, recent data shows inflows of gold are still on the rise. Gold flows from Hong Kong to China rose in October to their second highest monthly volume ever, reaching 131 tons, up from 110 tons in September and surpassing the 100 tons-per-month mark for six consecutive months, Reuters reports.

China’s 2013 gold imports are on pace to topping India’s, with gold purchases leading up to the Chinese New Year on January 31st expected to trump purchases during India’s September-through-January wedding season.

But the Chinese coin investor, like any other, is well aware of the greater profit potential offered by crafted coins over simple bullion, since coins contain two values – the metal and the design – whereas bullion is simply an investment in the metal itself. Factor in the limited nature of each year’s coin production, and a minted coin’s value will steadily beat its equivalent weight in bullion.

Then there is that extra element of luck; you just might be stumbling into an amazing year of important significance that makes any coin minted that year much more valuable. Take 1996 and 1997, for example, when Hong Kong’s return to Chinese rule increased those years’ coin values substantially.

But not for the reason you might think. Initially, the reunification of Hong Kong with China caused markets from equities to precious metals to plunge, with the metals on their way to a multi-decade bottom a couple of years later. But today, coins from that period trade at a substantial premium – not because of the hand-over of Hong Kong to China, rather because of the turmoil that resulted from it.

So come what may, whether 2014 bodes great economic progress or an impending financial cataclysm, coins offer a means of converting the year’s significance into a potentially significant premium value.

Americans Demand Currency Protection

Whether 2014 turns out to be a boom or bust year for economies is unpredictable, but the threat of currency debasement around the globe is something many are predicting for years to come.

While more and more central banks – from Japan to India to the U.K. to the U.S. and a multitude of stops in between – turn to low interest rates and monetary stimulus to spur their economies, they are systematically devaluing their money. That’s the whole point of the exercise, to weaken currencies, which increases the value of exports and increases the domestic value of their trade income.

As the decade-long pressure on the USD’s value is expected to continue for another decade still, many Americans are calling for a more widespread use of gold and silver in the financial system. If they get their way, you may one day see gold and silver vending machines at your local bank.

The “Constitutional Tender Act” is just such a bill, advocating the return to a gold and silver currency system in the U.S. Supporters contend that current paper money is actually illegal, citing the United States Constitution which declares in Article 1, Section 10, that “no state shall… make any thing but gold and silver coin a tender in payment of debts.”

In using paper bills, the government is breaking constitutional law, as explains: “EVERY State in the United States of America HAS made some other ‘Thing’ an offer as payment – they have by law declared that they will accept, and pay out, Federal Reserve Notes for any debts owed by or to them. Therefore, every State is in violation of Article I, Section 10 of the U.S. Constitution.”

Hence “the need for the ‘Constitutional Tender Act,’” the website advocates, “a bill template that can be introduced in every State legislature in the nation, returning each of them to adherence to the United States Constitution’s actual legal tender provisions” by returning to the use of gold and silver bullion.

In 2009, Georgia Senator David Shafer “used the first half of the Constitutional Tender Act as the basis for a bill he introduced … titled ‘The Sound Money in Banking Act,’” recounts. “This bill would require banks in Georgia to offer accounts denominated in gold and silver coins – a huge step forward for the re-introduction of REAL money that keeps its value over time!”

While the Constitutional Tender Act was re-introduced in Georgia’s House of Representatives in 2011 by Rep. Bobby Franklin of the Georgia House Banks & Banking Committee, it is repeatedly deferred to subcommittees for further evaluation until the idea quietly goes away.

One reason governments cite for their reluctance to abandon their paper money is paper’s ease of use; it is simply easier to carry and use than metal is. But supporters of the C.T. Act see that as a poorly thought argument.

“One of the objections we often hear to the Constitutional Tender Act,” counters another Constitutional Tender advocacy group, “is that it would force the States and their citizens to buy silver and gold coins and carry them around in their pockets all of the time.” But the group explains that gold and silver bank accounts could be offered by U.S. banks in the same way they offer checking and savings accounts – with electronic transfers online and at ATMs, pre-empting the need to carry and trade actual metal specimens. When scanning your plastic ATM card at shops, all you would do is select your gold or silver account as you would checking or savings.

Or you could simply let your metal accounts appreciate over time. This would be a “long run approach” on the expectation that the USD “will eventually implode and collapse under the weight of [the Federal Reserve’s] own inflationary fiat money system,” as the site predicts.

A Change of Habit and of Mind

As the call for a sounder, safer alternative to eroding paper money spreads, it is only a matter of time before gold and silver dispensing machines become fixtures as common as ATMs. Already in use in Dubai, the U.K., Las Vegas, and now China, precious metal dispensaries will undoubtedly grow in availability and popularity.

Yet prudent coin investing and the safe use of precious metals-based bank accounts require a very different mindset, which the Chinese have always had. For any investment in gold bars, coins, or electronic accounts to pay off, investors need to extend their time horizon from quick short term profits to slow long term appreciation. Investors in the physical are in it for the long haul.

While it is perfectly sound for a portion of portfolios to be invested in short-term speculative holdings, one should never ignore or undervalue long term investments in tangible assets, such as real estate and physical precious metals. In the end, a paper certificate is just a representation of something else which may or may not even exist, whereas something you can touch is something you know you own.

Joseph Cafariello


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