Proof that Noone Really Understands Gold

Proof that Noone Really Understands Gold

Whose bag is this?’ the Brisbane customs officer asked me as my bag came off the conveyor belt.

Come here, please,’ he added. Next minute, he was unzipping my bag, looking for the item he didn’t like.

Ah, I know exactly what you are looking for. I realised too late what I forgot to take out,’ I told him.

Okay, tell me where you think I’ll find it,’ he said.

I began pointing him towards the object causing all the trouble. My new customs friend pulled out a 10 ounce silver coin, called the Magnificent Maple.

He smiled and showed his colleague the offending item. They smirked and nodded. He handed me the coin, saying, ‘That’s pretty cool. Off you go.

And that was it…

Did I miss anything?

So, what did I miss while I was holed up in Vancouver at the Sprott Natural Resource Symposium?

Well, after the US Federal Reserve lowered interest rates last week, there was more talk of when the Reserve Bank of Australia would follow suit.

One economist over at JP Morgan, Ben Jarman, said of the cut: ‘The global central bank impulse is to ease monetary policy and that puts pressure on the RBA to do something to help the currency provide stimulus.

The problem with that statement is that it’s lazy analysis. When the Fed kept the cash rate at zero in 2010, the RBA was raising the cash rate. And when rates in the US began going up, the RBA didn’t budge.

We can probably dismiss that soundbite…

There were some headlines that retailer David Jones has declared a ‘recession in retail’. David Jones’ parent company has lowered the value of the embattled department chain on its books to $965 million, down a cool $437 million.[1]

And finally, Hollywood has clearly run out of new movie ideas. The latest news from there is that there’ll be a sequel to the 1980s flick Top Gun.

Everything is just as I left it.

Most people don’t know what bullion is worth

In general, people have no clue what bullion is worth.

I once showed someone what $10,000 in one-ounce gold bars looked like. They said, ‘I think you got ripped off.’

My interaction with the customs dude this morning only reinforces this point. He simply smiled at the pretty coin and then waved me on through.

He didn’t know he effectively had $280 in his hand.

What does all of this mean?

Well, arguably, owning bullion coins may be the better choice if you want to move money outside Australia.

For a long time, I’ve always suggested that people look to cast or minted bars when it comes to buying physical bullion, simply because this is the most cost-effective way to buy precious metals. Cast or minted bars have very little detailing. Often, this is the closest to the spot price of gold and silver that you’ll get.

Whereas with bullion coins, you are paying for the detail as well as the intrinsic value of the metal.

Yet, there is a flip side to this.

Travelling with gold or silver coins make it easier to transfer money across international borders.

You see, any government minted coin will have a ‘face value’ assigned on the back.

Let me show you what I mean…

Silver bullion coins – front and back

Source: The Daily Reckoning Australia

As you can see, on the back of both of these coins is Queen Elizabeth’s image. This marks these coins official ‘currency’.

The smaller one-ounce coin on the left has a $1 value. And the bigger 10-ounce coin has a $50 value.

Because both of these coins were issued by a government mint, they are considered legal tender in their respective countries. Meaning, I could spend the funnel-web spider coin in Australia, and the Magnificent Maple coin in Canada.

However, the smaller coin only has a face value of $1, so it will only buy me $1 worth of goods in Australia. Likewise, the Canadian coin would only buy me $50 worth of goods in Canada.

Both of these coins ignore the intrinsic $22 and $280 value in each of them.

So according to Australia, I’ve only brought $51 into Australia, not the total $302 based on the intrinsic value of the metal.

So if you are wanting to take bullion across borders, perhaps coins are the way to go.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia