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Take delivery of your gold

Every coin collector knows that in 1933 the U.S. government called in all gold coins.

The public was paid face value for the coins.

The next year the U.S. formally devalued, raising the official price of gold from $20.67 an ounce to $35.

Big profits were thereby denied to the former gold coin owners.

Gold ownership except for dental crowns and wedding rings was forbidden to average Americans until Dec. 31, 1974.

These facts have been used to sow suspicion of U.S. government regulation of commodity markets for many years.

These facts also have been used to justify taking delivery of any gold coins purchased (because businesses that store gold will comply with any future government recall order).

Also, gold owners who do not take delivery, but store their gold with others are also taking on third-party risk. In the past, some third-parties have proven to be dishonest.

The arrival of China as an economic giant has expanded the narrative.

It has been used to justify gold investment, which is logical. The Chinese both governmentally and personally are big buyers of gold.

More demand should mean higher prices over time.

China has begun its own commodity trading markets to reflect its growing status in the world economy.

Some have taken this as evidence that western markets and western investment practices are somehow inferior or more susceptible to unwanted outcomes than new Chinese markets are.

One of these so-called inferiorities is western markets’ accepting cash in settlement of contracts to deliver commodities.

If you don’t happen to have whatever you promised to deliver, you just pony up the settlement balance in cash and all is well.

Supposedly the new Chinese markets will insist only on actual delivery of the commodities, such as gold.

Can investors rely on such promises?

The recent actions in the Chinese stock markets provides a clue.

When the Shanghai and Shenzhen markets declined by about a third from their June 12 peak, the Chinese government pulled out all the stops to prop them up.

What should disquiet gold investors is that some of the means used to prop up the market included prohibiting owners of major stock positions from selling their shares for six months. Also, roughly half of the listed companies on the exchanges ceased trading.

If there is ever tumult on the Chinese gold market, would similar measures be taken?

Would major players be prohibited from selling?

Would trading cease for a time?

There is no way to know the future, but it would appear that Chinese regulators are to be viewed with the same caution that other market regulators are viewed with by gold investors.

The two long-standing rules of gold investment, that of buying the most widely known gold bullion coins at the lowest possible price and then taking delivery look all the better in light of recent Chinese government actions toward its stock markets.

These recent events show that there is a good reason why long-standing gold investment rules are long-standing rules.

Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

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One Response to Take delivery of your gold

  1. schnauzer says:

    Good article Dave. Thanks.

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