Shaky banks spur gold spike

Wall Street is shaking from the fall of Lehman’s and the Federal Reserve’s $85 billion bailout of American International Group.

And when the market gets shaky, that’s when people like to get their hands on hard assets like gold and silver.

“When the government takes AIG and bails them out that means they’re going to have to print more paper dollars and infuse more money into their system and it sends a very, very bad message,” said Larry Goldberg of Goldberg Coins and Collectibles.

People are losing confidence, he said.

“I think it’s looking more and more like hard metals and hard assets are going to be the winner,” Goldberg said.

“Now I think is the right time to start buying gold coins.”

But there is one problem. Bullion coins are in short supply.

“Nobody has any large quantities of gold,” Goldberg said. “I don’t have people calling me wanting to liquidate their gold positions. People in the Beverly Hills area sold when gold hit $800, $900 even $1,000 earlier this year.”

And because gold is scarce, premiums are high, $40 or $50 an ounce over spot price, he noted.

So where is gold headed? Could it hit $2,000 an ounce by year’s end?

“That’s not good for the country, but that could absolutely happen,” Goldberg said.

It’s his contention that the government has been bringing down the price of oil, gold, silver and other hard metals. It was just a matter of time before the bottom fell out, Goldberg said.

“It happened a lot quicker than I anticipated,” he said. “I was positive it was going to happen two months from now, after the elections, but the handwriting is on the wall.”
Already this year 11 federally insured banks and thrifts have failed, compared to three at this time last year.

“I think at some point people are going to wake up and realize that we’re in really bad shape,” he said. “We’re not in good shape.
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For Marc Watts, owner of Gaithersburg Coin Exchange, silver is particularly popular.

“Premiums are sky high and availability is nil on most material,” Watts said.

In fact premiums are the highest he’s seen in 40 years of business.

“Availability is scarce in physical silver. It just isn’t available,” Watts said.

As a result, his company produced 100,000 one ounce generic rounds to sell.

“The last time we made our own rounds was in the middle ’80s,” he said.

Why the popularity of silver?

“Silver is more affordable, it’s a viable product and a lot of people think it’s more bang for the buck for them,” Watts said. “Percentage wise, I think it’s a better play.”

As for the metals market in general, Watts thinks it’s trying to find a bottom.

“I think the market was over bought on the way up and I think it was over sold on the down side. It probably belongs in the middle some where,” he said.

Watts recalled that gold started to break out at about $670 an ounce and silver at about $11.20.

“I think there’s going to be the devil to pay when it turns around and starts to go the other way,” Watts said. “A lot of people are waiting to get on the band wagon. When people think they’ve missed the boat they will all try to get through the door at the same time.”

It looks like the uptick has begun. On Sept. 17, right after the AIG bailout, gold shot up $70 in one day to $846, the largest percentage hike since 1999. Silver climbed $1.17 in one day to $11.64, the largest percentage hike since 1979.

“The dollar is collapsing and I think other currencies will too,” Goldberg said. “If they all collapse it will be back to hard precious metals, hard assets, and that’s probably going to be the winner.”