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What Does It Mean When The U.S. Government Produces A New Gold Coin?

 


U.S. About to Launch Massive Ad Campaign Promoting…Gold!?!


The last time it happened, gold hit turbo.


The U.S. Mint last introduced a one-ounce gold coin - the now world-famous 22-karat American Eagle - in 1986. And in the 24 months to follow, gold rose 53%.


Mere coincidence? An interesting confluence of events? Probably not. Here you had the U.S. Government putting its official stamp of approval on gold in the form of a beautiful new coin. In doing so, Washington, the seat of arguably the greatest power on earth, was saying, in effect, "It's okay to invest in gold now."


More specifically, it was saying, "It's even better to invest in our gold now."


And invest Americans did. To the tune of 1,312,500 Eagles that first momentous year. As it turned out, that would be the Eagle's high water mark for over a decade. Sales dropped to 425,000 just three years later. But that may only illustrate a point about to come around again: When the U.S. Mint introduces a gold coin, collectors and investors seem ready, willing and able to jump in with both feet, sending coin sales - and gold prices - higher.


The point is about to come around again because the Mint just announced plans to introduce a brand new one-ounce gold coin in 2006.



A Sweeter Eagle…with Sweeter Possibilities


WASHINGTON - The United States Mint is announcing today that it will develop a program to manufacture 24-karat (99.99% fineness) uncirculated gold bullion investment coins in early 2006. This will mark the first time that the United States Mint will produce 24-karat gold coins…



The Mint recently made that important announcement. And now the agency is gearing up to promote its newest entry in the international gold market. This time, though, the Mint has the benefit of almost twenty years of gold coin marketing to make success here a virtual certainty.


Part of that marketing savvy means spotting an opportunity through all the camouflage. In this case, the Mint noticed that nearly a third of all gold bullion coins bought in the United States each year were 24-karat gold coins. Global statistics were even more compelling: 24-karat gold coins made up some 60% of all global bullion sales.


Even more interesting was the apparent vulnerability of the world's reigning .9999 fine gold coin king.


The Canadian Maple Leaf has been the undisputed champ in the 24-K gold coin category. But there have been rumblings of late. Seems the Maple Leaf may be a bit too pretty for its own good. Its design features clear fields around the raised image of Queen Elizabeth. Unfortunately when you combine that wonderfully clean look with the coin's sharp milled edges and soft 24-K metal, scratches and nicks are bound to result.


And that's the chief complaint of investors - that they can hardly take Maple Leafs out of their containers to inspect them like pirates without returning the coins damaged in some tiny way. So coin dealers are often left with unhappy clients. The Mint, on the other hand, sees this as a golden opportunity. Their intention is to break the Maple Leaf's headlock on the $2.4 billion market by presenting a more damage-resistant design.


Predictions are mixed on the Mint's chances.


What seems certain, though, is that the gold bull, already snorting and pawing the ground, is in store for even more promotional prodding.



Why Washington's New 24-K Gold Coin
Will Only Goose the Gold Bull


For once, Washington's timing may be impeccable.


With an anemic stock market, a sick dollar, interest rates straining against the Fed's leash, and tottering, top-heavy real estate, investors are shrugging their shoulders about their the next best move.


And here you have the government about to tell everyone, "Hey, why not buy some of our fancy new gold coins?" Washington will make sure the message gets out, too. The marketing campaign for the new 24-K gold coin may be the Mint's largest ever.


From it, investors will inevitably draw all kinds of conclusions. For one, it may seem like the government is actually promoting the gold market itself. In effect, that's what the government will be doing. Other investors may think Washington is quietly conceding that rougher times are ahead for traditional investments…and this is kind of their back-door way of offering a viable alternative.


Conclusions aside, here are some market repercussions you can count on:


1/ Since this will be a first-year coin, expect collectors and investors to elbow each other trying to get to the head of the line. First-year coin issues are like the Holy Grail to many collectors and few will be denied. But since investors are also clued-in to the exceptional profit potential here, expect them to elbow right back. It could be something of a buying frenzy. The fact is, we're already getting calls for advance orders.
2/ As already mentioned, battered and confused investors may notice the Mint's marketing campaign and start seeing gold as the best game in town. And the new 24-K coin as the best way to play that game. Remember, it will appear as if Washington is giving at least an indirect endorsement to the precious metal.
3/ Then there's the institutional market. It's been taking it on the chin lately, especially with corporate pension plans in highly publicized trouble. Since this new high-profile gold coin will be accepted in IRAs, pension plans, 401ks and the other retirement programs - and since plan participants have been crying for better funding - the dynamics may be perfect for institutions to "go gold" to a much larger extent than ever before.


It all boils down to that 53% jump gold took the last time the Mint introduced a one-ounce gold coin.


Today, in 2005, chances seem good that - on the strength of this new 24-K gold coin alone - history may be about to repeat itself.


Kevin DeMeritt
President
Lear Financial, Inc.


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