Sjuggerud: “The Secret Currency”

By Travis Johnson, Stock Gumshoe, March 11, 2008

I’ve had dozens of readers send this one along, most with a long line of question marks. The teaser has been around for a while (a couple years, as far as I can tell), but it continues to spark interest — especially with the dollar at ridiculous lows, inflation fears bubbling, and gold near $1,000 an ounce (yeeks!)

The teaser has a few clues for us about what this “secret currency” is, but mostly the story is built on the aspiration to true robber-baron wealth that the gummint can’t get their mitts on — we hear the story of the Rothschilds, whose vast riches were built on Mayer Rothschild’s expertise with this “secret currency,” and we hear about a few other famously wealthy families, mostly around the turn of the last century, who built or protected their wealth using this “secret currency.”

So what the heck is it?

It’s related to gold, but “It has nothing to do with mining stocks, mutual funds, options, futures, or bullion.”

Man, that cuts the options down significantly.

One of the owners of the Boston Red Sox used it “to amass a fortune worth more than $15 million.”

It was banned on March 9th, 1933 by Roosevelt, a ban that held up for 41 years.

And there are several knockout examples provided of the returns possible through this investment … here are a couple:

  • “From 1972 to 1974, this investment rose 348%, according to an index that keeps track of its market as a whole. At the same time, stocks dropped 34% according to the S&P 500 Stock market index.
  • From 1976 to 1980, while the stock market plummeted 35% according to the S&P 500 Index, the investment I want to tell you about realized 1,195% profits.”

Sounds pretty good, eh? What do you want to bet that the current market malaise, and “so thick you could cut it with a knife” nervous tension of the investing public were the inspiration for the quick return of this teaser ad?

It is also noted in the ad that …

“In fact, the last time the Salomon Brothers brokerage firm included this vehicle in its annual investment survey … THE SECRET CURRENCY RANKED #1 OVER THE PRIOR 20 YEAR-SPAN with an annual return of 17.3%. In other words, it was the single most profitable thing you could do with your money.”

So … this secret is apparently revealed, hopefully with much fanfare, in the special report they’d like to send you, entitled “The Secret Currency — How the World’s Wealthiest Families Make Money Even When Stocks, Bonds and Real Estate Lose Value.”

It’ll cost you $49. That’s the current sale price for the True Wealth newsletter, which I guess is normally $99. And I’m sure they’ll throw in a passel of special reports for you too.

The Gumshoe, however, is somewhat short of fanfare … and I left my pomp and circumstance in my other pants. So I’ll just have to come right out and tell you that this investment is …

Gold coins.

Yep … that’s right, no ticker symbol or anything, you can’t get these through Scottrade. Actual collectible gold coins.

When Sjuggerud talks about gold coins outperforming other indexes in that Salomon Brothers survery, that refers to surveys that they stopped doing a while ago because they weren’t accurately tracking the wide array of gold coins available for collectors and investors. More recent performance figures cited use the more modern index, referred to either as the CU 3000 or the PGCS 3000 index, and the performance numbers they cite certainly seem to be legit from my glance at those charts. More info about that is available from PGCS (the Professional Coin Grading Service … which is, coincidentally, owned by a public company, Collectors Universe).

There are at least dozens of fairly high profile shops and advisers online who would like to advise you about buying gold coins and even buy them and store them for you (though that gets rid of some of the fun of holding them in your greasy little paws and cackling with Scrooge McDuck glee), and there are plenty of actual marketplaces as well. Or you can do what plenty of people do and go to an actual coin store, where they still exist. You can even buy new ones directly from the US Government, if you’re leery of all the different varieties and the reputation of the shops and advisers (I certainly don’t know which ones are any good).

There are all kinds of gold coins — most people have heard of the US gold coins, which were still being minted as legal tender (the American Eagle coins). There are also at least a half dozen other countries that have recently minted gold coins, including South African Krugerrands, Canadian Maple Leafs, UK Sovereigns, etc. The benefit of the contemporary gold coins is that there are a lot of them, there is a standard market, and they all have a set gold content that is guaranteed by their government.

In recent memory, modern gold coins have generally traded at a small premium to the price of gold — so you can buy uncirculated gold coins from the US Mint directly, for example, for about $1050 for a one ounce coin, which is probably something less than a 10% premium to gold bullion, depending on the purity of the coin and the actual market price of gold (I didn’t look it up today). I expect the secondary market prices aren’t that much different.

So, should you? It really depends on you. It’s your money. I don’t own any gold coins, but I know a number of people who do, and they’re not all conspiracy theorists who are preparing for the apocalypse. I know Sjuggerud has recommended a variety of collectibles in his various newsletters, and he often mentions collecting things like classic guitars and other antiques, but for me that kind of investing takes far too much personal expertise … and besides, my closets are pretty small. That doesn’t mean that collecting unique items of any kind can’t be a good investing idea, as long as you’re not relying just on that for your retirement … and as long as you’re not talking about Beanie Babies.

It’s possible, maybe even likely, that Sjuggerud is talking about focusing on genuinely rare gold coins, which are priced dramatically higher (while modern gold coins trade at 5% or so above the price of the gold they contain, genuinely rare or ancient coins obviously trade much higher, even as they may still fluctuate with the price of gold to some degree). The really rare stuff would scare me because of my very limited knowledge of numismatics and the collecting marketplace, but the modern gold coins, which have pretty accessible markets and can even be bought directly from the government, make a certain degree of sense to me. Especially if you do happen to have a small part of your soul that believes “they” are going to come for you one day, and you’ll need a few gold coins in your pocket to make a run for it.

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So I certainly can see the logic of putting a portion of your portfolio into gold, and it’s true that gold coins had some remarkable returns over the years for a variety of reasons, but I can’t tell you whether it makes more sense to buy gold coins (remember, you’ll have to store them somewhere — and probably not in the change jar on your dresser) or to buy shares of the Gold exchange traded fund, or a bar of bullion, or shares of a mining company or any of the other variety of investments that trade in a circle around the price of the yellow stuff.

Is anyone out there in Gumshoe Land a coin collector or gold enthusiast? I’m sure you can find the mistakes I’ve made above, and I hope you can share some wisdom with us.

And I’ll keep looking out for collectible oil — anyone wanna keep a few barrels of West Texas Crude in their basement?

Happy investing, all.



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