The first week of the New Year has been an incredible boon for the price of gold coins.

January 10, 2012 – The first week of the New Year has been an incredible boon for the price of gold coins. At one point in trading, the price gained $40 in twenty minutes. Gold ended last week in positive territory that firmly established it above the $1,600 level. The gains are expected to continue into this week, though there is some possibility the price will even out in accordance with the New Year’s rally.

However, the market influences currently in play make it particularly difficult this New Year to determine just how much of the current market is a New Year’s rally and how much of this market is a result of both economic crises and their effect on the gold market.

Everyone knows that exposure to European debt is what brought down MF Global. Shortly after the bank failed, a little-known lawsuit was filed in the Southern District of New York over who owned approximately 800,000 paper contracts for gold and silver. Hence, the term rehypothecation came into existence as banks had to explain, in a way as confusing as possible, how they were using the same precious metal accounts at the same to finance different risky investments.

No one knows how much actual physical metal underlies the paper contracts in existence. However, like derivatives, which are valueless debt instruments, there are paper contracts upon paper contracts upon paper contracts. Gold coins, and all precious metals, are traded on a fractional reserve basis, meaning there can be one underlying ounce of gold for, say, a hundred contracts in existence. If there were ever to be a crisis in which the value of the paper contracts was questioned, the actual value of the price of the underlying ounce of gold would skyrocket beyond any expectations.

In the coming months, there will be a move from the current stage of the European into a new stage. Exactly how this will work out and how it will affect the market is as yet unpredictable. However, it can conservatively estimated that many American institutions, perhaps more than we will know, are very much exposed to bad European debt and any ripple across the pond will bring about further bankruptcies here in America which will poke holes in the paper precious metals market. The resulting price increase will be astonishing. The gold coin prices available to you now may be the best opportunity to hedge this market and make money.

Kevin Johnson

Senior Staff Writer – GoldCoin.net