Will Scandal Push Gold Coins Higher?

August 1, 2012 – The demand for and the premiums on common-date pre-1934 US gold coins could skyrocket in coming weeks after a rock bottom two to three months ago. The prices for circulated Morgan and Peace dollars reached an apparent low approximately three months ago, while generic high-grade Morgan and Peace dollars have been sliding along a low for much of the year.

The LIBOR rate, or London Interbank Offered Rate, a benchmark interest rate that is used around the world to determine everything from the interest rates on mortgages to the interest rates on student loans could supply more than enough momentum for the gold price to rise higher.

The LIBOR rate has been making headlines in recent weeks after it was discovered that Barclay’s had repetitiously falsely reported its rate of exchange between itself and other banks. As the scandal widens, it appears the rate was set relatively arbitrarily and several other banks were also engaging in behavior similar to Barclay’s.

The premiums on the pre-1934 US gold coins have inched upward in past months. On the other side, lower grade coins of $10 and $20 are affordable with premiums nearly as low as bullion coins including US American Eagles and Buffaloes.

Bill Murphy, chairman of the Gold Anti-Trust Action Committee, believes the LIBOR scandal has focused on Barclays so far but is ready to expand and involve several other banks. Murphy also believes that JPMorgan Chase’s large short positions in the silver market will be publicly reported and confirmed as unbacked short positions taken with the intention of swaying the market.

Additionally, the LIBOR scandal may prompt a call for investigation into other banking activity by the world’s largest banks.

Silver had already sustained a move upward for the week despite a halt in trading in anticipation of the meetings of the Federal Reserve today and the European Central Bank tomorrow. As investors anticipate policy news to be generated by these meetings, they are postponing purchases, making the gain in silver particularly notable at this time.

The numismatic value of coins has been little regarded in the current market despite the fact that numismatic value really serves best in this market environment. While precious metals markets can be at times volatile, the numismatic value of the coin, above and beyond the inherent value of the precious metals included in the coin, bring additional trading power to gold and silver coins.

As the LIBOR scandal continues to make nearly daily headlines, it is apparent that there is no bottom to the crisis yet as the breadth of the interest rate manipulation is only beginning to be understood.

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