AHA Issue 7

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6 World News

18 - investing in film

SpECiAl fEAturES

Adjusting New Reality

12 Going for Gold in Alsaka 18 Investing in Film numiSmAtiCS

24 American Coin Designs

30 - Silver preview

hArd ASSEtS

Silver had a turbulent year in 2013. Will 2014 bring the relief of smoother skies?

30 2014 Silver Preview 34 Bail-Ins 40 At the Crossroads 54 Platinum

40 - At the Crossroads Having emerged from a decade long stint in the doldrums, gold prices began to gather steam in first years of the new millennia.

58 Market Predictions 64 Bitcoin Controversy lifEStylE And luxury

48 Elegant Fountain Pens 66 Real Estate Star Joe Farrell 68 Art Market in 2014 74 Step up to the Plate 81 Discovering Baseball Gold

48 - fountain pens

mininG & minErAlS

The Most Elegant weapon

84 Mining News rEfErEnCE

90 Preferred Dealers

58 - market predictions AHA sat down with Michael Haynes, CEO of APMEX, to answer five questions about the upcoming year and to provide some 2014 Predictions for the metals market as well as the economy in the year to come.

94 Events 96 Hindsight

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eDitOr’S NOte

Happy New Year

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appy New Year to all of our readers. We here at American Hard Assets hope you and yours had a prosperous holiday season. In this second year of American Hard Assets magazine, we’ve seen our readership increase both in print and online, via our website www.ahametals. com. There you will find the great content you’ve come to expect from AHA along with interesting stuff from our partners, real-time updates, exchange rates, metal prices, and more.

To kick off 2014, we’re bringing you a Gold and Silver forecast along with predictions from industry experts. We know you have come to expect great content based from the American markets, but we’ve also included international market content as well and have beefed up our World News.

prESEntEd by: AHA Metals, LLC mAnAGinG Editor: Brad Hastedt EditoriAl Support: Kevin Thompson vp SAlES & mArkEtinG: Mike Obert SubSCriptionS: Leigh Chamberlain CirCulAtion mAnAGEr: Jennifer Cunningham GrAphiC dESiGn: Noel ‘Kip’ M. Macasero GEnErAl mAnAGEr: Josh Eells dirECtor of opErAtionS: Mike Boniol CuStomEr SErviCE: Sandi Heuerman

fEAturE WritErS: Fred Reed, Nic Forrest, Ed Estlow, Mark O’Byrne, Michael Haynes, Gabriel Benson, Eavan Moore, Jonathan Kosares, Louis Golino, Scott Wayne ContributorS: Grierson, Greg Canavan, The Bullion Baron, Hector Cantu, Alistair Bailey, Mike Woodcock, Daryl Middleton, Michael Moore, Christy Stewart, Jonathan Kosares, Tom Genot

Aside from the core metals markets, we’re continuing our commitment to the most interesting hard assets coverage you’ll find on the newsstand. Find out about what to expect from the art market in the New Year as well as the latest in numismatics. Cinematic investment is always a very interesting topic and we find out this issue about a new reality to investing in that genre.

diSClAimEr: American Hard Assets is 100% American owned. All contents of American Hard Assets (AHA) are for information purposes only. AHA does not guarantee the accuracy, completeness or timeliness of the contents. None of the information contained herein constitutes a solicitation, offer, opinion, or reccomendation by AHA to buy or sell any security or commodity, nor legal, tax, accounting, or investment advice or

So, we’re all set to put a bow on 2013 and to ring in the New Year with our best issue yet. As always, don’t hesitate to give us feedback on the magazine or online to help us get better. We want to bring you the content you need to see. Thanks so much for making our first year memorable and keep up with American Hard Assets for all your investment news in the future.

Good Investing!

Bra� Has�ed�

American Hard Assets

services regarding the profitability or suitability of any security, commodity or investment. All commentary and advice in this publication is of a general nature only, and doesn’t consider your individual circumstances or financial objectives. You should always consult a licensed financial advisor for your personal investment advice. Please do your own research.

ContACt uS for AdvErtiSinG Publisher Inquiries: bhastedt@ahametals.com Advertising Inquiries: mobert@ahametals.com

SubSCriptionS www.ahametals.com 1.877.695.1258 P.O. Box 835433 Richardson, Texas 75083-5433 American Hard Assets is a bi-monthly publication and subscriptions are available for one year at $29.99.

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H a r D a S S e t S u p D a t e S | World News

World News Updates

1,800 Rare U.S. Coins Valued at $23M (Source: Associated Press)

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rare St. Louis coin collection that sold for more than $23 million at a two-day New York City auction can be traced to when the collection’s 102-year-old owner received an 1859 one-cent piece more than nine decades ago from his grandfather. Retired St. Louis lawyer Eric P. Newman only paid about $7,500 for the 1,800 piece collection of early American coins that sold for much more at the auction. Most of the coins had been off the market for 50 years. Auctioneer Jim Halperin said the items represent just one-third of Newman’s total collection. Another auction of foreign coins is planned for January and is expected to garner at least $10 million, Halperin said. Proceeds from both sales will go toward supporting the nonprofit Eric P. Newman Numismatic Education Society. The society operates the Newman Money Museum, which is part of the Kemper Art Museum at Washington University in St. Louis. Newman is a 1935 law graduate of the school. “His feeling was that it would be a win-win situation of having these wanted items back in the hands of collectors who appreciate them, not just sitting in bank vaults,” said Andy Newman, a trustee of his centenarian father’s charitable foundation.

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The auctioned items included a 1795 U.S. silver dollar in almost pristine condition that sold for $910,625 and another one from 1799 that sold for $822,500. A rare quarter-dollar from 1796, the first year the denomination was produced by the U.S. Mint, sold for $1,527,500 — compared to the $100 initially paid by Newman. Halperin, co-chairman of Dallas-based Heritage Auctions, called Newman one of the world’s most accomplished numismatists, or professional coin collectors. He’s written at least five well-received books and countless articles on the topic in a journey that began with a present from his grandfather when Newman was just seven. Much of his recently-sold collection was obtained in the 1930s from the estate of a colorful collector, Col. E.H.R. Green, whose wealthy mother, Hetty Green, was known as “The Witch of Wall Street.” “He helped invent it. He saw the future before anybody,” Halperin said of Newman’s early forays into collecting coins. “He really predicted what future tastes would be like.”


World News | H a r D a S S e t S u p D a t e S

World News Updates

Antwerp’s Secret Heart of the $50B Global Diamond Trade (Source: Telegraph)

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t is a business worth $50 billion a year in gems built on mankind’s desire, sometimes a dark passion, for rare stones of brilliance and beauty. As supply from the mines to market fails to match the world’s growing appetite, the market is booming, confidently expecting that next year the trade will become more valuable than ever before. In 1,500 diamond offices, eight thousand people, representing 160 nationalities, handle diamonds worth $139 million every day. Inside their safes are uncut, cut and polished gems worth hundreds of millions more. Indirectly away from the scene, 25,000 insurers, bankers, security guards and drivers take part in a business that is worth five per cent of Belgium’s exports. The hub of diamond prospectors, cutters and polishers can trace its origins back to the 16th century but took global pre-eminence in the 19th century when a combination of low wages and relaxed regulation pulled the trade to Antwerp from Amsterdam. Even when the guest of a well-known diamond trader, security when entering the Antwerpsche Diamantkring, at number 2 Hoveniersstraat, is tighter than at any global summit of world leaders. Visitors must hand over their passport and have the print of their right index finger scanned before receiving a swipe card. The details are then checked on criminal record databases. Terrorists too have struck at the diamond trade’s Jewish community. On October 20, 1981, a car bomb exploded near a synagogue in the Hoveniersstraat. Three people died and the street was devastated. As well as a security born from the threat from armed robbers or terrorists there is an all-permeating culture of secrecy as many traders seek to hide their glittering trade from another predator, Belgium’s tax man. Beyond the security barriers the Diamantkring is like any other office block, with its empty, slightly shabby strip-lighted corridors and nondescript company name plates on the doors. The rooms and desks are stark. Sitting around desk lamps equipped with a special “northern light”, Indians, Jews, Russians and others sit with their eyes glued to a jeweller’s “loop” scrutinizing, and usually rejecting, uncut and polished diamonds. The gems are wrapped in “parcels”, the uncut in folds of the kind of paper you usually see in a cheesemongers, the cut and polished diamonds carefully arranged in padded boxes to avoid scratching. Vashi Dominguez, a Spanish-Indian entrepreneur and founder

based in London, granted The Telegraph rare access to the beating heart of the diamond trade. He estimates that for every carat, a fifth of a gram, of rough stone scattered in front of the men grading them, up to 1,750 tons of earth has been mined to get at them. The owner of Vashi.com and Diamond Manufacturers Ltd, Mr Dominguez has built his business on his contacts in Antwerp and the cutters of stones in Mumbai and Surat in India. He explains the rigid concentration of those sorting rough diamonds, for valuation ahead of cutting and polishing, a task that only a skilled human perform. “Diamonds come in over 16,000 different categories and there is no technology where you can just analyse what the criteria are. Technology can tell you the size and the shape but not the color and clarity. That is not an exact science, it is more like an art that will always require human interaction,” he said. “All diamonds are different. Even with those 16,000 categories there are many others. If I’m buying a parcel of diamonds they are all different.” This is the exciting moment, he explains, when, tumbling from a folded piece of paper, an exceptional diamond can cross a trader’s desk. “I find this so exciting because all diamonds are different. They are like fingerprints. So every time you look at a diamond with a loop or a microscope you are looking at something unique. Every single day you see something different,” he said. “There are very few jobs or industries that inspire this passion. If you are not excited about this industry, what are you going to get excited about? The rough diamonds look a bit like broken glass but once they are polished you can see all the lustre, sparkle and brilliance, the life and color. For me, even after 15 years in the business it is sheer excitement.” “Retail demand is outstripping demand. This is a situation that all major producers forecast will continue,” he said. “Demand is getting stronger than ever, supply is shorter, known reserves are declining and with all these factors, prices are going to go up. There has never been a better time to invest.” Amid a financial crisis that wiped trillions off the value of assets and investments, diamonds promise astonishing returns. “When we look at one to five carat diamonds over the last five years they have produced an average compound return of 11.6 per cent. That is across all categories, the best are even higher,” he said.

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H a r D a S S e t S u p D a t e S | World News

World News Updates The key benefit of the stockpile’s end will be, in the words of Will Rhind, ETF Securities’ managing director, “full transparency in the palladium market for once.” While the stockpile is operated by Russia’s finance ministry, which according to RT, releases material only when the government needs to “soothe any outstanding budget deficits,” such releases have not been without side effects. If past years are any indication, data on the amount of palladium released this year from Russia’s stockpile should be made available in January — though even if the amount comes in at zero, it will be impossible to know whether the country still has more sitting in the wings. At this point, however, Norilsk Nickel believes that is no longer an issue. As Berlin said last week, “we don’t expect that the Russian government sales will have any influence on the market this year or in any following year.” The end is effectively here, he believes, no matter what the Russians say — or don’t say.

Is Russia (Finally) Running Out of Palladium? (Source: Resource Investing News)

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ohnson Matthey and Norilsk Nickel all seem to be basing their conviction that the stockpile is finally nearing depletion on the fact that Russia has been releasing lower and lower amounts of palladium for the past few years.

Dubai’s $7 Billion Expo 2020 Could Become a Glittering White Whale (Source:Gizmodo)

For instance, at the beginning of the year, Bloomberg quoted Johnson Matthey as saying that 2012 stockpile sales came in at 250,000 ounces, down from 775,000 in 2011 — that’s a decline of 68 percent. The firm is certain that sales this year will follow a similar downward trend, sinking to around 95,000 troy ounces. “Russian state stockpiles have been dwindling and are now pretty much exhausted,” said Peter Duncan, Johnson Matthey’s general manager of market research. Similarly, Anton Berlin, Norilsk’s market strategist, said at a conference last week, “[i]n the last couple of years, the stream has become really thin. We view this as a very good indication that the stockpile is depleted,” as per International Business Times. Barclays, on the other hand, cites Swiss trade data as indicative that the stockpile is nearing depletion. Most palladium released from the stockpile is thought to move through Switzerland, Kitco News states, and Barclays said during the summer that in July, “Russian shipments into Switzerland were around 6,400 ounces … consistent with last year’s run rate.”

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Populous

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n 2020, Dubai will host roughly 70 million tourists to its first World Expo, housed inside a gigantic, brand new, solar-powered city. But exactly how smart of an investment is an Expo, these days? And can economically volatile Dubai handle the $7 billion cost? Dubai beat three other cities to clinch the bid—Ekaterinburg, Izmir, and São Paulo. The projections for how it could help bump up Dubai’s GDP are optimistic: it could add as many as 200,000 jobs, and boost the city’s GDP by one percent every year until 2020. But there are also plenty of troubling projections. Like so many other


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World News Updates cities that have eagerly hosted Expos,Olympics, and World Cups, the ROI is not always what it’s cracked up to be. The forthcoming site of the 2020 Expo will add another 1,000 acres of new buildings to the market—at a cost of between $7 and $9 billion over the next seven years. Keep in mind that roughly $42 billion of the city’s current debts will come due during the same period—shaky ground, indeed. So what are those billions going to? 45,000 new hotel rooms, for one thing, not to mention an extension of the city’s subway system (plus roads, tunnels, and other infrastructural investments). Then there are the 12.9 million square feet of exhibition space, designed by the Dubai office of American architecture firm HOK, which worked alongside a design team from Populous. Under these “souk-like” canopies, exhibitors from more than 150 countries will set up shop during the fair, inside what the architects describe as “innovation pods” and “best practice areas:”

Bitcoin: Super Currency or Super Fad?

(Source: USA Today)

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here’s considerable debate about where bitcoin will find its niche in spite of its growing popularity. Those who flush valuable Bitcoins are creating new products designed to simplify the technology and spread Bitcoin mania into the modern American mall. One major unanswered question regards who will be building these massive structures—and how they’ll be treated. Dubai, like its neighbor Qatar, has a less than pristine record when it comes to the human rights abuses of migrant construction workers. Another super-expensive, super-fast tracked construction project is not likely to improve that reputation. And then, of course, what will happen to these massive spaces in 2021, when the tourists go home and the city is left with even more housing and commercial stock? According to HOK, the site will become a “Museum of the Future.”

While the number of Bitcoiners has grown, and some have become instant millionaires, the currency has yet to gain traction among American consumers and businesses. “If you want to make it popular, you have to make it easy, consumer friendly,” says Rob Banagale, who designed Gliph, a mobile phone application that allows people to send or receive Bitcoin via text message, bypassing the sometimes cumbersome transactions through Bitcoin exchanges. “Technology always starts off a little rough. We’re trying to sand off the edges.” Even as more people acquire the Bitcoins, one of the greatest challenges is finding a place to spend them. About $7 billion worth of Bitcoin is now in circulation.

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H a r D a S S e t S u p D a t e S | World News

World News Updates

Some initial Bitcoin users traded their dollars, euros and yen for Bitcoin to do business on black market Internet exchanges, such as Silk Road and Black Market Reloaded, where vendors who dealt in illegal drugs and services demanded Bitcoin. As the number of Bitcoin users has grown, so has the need for legitimate markets in which to spend them. Colleagues Michal Handerhan, a social media and website manager, and Tim Sidie, a computer programmer then working at NASA’s Goddard Space Center mused at lunch one day in March about where they could spend their Bitcoin. They created BitcoinShop.us, a website that lists goods for sale on Amazon, eBay and other retailers, available for purchase by Bitcoin. To work around Bitcoin’s volatility, they had to design a computer program that recalculates prices on the site every 15 minutes. They charge a 10% transaction fee. The site filled its first order in September and has logged more than 600 transactions worth $120,000 for goods in every category since then. Transactions are large and small. A nonprofit organization spent $16,000 on computers, tablets and office furniture. They have sold snow blowers, an industrial sewing machine, a 3-D printer, condoms, an acoustic guitar, pearl earrings and toys, including My Little Pony and Star Wars Lego. On Thursday, a customer bought pumpkin spice coffee with Bitcoin. Expansion plans include expanding shipping from the U.S. to Canada and Australia and carrying merchandise from Macy’s and QVC, Handerhan said. Sidie calls Bitcoin “a huge evolution” in the history of money that he expects to thrive. “The rate of people who accept Bitcoin as payment is skyrocketing,” Sidie said. Part of the effort to move Bitcoin into the marketplace also means persuading people the cyber currency is legitimate, safe and has a value. Dave Smith, 32, of Lansing, Mich., created GoGiveCoin.com to encourage Bitcoin users to recruit others into the fold. “I’m a free market guy. I never liked the idea of the Federal Reserve,” he said. “I was excited about the idea of Bitcoin.”

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The site, which launched in November, allows Bitcoin users to give Bitcoins as gifts, even to those who don’t have the electronic wallets and have never used Bitcoin before. He has had two sales so far: one to a relative and another to an audience member at a talk he gave. He said he’s not discouraged by the slow start. “It’s like being on the ground floor of the Internet 20 years ago,” Smith said. “Bitcoin is going to be transformative.”

Ohio Precious Metals added to the LBMA’s Good Delivery Gold List (Source: Stewart Murray, Chief Executive

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he gold refinery of Ohio Precious Metals, LLC (OPM Metals) of the United States of America has been added to the LBMA’s Good Delivery List for gold with effect from 19th December, 2013. OPM Metals has satisfied the LBMA as to its ownership, history, production capability and financial standing. It has also passed the LBMA’s exhaustive testing procedures, under which its gold bars were examined and assayed by independent referees, and its own assaying capabilities were tested. OPM Metals is located in Jackson, Ohio. Its primary sources of feedstock include dore, scrap from the jewellery sector and dishoarded bars. OPM Metals’ refined gold output is in the form of investment bars, grain, coins and medallions.

Background The London Good Delivery List of Acceptable Refiners of gold and silver is maintained by the LBMA, by whom it is copyrighted. It lists those refineries whose gold and silver bars have been found, when originally tested, to meet the required standard for acceptability in the London bullion market. The List now includes 67 gold and 77 silver refiners.

About the London Bullion Market Association The LBMA is the international trade association that represents the wholesale over-the-counter market for gold and silver bullion. The LBMA undertakes many activities on behalf of its members, including the setting of good delivery and refining standards, the organisation of conferences and other events, and serving as a point of contact for the regulatory authorities.


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S p e c i a l F e a t u r e | Alaskan Gold

Going for Gold in

Alaska By Eavan Moore

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ighting reckless battles against ice, excavators, and their own crew members, the gold miners on Alaska-focused reality television shows paint a dramatic picture of life in the resource business. Recent high gold prices drew dreamers to Alaska, and shows like Gold Rush Alaska and Bering Sea Gold have helped fuel a surge of interest among would-be placer miners. But industry veterans say the shows fail to capture the truth of placer mining. Success, to them, means earning enough to live off during the winter season – and the chief threat to their existence isn’t snow or equipment catastrophes, but paperwork. The real gold fortunes come from major metal deposits owned by explorers patient enough to spend years on workable mine plans and secure investors as committed to the region as they are.

Placer Miners “It seems like everybody wants some Alaska-based TV show or something or other right now,” remarks Steve Herschbach, a prospector and writer whose previous business, Alaska Mining and Diving Supply, saw an uptick in mining equipment sales after the shows started airing several years ago. “But also, of course, mining has certainly been undergoing quite the boom due to the gold prices for the last few years….What really drives the sales is more the price of gold than anything, and the TV shows are just capitalizing on that.” What they also have to capitalize on is one of the few remaining placer mining industries in the world. Placer miners are different from prospectors, explorers or industrial miners; they obtain free gold in creek bottoms without trying to trace it back to a largescale deposit. Their methods are simple: strip the upper layer

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of earth to get to the bedrock, collect gravel, wash it, and settle out the heavier gold particles, all without resorting to the more intensive crushing and leaching used by big operations. Placer miners don’t earn much in a year; most live off the proceeds of a short season that begins when the ice thaws in April or May and ends by October when waterways freeze again.


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It’s a tough life, but satisfying for people like Sheldon Maier, a placer miner in the Fortymile district, and the 450 other permitted miners scattered throughout Alaska. Unfortunately, Maier says, the industry is threatened by regulatory requirements too onerous for these small-scale miners – and the TV shows aren’t helping.

“My dad watches the show,” says Maier. “He says it’s entertaining, but they dramatize everything a bunch. It has brought the regulatory branches down on us harder because what they’re showing is that these guys aren’t always operating safely, and they don’t always care so much about the environment. They’re just trying to extract as much gold as they can.”

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Tom Irwin, current vice-president of International Tower Hill Mines (ITH), spent six years as a commissioner at Alaska’s Department of Natural Resources. He watched one episode of Gold Rush Alaska. “Their kind of gold mining isn’t what people do up here,” he says, explaining that miners go in with formal, permitted plans. “It’s not helter-skelter, it’s not at risk of losing a pump or a hoe in the water, or catastrophic failure. They care about personal safety and environmental safety and wouldn’t make a very good TV show.”

particular MSHA, have got so many rules that are designed for huge mines, great big multibillion-dollar mining operations.” Herschbach thinks the time will come when there are no small miners and prospectors. “It’s all going to be just big operations,” he says. “The ability for the individual to get out there and do it is dwindling fast because of the permitting.”

That said, not all the requirements for regulatory compliance are realistic for small-timers. To maintain their Mine Safety and Health Administration (MSHA) certification, miners regularly go through training classes. Funding cuts for education have made it more difficult for miners to afford compliance, says Maier. “They cut the funding for the classes and redirected it to enforcement,” he says. “So they’re hiring more enforcement people to enforce the regulations rather than help us to comply with them.” Maier says a number of people have quit rather than fill out the required paperwork.

In practice, many Alaskan miners continue to operate while out of compliance – with the blessing of regulatory agencies that recognize many changes have happened in short order, says Leslie Tose, project manager at the U.S. Army Corps of Engineers. For example, rule changes in 2006 and 2008 added new requirements for streams and wetlands preservation that miners are still struggling to fulfill. Her office has been holding off on making certain demands while working on a simplified permit application for the small-scale miner that will cut down on stacks of paperwork. “It’ll be like a cellphone,” she says. “He can stick it in his pocket.”

“Oh my gosh, the paperwork is just getting ridiculous,” agrees Herschbach. “I toyed around with the idea of being more serious, but it’s amazing when you start looking at what happens these days if you start trying to get into running just a little bit of equipment. The various governmental agencies that are starting to get involved, in

Maier nonetheless feels that enforcement has been more vigorous since the TV shows’ advent and since President Barack Obama took office in 2009. “Right now, we’re dealing with the Interior Department, the Corps of Engineers, and the Environmental Protection Agency,” he says. “They’re telling us

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Alaskan Gold | S p e c i a l f e a t u r e

that these regulations have already been there but now they just have a directive from the White House to enforce them. [MSHA is also] cracking down harder and coming down on us small miners here because they see these things going on the TV and they think that all of us are being really unsafe and they’re trying to protect us.” Disregard for the environment is not an accusation Maier would accept. “Those of us that have been doing this for a long time, we care deeply for the land,” he says. “Myself, I’m 30 miles off the highway. I live in the mountains for months at a time. And we do that because we love to and we choose that. We subsist off the land; we hunt, we fish. We drink the water.” The fact that miners work directly in streams means that numerous laws bear down on them: questions of water withdrawal, water quality, fish habitat, and so on are managed by different people and offices with different requirements. Tose says she’s excited about an initiative to allow small miners to do their own wetlands mitigation rather than paying into a mitigation bank as more well-heeled companies do.

But Tose, who has been working in Alaska since 1995, has another comment. “What I think is that small miners really like to complain a lot,” she says.

High Cost of Doing Business Even in Alaska, placer miners represent a small fraction of gold production, contributing only 85,000 ounces in 2012. The rest originates from a few major mines: Fort Knox, Kensington, Pogo, and Greens Creek. The state’s suspected mineral resources could support more mines, but getting new projects to production is a tough proposition in Alaska. For one, the days of surface prospecting are probably gone: the world is running out of shallow deposits, and Alaska is no exception. Herschbach sees his own prospecting work as a fun sideline. “In the mining industry we use geophysical surveys geared towards looking for metallic minerals,” explains Steve Todoruk, investment executive at Sprott Global Resource Investments. “Those are expensive surveys. A prospector doesn’t have that kind of money.”

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S p e c i a l F e a t u r e | Alaskan Gold

He finds Fort Knox a useful example in discussing ITH’s Livengood project, 45 air miles away. A July 2013 feasibility study put Livengood’s proven and probable reserves at 9 million ounces averaging .69 grams per ton. Irwin says that using the mine plan in the current study, the company would need gold to sit at $1700 an ounce, a far cry from 2013’s lows under $1300. But ITH has been discussing – with entities under confidentiality agreements – ways to optimize the mine plan and bring up the grade while conserving cash, which Irwin expects to last into the third quarter of 2015. Like most hopeful miners, ITH will need a larger company to partner with, and that can take time. Garfield MacVeigh, president and CEO of Constantine Resources, says finding the right partner was critical to his Palmer copper-zinc project. Dowa Metals and Mining Co. of Japan plans to spend $22 million over four years in return for a 49 percent interest in the project and guaranteed concentrates for its Japanese smelters. “We spent probably $10 million of our own money to make the initial discovery and advance the project, which allowed us to finally make a very attractive deal with a partner,” he says. “For us to try and raise the money that we would have needed to move the project ahead 100% -- I mean, maybe we could have found the money to do it, or maybe the company would have been diluted too much to make any sense to our shareholders.”

The Pebble Effect That leaves discovery to the companies that are able to raise funds in what is currently a very difficult financing climate. Todoruk suggests that explorers fortunate enough to raise money are more likely to look in less expensive jurisdictions: fuel and supplies add up to a 30-40% tax just for the privilege of operating in the remote north. But Alaska’s mineral potential, stable permitting environment, and supportive state government do have their attractions, and several companies continue to do advanced exploration work. From them, investors like Sprott are asking for very strong deposits. “If it’s open-pit, I’d say in Alaska you want it five million ounces over two grams per ton gold at least,” he says. “If it’s going to be an underground mine, ideally you want five million ounces at better than ten grams per ton.” It’s not impossible to get a lower-grade project built, but someone might have to pay a price for it. Todoruk says that Kinross’s lowgrade Fort Knox property near Fairbanks was acquired for pennies on the dollar from a company in financial difficulties. “That’s the only reason it worked,” he says. “If Kinross went out and found that deposit today, they couldn’t justify building it.” Irwin has a different viewpoint on grade, having worked on the Fort Knox project during his earlier career at Kinross. “When we came to do Fort Knox, there were a lot of questions - can you do a low-grade mine in Alaska? Can you get the supplies in? Can you operate in these cold temperatures? Do you have a quality workforce? Yes, you can. …Fifteen years later it’s still doing exceptionally well, and they’ve made it better.”

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“The most significant new discovery in Alaska in recent history is the Pebble copper-gold deposit,” says Todoruk. Vociferously opposed by those who rely on nearby salmon fisheries, the Pebble project has polarized Alaskans, made global headlines,


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and worried miners who see it as a bad press or bad precedent for their jurisdiction. After spending six years and $541 million on the project, joint venture partner Anglo American walked away in September, leaving junior explorer Northern Dynasty to find a new partner or buyer. Todoruk suggests a junior who is fortunate enough to raise money in a difficult market will be warned off by the Pebble saga. “The message is if we find something, there’s going to be huge opposition to it. Why do we want to go there?” But what Pebble’s reception – and its still-to-be-released EPA report – means for other companies is still unclear. Environmental groups hailed Anglo American’s departure with cautious optimism, while the industry watched with discomfort. “EPA has been conducting an assessment of the area over the past few years and has said that they will use this assessment to decide if they’re going to veto their permits,” says Deantha Crockett, Executive Director of the Alaska Miners Association. Knowing that an already permitted project can be vetoed, she says, is “a gigantic red flag for people that are considering investing in Alaska. It’s a very scary thing for me as an Alaskan.”

Although the economic and environmental impact of Pebble is worlds away from placer mining, even Maier fears the outcome. “I would say I’m not personally a supporter of multinational corporations,” he says. “And let’s face it, a lot of these large mining outfits have had a bad history in the past of leaving environmental catastrophes behind. But if these environmental groups are able to shut it down without seeing a permit and having it processed, our industry will just be a bug on the wall, because it’ll be easier for them to shut us down.” “A lot of the time, our industry gets lumped in with those large mines,” Maier adds. “We’re just small business owners trying to carve out a living and live off the land and be good stewards and take care of it.” Irwin believes that it’s possible to mine responsibly on a large scale. And he, too, emphasizes the quality of life that draws him to work up north despite the challenges. “Alaska’s a great place for raising a family,” he says. “In this kind of [winter] weather, if you’re out on the highway and have a car problem – I say this as a compliment – sometimes the biggest problem you have is the number of cars stopping to see if they can help you. The outdoor activities allow family to appreciate and enjoy what God has created. We love this place.”

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S E C T I O N N A M E | Story Name

INVESTING IN FILM Adjusting New Reality

I

once asked an investor I knew, who in my mind had invested in plenty of things that I thought were borderline crazy, if he wanted to invest in an independent film that I was looking to finance.

The investor did everything but laugh in my face. Was this investor right that investing in film is the same as just throwing your money away? A quick search online of investor websites seems to share this opinion. 18 | American Hard Assets www.ahametals.com

By Gabe Benson

“As the economy struggled, it became difficult to get investors to put their hard-earned capital into a project that lacked a clear path to success,” says Steve Hummell, Managing Partner Of Capital First Investment Group. “But as the economy has improved and discretionary cash is loosed up from stock profits, it is possible to think about investing in film again. But I would need to show my clients a solid game plan.”


Investing in Film | S p e c i a l F e a t u r e

On top of the advent of new distribution outlets needing to fill slots for hungry viewers, the question remains why aren’t more people investing in film. THE TEMPTATION Just a few short years ago, a director name Oren Pei directed a found footage horror film for around $15,000. The film got into a few festivals, got great word-of-mouth reviews and was eventually purchased by a major studio for $350,000. The studio put some work into the picture, and eventually the movie was released and went on to gross over $200 million. The film was called Paranormal Activity and the fourth film in the franchise will be released in early 2014. To date the Paranormal franchise has grossed over a $500 million world wide. I would imagine if you had put up that initial $15,000, you would feel pretty good about your ability to pick a winner. And there are plenty of other success stories. According to Box Office Mojo, some other independent success stories are My Big Fat Greek Wedding (over $368 million), Saw (7 films and over $415 million), and The Blair Witch Project ($248 million). Each of these pictures struck a nerve in the public consciousness and raked in some serious cash. So with the potential for gigantic returns, on top of the advent of new distribution outlets needing to fill slots for hungry viewers, the question remains why aren’t more people investing in film.

As the world of independent film financing has changed so dramatically over the past several years with newer distribution outlets such as Netlfix, Hulu and ITunes all hungry for material, why hasn’t investing in film become a bull market for investing? The answer is, as always, in the business plan.

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S p e c i a l F e a t u r e | Investing in Film

If you can’t get your film in front of the right amount of eyeballs, your movie won’t make any money. THE RISK The problem is the business plan. Too many times, the film’s producers either don’t have a business plan or are not realistic about their chances of success. “For both the investor and the group looking for financing, it is important to treat your film as a business. Too many groups approach me looking for financing for an entertainment project without having solid fundamentals,” says Steve Hummell, Managing Partner of Capital First Investment Group. “Who are the principles involved? What is their experience? What is the marketing plan? How are they bringing the film to the market? Put your film plan together just like you would if you are trying to start any business, because that is exactly what you are trying to do. You aren’t making a movie, you are starting a business.” And after you do that, you have to look at your business plan objectively. And from a producer’s point of view-you have to take the creative side of it out of the equation.

You can’t just assume that because you think it is the greatest story ever, it will be found and loved by millions. If your budget is too small, are you doing a disservice to the picture? Are you cutting so many corners that the film just doesn’t work? Is your budget too high for the type of picture you are making? Historical models show what types of movies gross what in certain environments. You certainly don’t want to tell a small personal story on a blockbuster budget. Sometimes the numbers just don’t make sense. Sometimes movies, like products, just don’t make

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Investing in Film | S p e c i a l F e a t u r e

Sometimes movies, like products, just don’t make sense financially. The world’s greatest lightbulb won’t sell for $1,000 a piece, and sometimes movies just can’t find the right budget.

sense financially. The world’s greatest lightbulb won’t sell for $1,000 a piece, and sometimes movies just can’t find the right budget. And then you have to look at what to do with your movie once it is completed. Do you have the money to get it seen? “Sometimes the problem is the marketing dollars aren’t allocated in the initial budget. And I’m talking about more than money to advertise to the public, I’m talking about the money needed to market your finished film to distributors,” film and television producer Shaun McLaughlin says. “It takes money to set up screenings, submit and show at festivals, even to send out DVDs of your film. I’ve worked on too many projects where at the end of the day the film just languishes because all the focus went on getting the film made and not enough on getting it seen.” And if you can’t get your film in front of the right amount of eyeballs, your movie won’t make any money.

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S p e c i a l F e a t u r e | Investing in Film

On a small production budget you still end up on the plus side, but if your movie only grosses a smaller portion of that, the numbers can get pretty tight. And this is where your business plan needs to be scrutinized and every cost must be attributed in your analysis. Remember the $248 million that The Blair Witch Project made at the box office? Well, first you have to subtract 50% for the cut for the theater owners. So, then from your $124 million you have to subtract fees for your distribution company, sales agent, back end talent deals and marketing costs. Then with whatever is left over, you have to reimburse your investors and share

THE REWARD? But it would seem that with the new onslaught of new distribution sources-both digital and traditional-that your movie would have a better chance of being seen. “With the new distribution outlets available, there seems to be more ways to see a return on your investment assuming the production costs can be kept relative to the return that these new distribution sources can bring,” says Hummell. “The good news is that there is less of a chance for the investment to sit on the shelf for years without distribution, but the returns are also potentially lower as these new media sources (Netflix, iTunes, and VOD) don’t bring in as high a purchase price.”

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Investing in Film | S p e c i a l F e a t u r e

There are individuals who have mastered the market and found the sweet spot in their budget that allows for them to make the movie necessary to reach profitability. But it is difficult. profits. On a small production budget you still end up on the plus side, but if your movie only grosses a smaller portion of that, the numbers can get pretty tight. If your picture can’t secure a feature release slot, there is still life for your investors in VOD or Netflix, but the guarantees are lower and it will take your film that much longer to reach profitability if it ever does.

The bottom line is that making money in independent film financing isn’t impossible. There are individuals who have mastered the market and found the sweet spot in their budget that allows for them to make the movie necessary to reach profitability. But it is difficult. You know what else The Blair Witch Project, My Big Fat Greek Wedding have in common? They all prove that there isn’t a winning formula. Each of the creator’s next projects cost more and grossed significantly less.

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S e c t i O N N a M e | Story Name

American Coin Designs

Classic and Modern Have Their Place By Louis Golino

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ccording to a report published on October 28 in Coin World that was based on an October 18 meeting held by the Citizens Coinage Advisory Commission, the CCAC has rejected a proposal by the U.S. Mint to reissue various classic U.S. coins in platinum. The CCAC advises the Secretary of the Treasury on the designs and themes of U.S. coins and medals. The Mint’s proposed addressing lagging sales of precious metal numismatic coins in recent years by issuing a new multi-year platinum American eagle series that would reuse classic coin designs like the Morgan dollar, Draped Bust dollar, and Standing Liberty quarter. The Mint also proposed issuing a platinum proof coin in 2017 for the 20th anniversary of the platinum eagle program that reissues the design of the Augustus St. Gaudens $20 gold coin, whose obverse design currently graces gold eagles. It would be the only coin in the platinum program not to use the modernized Lady Liberty obverse. The CCAC countered that such a series would be a move in the wrong direction, moving away from its preference for the issuance of more contemporary coin designs. The CCAC’s members believe on

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the whole that the reissuance of classic coin designs has been overdone, but most coin collectors disagree and are eager to see more classic designs. The issue will be revisited in future meetings of the CCAC, but the tension between the preference of collectors for more classic coins and that of the CCAC for more modern ones is likely to continue, and it could pose ongoing challenges for the process of coin issuance going forward. Classic coin designs are extremely popular with collectors of modern U.S. coins (and modern world coins too, as seen in the numerous classic world coins reissued in the last couple years). There are several reasons for this such as the fact that the old designs are in so many cases very powerful artistically and are inspiring representations of perennial American themes, especially the allegorical Lady Liberty. There is also the fact that many people cannot afford to collect many of the original classics such as Gobrecht collars, which is another design the Mint proposed reissuing in platinum, or would enjoy seeing such designs in a larger format and made to modern quality standards.


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N u M i S M a t i c S | American Coin Design

. . . commemorative U.S. coins have for the past couple decades not been terribly impressive, and in some cases are not very good at all, in the view of a wide number of collectors.

It is important to note that all of these coins are very popular precisely because they reissue the old designs. One wonders, for example, if the silver and gold eagle bullion and numismatic programs would have been so successful if they did not depict popular designs from the past, particularly the two used on these coins that are so widely acknowledged as excellent. And I hear on a regular basis comments from collectors that they would like to see more classics reissued, so there is clearly demand for such coins beyond the coins that have already been issued. It is therefore easy to understand why the Mint would want to satisfy collectors’ demand for classic coin designs by making more of them, especially since turning a profit is a major part of the Mint’s mandate, and the Mint strives to address the interests of collectors. But in the view of Scott Barman, who writes the Coin Collector’s Blog, and who ran for ANA governor earlier this year: “This sounds like a case of the marketing trying to dictate the artistic integrity of the U.S. Mint. The CCAC is right to tell them to come up with something better. I think if the marketing folks let the artists be creative they will come up with something far more interesting.” Mr. Barman also said: “While a lot of people love the classic designs, myself included, there comes a time to move forward and come up with something different and fresh. Although I have not agreed with some of the CCAC’s decisions, I agree that CCAC Chairman Gary Marks is right when he said, “Let’s

But the appeal of the classics also has a lot to do with the fact that modern designs on circulating, numismatic, and commemorative U.S. coins have for the past couple decades not been terribly impressive, and in some cases are not very good at all, in the view of a wide number of collectors. A good example of such mediocre art work is the 2012 Infantry Soldier silver dollar. If recent modern designs were on the whole of higher artistic quality, were not so one dimensional like many of the state quarters, and were produced with higher standards of engraving and with finer detail like many modern world coins are, people might feel differently. We can do better, and if we are going to issue lots of collector coins with modern designs, they had better be good ones, or they will continue to sell poorly like many recent commemorative issues. And it is also true that a number of classic coin designs have already been reissued to great success in recent years. The most significant cases are of course the obverses of the American silver and gold eagles and the Buffalo gold coins issued since 2006, as well as the 2009 Ultra High Relief Double Eagle gold coin and the four Liberty-themed First Spouse gold coins. There are a couple others like the San Francisco Mint silver dollar commemorative that reuses the Morgan dollar reverse.

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If recent modern designs were on the whole of higher artistic quality. . . were produced with higher standards of engraving and with finer detail like many modern world coins are, people might feel differently.


Story Name | S E C T I O N N A M E

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N u M i S M a t i c S | American Coin Design

“While a lot of people love the classic designs there comes a time to move forward and come up with something different and fresh.” do something modern, something new. The problem with the U.S. Mint chasing classic designs is that it is already being done on the First Spouse gold coins when the corresponding president was single or widowed while in the White House, with the exception of Alice Paul whose effigy opposite of Chester A. Arthur was mandated by law.” But so far the number of classic designs used on U.S. coins remains relatively small. For example only four of the First Spouse coins out of more than 50 designs that will be issued in the series use classic obverse designs. In addition, silver and gold eagles exist in many versions and have been minted for almost three decades, but that is only two classic designs that appear on one side (the obverse) of both coins. So since just about everyone agrees the classics are great at least in moderation, a few questions present themselves: How much is too much? Is the Mint already making sufficient use of the classic designs, or should it do more in this regard? In my view the answer is to do both: issue some more coins with classic designs, and I think the upcoming hundredth anniversaries of the release of the Standing

Liberty quarter in 2017, and of the Peace Dollar in 2021 could be honored by issuing coins that use those beloved designs. Collectors are the end user, so to speak, so why not issue what the majority of collectors want? And at the same time, also issue coins with solid modern designs that make better use of the talented artists and sculptors at the Mint and in the Mint’s Artistic Infusion program. Few people would disagree that our modern coin designs have tended to lag behind what most of the rest of the world is doing, but I know we have both the artistic talent and the technology to do better. Just compare our recent modern design coins with the designs that appear on modern world coins, which regularly receive the lion’s share of awards for best designs. Finally, there is another aspect to this issue, which is the idea of modern depictions of Liberty and related Americana themes, and that is precisely what the CCAC suggested with its proposal for a series of circulating Liberty-themed coins that is now a bill pending in Congress. Ed Reiter, editor of Coinage magazine, wrote an editorial in his magazine’s October issue that criticizes the proposal and argues it is unlikely to generate the kind of revenue the commission and

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Lunar Story Horse Name Coins | S | e Nc ut Mi iO SN Ma Ntai M cS e

“. . . there is scope for all kinds of designs, provided they are compelling in the view of most collectors. There should not and cannot be a choice between either classic or modern. “ its congressional supporters believe it is. He is also concerned that it would result in too many coins being issued, and in the creation of yet another product (the Liberty half dollars for collectors) that separates a collector from the money in his or her wallet.

appear on our coinage, which spans circulating, bullion, numismatic, and commemorative coins, would be folly. Both kinds of designs should be used as well as designs that straddle the two, such as the 2012 Star-Spangled Banner silver dollar, a collector favorite because it evokes the classic coins of the past yet does so in a modern way.

He may turn out to be right about the revenue issue, if the bill becomes law, although I believe the program would be more popular than he does. And the legislation calling for this program specifies only one new circulating coin a year, a dime or a quarter in alternating years, not both as Mr. Reiter wrote, and with a rebounding economy there is greater need for more circulating coinage. In addition, no one would force anyone to buy collectible half dollars they do not want, and I am sure many people would enjoy collecting Liberty half dollars. The key point for this discussion is that there is scope for all kinds of designs, provided they are compelling in the view of most collectors. There should not and cannot be a choice between either classic or modern. To argue only one kind of design should

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S E C T I O N N A M E | Story Name

2014 Silver Preview By Brad Yates, Elemetal Capital

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ilver had a turbulent year in 2013. Will 2014 bring the relief of smoother skies, or will the bulls end up reaching for the airsick bag?

About this time every year, metals traders pause to reflect on the year that’s been and ponder what may lie ahead. Of particular interest is what may lie ahead for the price of silver. While the myriad of factors that affect the price of metal makes it nearly impossible to forecast the price of silver, it is worth examining the underlying macro-trends that largely steer the precious metals markets in one direction or another. January of 2013 began with the 10-year treasury yield at less than 2%, silver trading a little above $30/ounce, and the S&P 500 hovering around 1400. Over the course of the last twelve months, we have seen yields jump to near 3% and equities rise as much

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as 30%, all on the back of slowly-improving macro-data and a declining unemployment rate. Silver, for its part, has been dragged all the way down to $20/ounce, and even traded in the mid-18s for a time. With the likelihood of another cataclysmic economic crisis dwindling, market participants have started looking ahead to the withdrawal of the monetary stimulus that has supported so much of the financial market these last five years. The third iteration of quantitative easing alone will end up being between $1.5-$2 trillion. That’s just part of a $4 trillion overall balance sheet. To illustrate the magnitude of this number, one trillion is equivalent to one million millions (or one thousand billions). We have spent roughly four of those buying financial assets on government balance sheets.


2014 Silver Preview | H AR D A S S ET S

While this money is not printed like traditional, circulated currency, the yield-reducing effect of these purchases cannot be understated. As global yields contracted, investors seeking returns on assets were forced into less stable sectors that otherwise may have been avoided as too risky. In August of this year, outgoing Federal Reserve Chairman Ben Bernanke hinted that the Fed’s monthly asset purchases could contract from $85 billion to $65 billion. As expected, the market took the news badly--so badly in fact that the Federal Open Market Committee (FOMC) opted to delay the dreaded tapering. In light of this, the same question is on everyone’s mind: when can we expect tapering to kick in, and how much? The general (and certainly fallible) consensus is that the Federal Reserve will reduce their monthly purchases to between $65$80 billion per month from the current $85 billion; the formal announcement is expected in mid-December or late January. In the long term, this reduction in monthly purchasing is minimal. However, in the short term, purchases are going to decrease and the market’s already-feeble recovery is going to get less support from the monetary crutches it has depended on for several years. The next question is will the market be able to stand on its own two legs? To give the market any hope of continued recovery, there are only two options: either the Fed adopts a policy of reducing its accommodation only as continuing economic data dictates (at what may be an imperceptibly slow pace), or it adopts a slightly more hawkish rate of tapering, leading initially to a lessening of global growth rates. Sensational or outlying scenarios of rampant inflation or deflation can be safely ignored.

Silver is likely to experience a significant drag from the close association with gold and the seemingly inherent reduction in accommodative monetary policy.

If the Fed has indicated anything to the investing public, it is that the Fed will take the conservative route whenever possible. And with Janet Yellen assuming the lead in January 2014, this tendency is unlikely to change. With that in mind, the more likely option for market recovery seems to be the first: a gradual reduction in monetary stimulus resulting in a steady (though marginally lower) growth rate. The recovery process may not be painless, but this unconventional tactic may, in the long run, prove to actually work. Considering all this, what should our outlook be on silver in the coming year? Industrial demand may see a slight rebound, but technological advances in solar cells, mobile devices, and electronics on the whole is likely to lead to a lower aggregate demand curve, though an improving global growth rate will prevent any drops from being too significant. Any major drop in growth, out of China in particular, may create demand-side risk to the down side.

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H a r D a S S e t S | 2014 Silver Preview

If silver from a fundamental supply and demand perspective, then, is likely to remain in surplus, then any excess supply will need to be sopped up by the investment sector.

Even if no new silver were actually needed, it could continue to have new supply come online every year.

From a fundamental supply-and-demand perspective, if silver is likely to remain in surplus, then any excess supply will need to be absorbed by the investment sector. Coin and bar demand typically accounts for only 10-15% of the aggregate demand, so the rest will have to come from the ETF segment. Despite the negative price action in silver this year, investors have increasingly made electronic exposure a part of their portfolios. Net total holdings in silver ETFs are roughly equal to one year’s mining production, so a swing to net selling (as gold ETFs saw this year) could mean a large difference on the margin. Another important reality of the global silver supply is that a large portion of the supply has effectively no marginal production cost; it is estimated that up to 50% of new global mining supply every year comes as a byproduct of another primary metal such as copper or gold. For this reason, silver can actually trade below its net cash cost of $15-$18/ounce on a long-term basis. Even with no active demand, new silver supply could continue to be created every year. This is not likely to have a major effect in the context of a single year, but it is a key factor in differentiating it from other commodities like energy or agriculture that tend to revert to their net production costs. When it comes down to it, silver is likely to experience a significant drag in 2014 from its close association with gold and the seemingly imminent reduction in accommodative monetary policy. Rising real

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interest rates will cut investor demand for non-yielding assets and the industrial supply-demand fundamentals are not as bullish as in years past. The real potential for any upside in silver will come from any misstep from the path of steady economic growth over the next year, or a major turn in interest rates or equities. Investors will continue to see silver as a safe haven investment; therefore silver, like gold, should continue to play a part in any well-diversified financial portfolio. Its correlation benefits are well established and the potential for substantial gains in the event of financial crisis are significant. If 2014 goes as smoothly for the broad economy as the Federal Reserve hopes, metals on the whole will face some headwinds, but any stumbles along the path of economic growth will ensure that silver shines brightly.


Story Name | S E C T I O N N A M E

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H a r D a S S e t S | Bail-ins and Deposit Confiscation

Bail-Ins and Deposit Confiscation Makes International Gold Ownership Essential

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ne of the most important risks facing investors, savers, corporate depositors and indeed all depositors today is bank and financial institution bail-ins.

This is why we have completed a research document on this not fully understood or appreciated risk entitle ‘From Bail-Outs to BailIns: Risks and Ramifications’. Preparations have been or are being put in place by the US Federal Deposit Insurance Corporation (FDIC), international monetary and financial authorities, including the FDIC, for bail-ins of both banks but also other financial institutions. The majority of the public are unaware of these developments, the risks and the ramifications.

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By Mark O”’’’Byrne

In December 2012 the Bank of England and the FDIC produced a joint paper on “Resolving Globally Active, Systemically Important, Financial Institutions”. This important and little reported upon document explained the need for a single national resolution authority and claimed that the bail-in regime is a reaction to the financial crisis that began in 2007 and the lessons learned from bail-outs. The US resolution strategy is based on powers stemming from the Dodd-Frank Wall Street Reform Act of 2010 which would “assign losses to shareholders and unsecured creditors”, while the UK approach draws its powers from the UK Banking Act of 2009 and would involve what is “a bail-in (write-down or conversion) of creditors”.


Bail-ins and Deposit Confiscation | H AR D A S S ET S

In March 2013, the EU and IMF spearheaded the restructuring of the troubled Cypriot banking sector. Although the terminology of bank ‘bail-ins’ first entered public consciousness during the Cypriot financial crisis of March 2013, the idea of bail-ins as a central bank rescue mechanism has been openly discussed for a number of years amongst international central bank policymakers. Cyprus became the defining event since it revealed the preparations and planning of international banking regulators and governments at the highest levels for the coming ‘Bail-In Regime’. The market’s expectation was that Cyprus would be similar to previous Eurozone rescue packages applied to economies such as Greece, Ireland and Spain, where banks had their losses ‘bailed-out’ by governments, with the bail-out cost and risk transferred to the sovereign nation and funded by the taxpayer. However, the backlash from taxpayers and certain political parties and a vicious circle of sovereign bank-induced debt was leading to recessions and the possibility of an economic depression. This may have contributed to the international monetary authorities, central banks and governments altering the approach to burden sharing, pushing the losses onto bank depositors.

insolvent banks. The public was shocked by the freezing and confiscation of deposits and the use of them in a desperate attempt to prevent banks from failing. While bail-in generally refers to a bank restructuring where shareholders and various unsecured creditors such as bondholders are forced to share the rescue costs, after Cyprus, the term ‘bailin’ became synonymous with possible deposit confiscation, where uninsured depositors were seen as unsecured creditors of the bank and liable to share bank restructuring costs. The coming bail-ins regimes will pose real challenges and risks to investors and of course depositors - both household and corporate. Return of capital, rather than return on capital will assume far greater importance. Evaluating counterparty risk and only using the safest banks, investment providers and financial institutions will become essential in order to protect and grow capital and wealth. It is important that one owns physical gold and not paper or electronic gold which could be subject to bail-ins.

The important shift from bail-out to bail-in had not been signalled in a very public way. The market’s expectation was therefore confounded when Eurozone finance ministers imposed bail-ins on Cyprus. This forced bondholders to convert into shareholders, and critically, imposed an element of bank deposit confiscation and the forced conversion of these deposits into bank equity. Never before in the public’s perception had bank deposits been countenanced as potential financing sources for the rescue of

Owning a form of paper gold and derivative gold such as an exchange traded fund (ETF) in which one is an unsecured creditor of a large number of custodians, who are banks which potentially could be bailed in, defeats the purpose of owning gold. Physical gold, held in secure storage conferring outright legal ownership through bailment remains the safest way to own gold. Many gold investment vehicles result in the buyers having very significant, unappreciated exposure and very high counterparty risk. Retail investors, retail savers, high net worth individuals, family offices, pension funds, charities, companies, corporations, corporate treasurers, financial advisors, accountants and anyone who manages money on behalf of clients need to consider the risks and ramifications of bail-ins. Many in the financial services sector have paid lip service to diversification in recent years. This has led to many investors experiencing sub par returns and returns below the market rate of return. Those who have achieved real diversification involving owning international equities, high credit bonds, property, cash and gold have been protected from the recent volatility. If there is a failure to observe the fundamental tenet of investing in the coming years – real diversification – we may be subject to further financial pain. Conservative wealth management, asset diversification and wealth preservation are of paramount importance today.

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H a r D a S S e t S | Bail-ins and Deposit Confiscation

Jim Power, Chief Economist at Friends First Group Any individual or any corporate treasurer would be taking an unacceptable risk in making a decision to leave deposits in excess of €100,000 in any single bank, unless one is convinced that the institution is 100% sound. The events of the past 5 years should have taught us that such a conviction would be dangerous. For investors, bank diversification is essential, but more broadly, asset diversification has to be the priority for anybody with any wealth. We still live in very dangerous and uncertain times and investors should do whatever it takes to manage risk and ensure that all of their eggs are not in a single basket that may be badly holed.”

What Are Bail-Ins?

Gold will again have a fundamentally important role to play in order to protect, preserve and grow wealth in the coming bail-in era. Leading economists and financial commentators in Ireland give their perspective regarding the risks of bail-ins. If you manage money in any way, your own or others, it will be prudent to heed their warnings. Dr. Constantin Gurdgiev, Chairman of Ireland Russia Business Association “The recent abatement of the euro area crisis and the reduction in overall global financial uncertainty have led to a decline in the demand for gold as a safe haven instrument and speculative asset. Contrary to the short-term signals in the spot markets, gold and other precious metals role in delivering long-term risk management opportunities and tail risks hedging is becoming more important as the immediate volatility and short-term risks recede.” Cormac Lucey, Chartered accountant, Financial Analyst & Lecturer at the Irish Management Institute (IMI) Depositors should seriously consider two questions when putting money into a bank: (i) is there is a serious possibility of the bank failing? (ii) if the bank fails, is there then a serious possibility that the government would be unable to honour deposit guarantees in full? If there is a significant possibility, even small, of capital loss, depositors should ask themselves the same question that corporate treasurers regularly ask themselves: am I being adequately compensated by the deposit rate for the risk I am now exposing my money to?”

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A bail-in is when regulators or governments have statutory powers to restructure the liabilities of a distressed financial institution and impose losses on both bondholders & depositors. Simply stated, a bank bail-in is an attempt to resolve and restructure a bank as a going concern, by creating additional bank capital (recapitalisation) via forced conversion of the bank’s creditors’ claims (potentially bonds and deposits) into newly created share capital (common shares of the bank). To understand what the bail-in concept of a troubled bank is, it is important to understand what a bank balance sheet is, and what the balance sheet consists of. Simply put, a bank’s balance sheet consists of sources of financing and uses of this financing. At a high level, the sources are shareholders’ equity (shares) and the bank’s liabilities, which consist of lending to the bank by bondholders (bonds) and lending to the bank by depositors (deposits). For large institutions, there are two main approaches to a bail-in, the first being ‘single point of entry resolution’ where the bail-in occurs in the holding company at the top of the group, and the second being ‘multiple point of entry resolution’ where, given that a banking group may be operating across lots of regions.

Who Is Driving The Bail-In Regime?

It is revealing to examine the genesis and evolution of the centrally planned bail-in regime as discussed by central banks and international policymakers, since it highlights that the planning and preparation for a global bank “Bail-In Regime” has been on-going internationally at a high level for a number of years now, primarily under the auspices of the Financial Stability Board (FSB). The Financial Stability Board emerged from the Financial Stability Forum (FSF), which was a group of finance ministries, central


Bail-ins and Deposit Confiscation | H a r D a S S e t S

bankers and international financial bodies, founded in 1999 after discussions among Finance Ministers and Central Bank Governors of the G7 countries. The FSF facilitated discussion and co-operation on supervision and surveillance of financial institutions, transactions and events. The FSF was managed by a small secretariat housed at the Bank for International Settlements in Basel, Switzerland.

returns with Greece, Spain, Portugal, Italy and Ireland all remaining vulnerable.

The Key Attributes Of A Bail-In Regime

Greece, Cyprus, Spain, Italy, Portugal and Ireland all remain vulnerable. However, other countries in the EU also have risks, including the UK, the Netherlands, Switzerland, Denmark & France. A recent paper by Eric Dor of the IESEG School of Management in France, warned how most European governments remain very exposed to their banks, especially France.

The Key Attributes include a number of noteworthy pronouncements on an effective resolution regime such as: • Allocating losses to fi rm owners (shareholders) and unsecured and uninsured creditors in a manner that respects the hierarchy of claims. • Not relying on public solvency support and not creating an expectation that such support will be available. • Where covered by schemes and arrangements, protecting depositors that are covered by such schemes and arrangements, and ensuring the rapid return of segregated client assets. The inclusion of Financial Market Infrastructures means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in. The scope of this planned bail-in regime for participating countries is not just limited to large domestic banks. In addition to these “systemically significant or critical” financial institutions, the scope also applies to two further categories of institutions, a) Global SIFIs, in other words, cross-border banks which happen to be incorporated domestically in a country that is implementing the bail-in regime, and b) ”Financial Market Infrastructures (FMIs)”, such as clearing houses. The inclusion of Financial Market Infrastructures in potential bail-ins is in itself a major departure.

European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages.

The paper computes the total recapitalisation needs of the banking sector of each European country in case of a new systemic financial crisis. It looks at ratios that would represent the increase of public debt, in percentage of GDP, that would result from a recapitalisation of the big national banks by each country. France which would incur the highest cost in percentage of GDP, if the big banks in France had to be recapitalised with public monies. After France, Cyprus, the Netherlands Greece, the United Kingdom and Switzerland are the most vulnerable.

When Could Bail-Ins Take Place?

The readiness for the bailin regime depends on how quickly each participating jurisdiction implements supporting legislation. Given the recent updates (see below) from a number of regulators and

Where Are Bail-Ins Likely To Take Place

Bail-ins are likely to happen at banks that are close to failure in countries that have adopted the FSB bailin conventions and or do not have financial resources to bail-out their banks. Thus, deposits in failing banks in G20 nations may be subject to bailins. The total debt to GDP ratios, household, corporate, financial and sovereign debt, in Japan, the UK and the U.S. are all at very high levels. All three countries have banks whose outlook is far from positive. Many analysts warn that many Wall Street and City of London banks are bigger now than they were prior to the collapse of Lehman. The Eurozone debt crisis has abated in recent months but many analysts and economists are concerned that it is only a matter of time before the debt crisis

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EU leaders plan to agree on the ‘Single Resolution Mechanism’ by the end of 2013, for adoption by the European Parliament in 2014, and implementation in January 2015.

central bank measures including near zero percent interest rates and quantitative easing. Banks are also being supported through the use of almost fictional, though internationally endorsed, accounting treatment for their asset books, such as mark-to-model valuations for their over-the-counter (OTC) derivatives exposures and by failing to have realistic valuations on problematic property loan portfolios.

The UK and U.S. appear to already have the supporting powers and legislation in place for bail-ins, based on powers granted in the UK Banking Act of 2009 and the Dodd Frank Act of 2010, respectively. The exact timing of any bank rescue involving a bail-in obviously would then depend on the need for the bank to be rescued.

Many sovereigns nations remain vulnerable to sovereign debt crises. The Eurozone debt crisis and other sovereign debt crises have been solved for the moment through various forms of ultra loose monetary policies, quantitative easing or debt monetisation.

Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis.

GoldCore Secure Storage service brings unrivalled transparency and security in a cost effective solution. Precious metal investments need to be held securely. Many clients are unable to safely arrange for storage in a location convenient to their residence or place of business. GoldCore is a partner with Viamat International (http://www.viamat.com), the world leader in precious and valuable storage solutions. We operate our storage accounts in many locations including Switzerland, United Kingdom, Hong Kong, Singapore and the United States. Your investments are fully insured by Lloyds of London under Viamat’s Insurance policy. As an extra safeguard GoldCore tops up this level of insurance with an additional policy that will cover any eventuality which is not covered by Viamat’s insurance.

central banks, it appears that they are well positioned to have the necessary legal framework in place to support resolution authorities by about 2015, if not before.

How Likely Are Bail-Ins?

There are differing opinions as to the severity of the on-going financial crisis, and whether it has turned a corner. There are two very broad ‘schools of thought’. The first school believes that the U.S. Federal Reserve, along with partner central banks internationally, has successfully stabilised the global financial system through low interest rates and quantitative easing, while the EU has managed to help recapitalise banks and avoid bank insolvencies in the European Union and and the breakup of the European Monetary Union (EMU). The second school is more skeptical of this view and believes that many banks globally remain vulnerable to insolvency because they are being kept on life-support due to extremely accommodating 38 | American Hard Assets www.ahametals.com

If you have a holding of precious metals and you would like to discuss storing it with GoldCore contact them today or visit their website at http://www.goldcore.com/products_services/storage.


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H AR D A S S ET S | Gold in 2014

AT THE CROSSROADS Gold in 2014 By Mike Getlin

Up, Down, or Sideways?

T

he last twelve years have been a fascinating time for the gold market. Having emerged from a decade long stint in the doldrums, gold prices began to gather steam in first years of the new millennia. The run which really began to take off in 2004 was like nothing we’ve seen in the past. Even the inflationary spike in gold prices back in the early 80s was comparatively short-lived. As the bull market continually posted double-digit gains year after year, precious metals began to find their way back into the mainstream and the forefront of investors’ minds. Whereas in the 1990s, gold was somewhat relegated to the doom-and-gloom survivalist minority, the 2000s saw it blossom into a cornerstone of many Main Street portfolios. The story on Wall Street was not much different. As the precious metals market knocked down previous highs like bowling pins, new Exchange-Traded Products (ETPs) emerged to meet the 40 | American Hard Assets www.ahametals.com

growing interest from both private and professional investors. Investments into these ETPs were massive and sucked enormous quantities of precious metal inventory off the market quicker than mining operations could pull more metal out of the ground. Occurring simultaneously were significant changes to the central banking investment strategy in which these massive institutions also became eager buyers of the yellow metal, an investment appetite they had not held in a long time. The effect of these changes was the price-positive environment which gold enjoyed in the early 2000s and was later amplified by the financial crisis of the latter part of the decade. As American stock investors scrambled to stop the bleeding, governments around the world began to employ “extreme measures” to divert a repeat of the Great Depression.


Gold in 2014 | H AR D A S S ET S

The new U.S. fiscal and monetary policies which emerged from the crisis created a perfect storm for gold. Like pouring gasoline on a raging fire, quantitative easing drove massive speculative demand into the gold market from 2009 through 2011. The solid multi-year uptrend turned into a bull market on steroids. Like a modern-day Icarus flying too close to the sun, the price of gold attained in 2011 was too high to sustain and have since come falling back down to earth. Prices sputtered in 2012, fumbling between about $1550 and $1800. However, 2013 brought the real shift as concerns of an end to the Fed’s stimulus programs prompted massive selling across the entire commodities sector in anticipation of a stronger dollar post-QE. To date however, the tapering has not come. For all the talk about tightening, the Federal government has done nothing to reign in its monetary policy. We all know investors buy the rumor, not the news. They abandoned gold in 2013 on the rumor that QE would be stopped. The news however, never came about. By

many accounts, gold may have shed as much as $400 per ounce of “QE premium” on the assumption that the Fed’s dangerous game might soon come to an end. So what does this mean for gold prices moving forward? Can we draw any conclusions about this market which has been utterly directionless for months? Though 2014 may be the hardest year in recent history for gold forecasting, there are some significant points on which we can achieve some clarity. Seeing enough small factors clearly might help us piece together the big picture in a meaningful way. Gold now finds itself at a crossroads. Which way will it go? Will it continue its legendary bull run and finally achieve the coveted $2000 per ounce mark or will it slip back down into its pre-2001 slumber. Neither is likely to happen in 2014. What will likely emerge is some more clarity as to the role gold will play over the coming years. www.ahametals.com American Hard Assets | 41


H AR D A S S ET S | Gold in 2014

Supply As with any commodity, gold’s long-term price trends are determined by supply and demand fundamentals. Though frenzied investment demand may push the market around in the short term, those changes usually succumb to the supply and demand fundamentals when the time table is stretched. Gold supply is really quite easy to understand, especially compared to that of many other commodities. Nowadays, gold supply really only comes from two places: mining and recycling. If we rewind to 2000, it’s a very different story. Back then, approximately 14% of the gold supply came from recycled scrap, 47% came from mine supply, and the remaining 39% came from central bank sales. Over the last decade, central bank sales essentially have stopped. At the same time, recycling has increased drastically as rising prices made the prospect of selling scrap gold that much more attractive. Mine supply did increase, but not significantly. Most analysts believe total mine supply to be less than 10% higher now than it was in 2000. Since then, the price is up more than fourfold. As we sit today, global mine supply makes up about 65% of the gold that comes to market, while the balance of about 35% comes from recycling. Looking forward to 2014, we can make some logical assumptions about each of these supply factors. Rising gold prices have been the driving force behind the increases we’ve seen in recycled supply. The time, effort, and expense of recycling gold does not change with the gold price.

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However, the reward for doing so does. As the price has risen over the last decade, returns on recycling operations have skyrocketed. Want proof? Go back and watch Superbowl XLIII from 2009. You’ll see a Cash4Gold commercial that was rumored to cost the scrap recycling company a cool $3 million. Like many other recyclers, their business reaped massive benefits as folks were eager to cash in on rising gold prices. In 2012, Cash4Gold filed for bankruptcy. Its assets were purchased for $440,000—just a fraction of what it had paid for just one thirty-second TV commercial. Needless to say, the winds have shifted significantly in the scrap-recycling world. As 2013 saw gold prices fall significantly, it’s fair to assume that the recycling supply in 2014 will remain subdued as compared to previous years. That said, recycling supply can ramp up quickly if prices turn higher again. So far as the role it will play in 2014, all we can conclude is that the scrap supply will be price-dependent. Mine supply on the other hand, will not. Whereas it takes weeks or even days to establish a retail scrap company, it takes years or even decades to bring new mines online. The process of gold exploration is cumbersome, slow, and massively expensive. As such, the falling price of gold in 2013 has ravaged global exploration projects. To expound fully on the mining industry woes of late would make for a book of comparable size to War and Peace.


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H AR D A S S ET S | Gold in 2014

industrial, official sector, jewelry and investment. As of 2011, demand from industrial applications accounted for about 10%, official sector (central banks primarily) accounted for another 10%, jewelry accounted for about 35%, and the remaining 45% came from investors. Central bank and industrial demand remains constant and makes up the smallest piece of the pie. It’s the jewelry and investment sectors that will drive prices in 2014. Gold in 2013 was plagued by a collapse in both. India is the world’s largest gold importer and makes up the most crucial portion of global jewelry demand. As rising account deficits were pressuring the rupee and putting India at risk of a credit downgrade, the Indian government began aggressive attempts to curb gold imports in mid2013. Through new tariffs and restrictions, Indian gold imports plummeted as much as 70%.

Suffice it to say that after years of pouring money into new operations and exploratory projects, the mining industry has been hammered by the decline of the price of gold. These investments were made in anticipation of the price of gold holding at $1600/ ounce or higher. But with prices at $1200 - $1400/ounce in 2014, the return on those investments will be catastrophic. The net effect has been a rush to cut costs, cancel projects, close mines, and abandon exploration. Even if gold prices recover quickly in 2014, it will take years for the mining operations to recover and begin bringing significant increased supply to the market once again. One more concern for miners is the cost of financing. Like all businesses, mining operations are heavily dependent on financing costs, and at the moment, they can borrow quite cheaply. However, as interest rates begin to rise, the cost involved in production may overtake the value of the recovered metal, leaving the mining sector in a precarious position. All in all, it is unlikely that there will be any significant increases in global gold supply in 2014. With a subdued recycling climate and blood in the streets for miners, there is only one place significant supply increases may originate: central banks. That said, those institutions don’t exactly turn their investment strategies on a dime. It’s hard to imagine the same people who are sacrificing the value of their own currencies deciding to sell the best asset they have when it comes to hedging currency declines. There’s not a lot of noise about a potential shift to net selling from central banks. Our bet is that gold supply in 2014 will remain relatively constant, with a trend to the downside over the coming years.

Demand Gold’s price in 2014 will be decided primarily by demand. Currently, the demand picture is made up of four general sources:

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Though it enraged the public (and initiated a healthy black market), the strategy was somewhat successful. Though demand from China has risen to fill some of the gap, the lack of Indian exports has been a major blow to the gold price. On the other hand, one thing has become very clear: the Indian public’s lust for gold cannot be suppressed forever. The cultural significance of gold in India dates back thousands of years and will continue for thousands more. Also, there is not much to indicate that their gold imports will fall further. From the bottom, there’s really nowhere to go but up. Whether or not those imports increase in 2014 stands to be seen. That said, the Indian demand factor has the potential to be very positive for gold in 2014 and poses little downside risk. Investment demand is where the rubber really meets the road. It’s fickle, it’s unpredictable, it’s wound up in an infinitely complex web of outside markets, and it’s the key to gold’s direction in 2014. Between 2007 and 2011, jewelry demand fell by about 18%. Yet, overall gold demand skyrocketed as prices surged to above $1900 per ounce. That is what investment


Gold in 2014 | H AR D A S S ET S

demand can do. However, in 2013, gold dropped like a rock. That also is what investment demand can do. Before the financial collapse, investment demand was driven by two main concerns: crisis and inflation. Since then, it’s been driven by one: monetary policy. When it comes to gold these days, the Fed giveth and the Fed taketh away. Gold was at about $1000 per ounce in early 2008, before the first round of quantitative easing. Shortly after QE2 stopped, gold topped $1800 per ounce. With falling jewelry demand over this time period, investment buying (due primarily to currency debasement fears in the brave new world of quantitative easing) drove gold up more than $800 per ounce. That “QE premium” began to come out of the market by early 2012, and has now been all but erased. This is clearly evidenced by massive outflows from ETPs. For professional investors, gold has fallen about as far out of favor as imaginable. Even the dependable players like Soros and Paulson have cut their holdings significantly. The other (and perhaps most important) factor affecting gold demand as of late is the stock market. I have always said, the only real enemy of gold is other options. Gold is really the “default” store of value. When you realize that gold is just about the only asset that has never been worthless, it reasons that one would want to use it as the main storage place for wealth. This is not necessarily the case, however, when better options arise. Gold does not pay dividends, it does not enjoy stock buybacks or IPOs, and it is an effective (though often crude) hedge against inflation.

Stock prices have more than doubled since 2008. During the same time period, economic growth has been essentially nonexistent. Consumer demand has putted along, innovation and product development has been tepid at best, and the only real explanation for an 8000 point run in the DOW is the effect of quantitative easing. Unlike gold however, stocks have not yet shed any of their QE premium. This poses a significant risk to the value of stocks going forward. As gold does not exist in a vacuum, we have to examine it in terms of its relative appeal when compared to other asset classes. At the moment, gold has probably suffered most if not all of the losses it will sustain if QE does end. Stocks have not. If the Fed continues to move the goal posts back with justifications to keep the stimulus flowing, it reasons that gold will recover some of the QE premium it has lost and will move higher. Stocks may not.

When you look at periods in which gold prices have been subdued, they all have one thing in common: strong investment performance in other sectors. As of late, the stock market has been running like mad. Due mostly to the Fed’s intervention which has destroyed the market’s ability to accurately assess risk (which incidentally is exactly what the Fed hoped to accomplish), the stock market has posted outstanding gains as of late. I will venture that those gains are not only outstanding, but unsupportable and probably shortlived.

There is one more concern that must be noted. A lot has been said as of late about a potential bubble in the securities market. It’s not a stretch when you consider that bubbles are by definition found in markets that have lost the ability to accurately compare risk and reward. Quantitative easing has artificially removed risk from stock markets as near zero interest rates have made stocks the only game in town. It’s quite similar to the pre-2005 housing market. Remember when home prices were just going to go up forever? Do you think stocks now are going to keep going forever? If the stock bubble argument proves true, we could see securities prices continue to rise with reckless abandon for some time. In this environment, it’s hard to imagine a significant move back into gold on the part of investors. Of course the other shoe must eventually drop. When the bubble pops, investors will panic and begin searching for firm

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H a r D a S S e t S | Gold in 2014

footing—the kind of stability that gold has provided since the end of the Stone Age.

So What’s Next? Looking forward in the new year we can make some general assumptions about gold. It’s likely that supply will not be a significant factor for prices in that it will probably remain relatively constant. As prices have come down significantly, it reasons that interest in jewelry will probably increase moving forward. Whether or not Indian import restrictions are lifted may determine whether much of that interest turns into real demand. The jewelry factor has the potential to be a significant positive for gold, especially if pent-up demand from a lack of Indian imports is somehow released through a relaxation in tariffs and restrictions. Whether that will materialize stands to be seen. All in all however, this consideration is neutral to positive for prices. So far as investment demand is concerned, we must again weigh downside risk against upside potential. Gold showed a desire to stay above $1225 for much of 2013 even under significant sell pressure and without clear direction or strong investment demand. People kept buying it off the lows for most of the year simply because they thought it was too cheap to pass up. This speaks volumes to the downside risk. If the $1200 bargain buying trend holds through the opening months of 2014, we can assume that downside risk is quite limited. This is not to say that frenzied short selling couldn’t drive prices lower, but rather that the long-term value floor is somewhere in that $1200 range. Concerning the upside potential, there are many factors to consider. If the outside market environment remains the same as it was in the latter part of 2013, we will likely see a similar trading range for gold. If on the other hand, any number of occurrences disrupts the high stock, strong dollar, no-inflation environment, we could see gold make very meaningful gains. Despite the fact that many analysts won’t agree on this point, an end to quantitative easing will prove to be very price positive for gold in the long term. Tapering may hurt gold a bit, but it will hurt everything else much more. As capital is moved out of

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stocks and other bubbly assets, some of it will make its way back into gold. All in all, we never really addressed the imbalances that created the financial crisis of 2008. We just papered over its effects. The Fed’s “emergency measures” have become the new norm. That’s because we treated the symptoms of the crisis, but have done nothing to address the underlying illness. That illness will surface over time and in increasingly unpredictable ways. Right now, it’s mostly subdued. Gold’s struggles as of late reflect that reality. However, the same logic holds that when these massive systemic imbalances resurface, gold could quickly rebuild its wings and soar once again toward the sun. In my mind, it’s not a matter of if this will happen but when. The real question is not if gold prices will rise in 2014. It’s whether gold is more likely than other asset classes to provide low downside risk and high upside potential. Looking at all these factors together, I believe the answer is a resounding “YES!”


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Fountain Pens By Jason Walter Vaile

I

n today’s world of abbreviated acronyms and expressing yourself in 140 characters or less, we fire off texts and emails in the blink of an eye. Autocorrect and spell check diligently guard us from looking like we failed fifth grade grammar... but something is missing. You realize it when you get a handwritten note in the mail, that feeling that someone actually cared. The fact that they took the time to stop, put ink to paper by their own hand, and place it in snail mail. Just to say hello or thank you. Mindboggling, isn’t it?

The fountain pen dates back to the 10th century. Someone finally got sick and tired of getting ink all over their hands from dipping their quill in ink. Around the 17th century, two quills were utilized: one to store the ink (usually sealed with cork) and the other as the nib. In the early 1800’s, an inexpensive stamped steel nib was developed by Birmingham Pen Trade. The ability to mass produce inexpensive fountain pens provided an opportunity for more individuals to learn how to read and write.

Disposable pens clog up our junk drawers and glove compartments. All of them plastered with slogans, phone numbers, and websites of the world’s greatest carpet cleaners. If one sputters out, just toss it back in the drawer and grab another. Occasionally though, you’ll spot one of the nearly extinct beasts, peeking out from a shirt pocket - a real pen. But not just any pen, a fountain pen...nay, a writing instrument. A crafted piece of art: lathed, hand-carved, yet delicately balanced to perform its primary duty: to write. And write it does. Ink flows down precious metal nibs guided by a hand that knows how to use its artistry. A refillable jewel that isn’t simply discarded when its contents run dry.

Today, fountain pens are highly sought-after collectibles. Although pen collecting may be one of the more esoteric hobbies, fountain pens provide historical, technical, and even artistic appeal to the owner. Many limited editions have skyrocketed past their initial investment value by two hundred percent. So if you want to reward yourself for a stellar year, or start the new year off by vowing to make a statement with your pen, here are a few beautiful pieces to peruse. From the reasonably priced and for everyday usage, to the absurdly priced that begs to be locked in the vault, feast your eyes on a little pen perfection.

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Fountain Pens | L u x u r y & L i f e s t y l e

THE S.T. DUPONT OLYMPIO BLACK LEATHER FOUNTAIN PEN - $2,000.00 S.T. Dupont is known for its leather accessories and goods. But the Parisian company out-did itself with this fountain pen. The alligator stamped leather gives the body a very comfortable grip. That same pattern is engraved on the beautiful palladium cap, completing this exotic and sophisticated look. The nib is 18k gold and rhodium treated.

THE VISCONTI TEMPLARI - $3,000.00 The Knights Templar were one of the most skilled fighting regiments during the Crusades of the Middle Ages. Their bravery and faithfulness are what legends are made of. Visconti offered tribute to the Order of Templar with this limited edition fountain pen. The ivory resin body is encircled with a sterling silver central ring. A red cross accents the ring and is emblazoned with the Latin motto of the Order: “Non nobis Domine, non nobis, sed nomimi to da gloriam,” or “Not unto us, O Lord, not unto us, but unto Thee give the glory.” It is outfitted with a solid palladium nib.

VISCONTI’S DIVINE PROPORTION - $10,000.00 The designers used Phi, the historic mathematic ratio whose irrational value is often rounded to 1.618, to create this beautiful and symmetric piece. The end cap and length of the pen are perfectly proportioned by using the golden mean that has inspired mathematicians and artists throughout history. A golden spiral wraps the body and the end is trimmed with a sterling silver and 18k gold nib. There are five numbers hidden in the cap, clip, body, and barrel of the pen. If solved, the reward is a golden Visconti inkwell. Limited to only 1,618 units.

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L u x u r y & L i f e s t y l e | Fountain Pens

ROMAIN JEROME’S TITANIC DNA - $12,800.00 There are only 88 of these exquisitely handcrafted pens in existence. The center band is oxidized steel, reclaimed from the Titanic wreckage. The rest of the body is formed of palladium, brass, and gold. The steel components are from the Harland & Wolff shipyards, the original providers of steel for the Titanic. The nautical theme is reflected in the rivets, steering gears, and operating propeller that draws the ink into the nib. All of this is visible through a sapphire glass porthole.

KRONE’S SIR ARTHUR CONAN DOYLE’S SHERLOCK HOLMES - $13,000.00 It’s elementary why any good collector would love this masterpiece. The intricately engraved sterling silver body is decorated with characters and scenes from the many adventures of Sherlock Holmes. Two hidden doors open to reveal hand-painted renderings of Doyle’s writing desk and Detective Holmes. The cap opens to reveal a piece of notebook paper from Sir Arthur Conan Doyle’s personal writing pad. The bottom cap contains a hidden magnifying glass. Limited to only 50 pieces.

CARAN D’ACHE 1010 - $19,000.00 This beauty is a tribute to Swiss watchmaking. Ten past ten (10:10), the moment when the arms of a watch dial are perfectly balanced, inspired the name of this gorgeous piece. Intricate gears of rhodium- coated silver are capped with a ruby and sapphire dome. Inspired by watches with skeleton casebacks, it proudly reveals its interacting functions and sophisticated mechanics. Only 1010 pieces will be made.

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Fountain Pens | L u x u r y & L i f e s t y l e

MONT BLANC’S ALFRED HITCHCOCK LIMITED EDITION - $25,000.00 Mont Blanc pays homage to the British master of suspense with this piece, limited to only 80. The Alfred Hitchcock fountain pen comes in a blood red swirling pattern, reminiscent of the staircase in his film Vertigo. The white gold band is trimmed in film cells and his famous signature. The Psycho knife clip is adorned with diamonds. Hitchcock’s distinctive profile is etched in the 18k gold nib. Mont Blanc even mixed a special blood red ink just for this pen.

MONTEGRAPPA’S CHAOS PEN - $69,500.00 Designed by Sylvester Stallone himself and making an appearance in his film Expendables 2, this hefty piece is quite intimidating. Chaos is characterized by the juxtaposition of life (snakes) and death (skulls) overlaid on the black pearlized celluloid body. Details, including powerful fists, are engraved in solid 18k gold and emblazoned with precious stones. The clip is formed in the shape of a sword. Only 100 of these will be made.

MONTEGRAPPA’S THE ALCHEMIST LIMITED EDITION - $110,000.00 Based on the beloved book, The Alchemist, by Paulo Coelho, this pen evokes the elements of earth, wind, and fire. The cap and barrel are populated with spheres that represent the seven alchemical processes. The clip replicates the tongs that the alchemist once held to control the fire that devours, melts, and transforms metals. The rotating band in the body gives the tactile sensation of time winding. Only 1,987 pens will be produced, and a mere 71 in solid gold with diamonds.

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l u x u r y & l i F e S t y l e | Fountain Pens

THE MONT BLANC AND VAN CLEEF & ARPELS MYSTERY MASTERPIECE - $730,000.00 Mont Blanc and the jewelry house Van Cleef & Arpel collaborated to design the most expensive pen ever created. There are three variations: set with rubies, sapphires, or emeralds and each is accented with diamonds. Each pen has 840 diamonds and more than 20 carats of gemstones. The cap crown displays Mont Blanc’s trademark white star in brilliant-cut diamonds. Only three of each gemstone will be produced. The piston-filled pin has an 18k gold nib designed specifically for this collaboration. Obviously, this one is for the radical collector and not to be used for everyday bill paying.

The craftsmanship and detail that go into these pieces of art are truly amazing. Pick one up - write with it. A disposable pen just won’t ever feel the same. Using a fountain pen allows you to write slower, more elegantly. You’ll feel majestic and proud of the instrument you are conducting. There will be no “pen is mightier...”cliché here – only a borrowed phrase from Obi Wan: fountain pens are “an elegant weapon for a more civilized age.”

Jason Walter Vaile is an award-winning screenwriter and pen enthusiast. You can follow him on Instagram and Tumblr as Mrpenhead.

Montegrappa’s Chaos Pen was designed by Sylvester Stallone himself and making an appearance in his film Expendables 2

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The Metal of Kings

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latinum. The name is derived from the Spanish term platina, which translates literally into “little silver.” With its metallic white luster, platinum was mistaken for a form of silver in the early days of platinum’s discovery. Indeed, when first encountered by Europeans discovering the New World, it was valued far less than gold. In fact, early Spanish miners considered it a nuisance because it contaminated their gold deposits. The first reference to platinum appeared in 1557. However, it was not successfully purified until 1786. Platinum, consisting of six naturally-occurring isotopes, is often naturally alloyed, therefore purification in the 16th century was extrodinarily difficult. Additionally, platinum’s melting point, roughly 3,215 °F, is extremely high (by comparison, gold’s melting point is a little less than 1,950 °F).

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By Ed Estlow

In the 1780s, Charles III of Spain provided a secret laboratory to aid the platinum research of French chemist Pierre-Francois Chabaneau. It was not until 1786 that Chabaneau was able to refine a meaningful quantity of pure, malleable platinum, though this breakthrough soon launched Spain into the so-called Platinum Age (1786 – 1808). Over time, platinum became known as the “metal of Kings,” mostly due to France’s Louis XVI’s claim that it was the only metal fit for royalty. Naturally, Cartier, Tiffany, and Faberge used it extensively in their classic creations. Even today, Platinum is often used in jewelry seen adorning celebrities and fashion icons walking the Red Carpet. Originally, the only known platinum deposit was located in Colombia. Then, in 1741, samples of platinum were found in Jamaican soil. In 1820, a platinum deposit in Russia was


Platinum | H AR D A S S ET S

With its metallic white luster, platinum was mistaken for a form of silver in the early days of platinum’s discovery.

Of course, one cannot discuss platinum without discussing the nature of its worth as an investment grade hard asset. Only around 130-140 tons of platinum are mined annually, making it one of the rarest metals in the earth’s crust. Generally, platinum bullion is available in the form of one and ten ounce bars. It is also available in coin form, including the Noble from the Isle of Man, the Australian Koala, the Canadian Maple Leaf, and the American Eagle.

Only around 130-140 tons of platinum are mined annually, making it one of the rarest metals in the earth’s crust.

discovered, then discoveries were made in Canada in 1888 and in South Africa in 1924. Currently, the Bushveld Igneous Complex mines in South Africa supply about three-fourths of the worldwide platinum output each year. One of the many virtues of platinum is its density. By comparison, platinum is about 60% denser than gold. And unlike gold, platinum does not wear away, but merely gets displaced when scratched. Platinum is also surprisingly hard for such a malleable metal—a little harder than iron.

Platinum compounds can be used to treat some forms of cancer through chemotherapy. However, the metal is not without its risks. Because platinum is a heavy metal, exposure to its soluble salts can be hazardous causing damage to the respiratory system and the skin. However, due to its corrosion-resistant nature, platinum is not as toxic as some other metals can be. In fact, platinum compounds can be used to treat some forms of cancer through chemotherapy.

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Su Ex Cu Tr IO MeEs |t Story L y N& NLAi f y l e Name | 5 European Wine

However, it is in the form of jewelry that platinum is most well-known. It came into its own as a jeweler’s medium in the 1870s and blossomed in popularity in the 1890s. Take a look at any fine vintage piece from the early part of the 20th century—a ring, a bracelet, or a pair of earrings—and it will likely be platinum. The metal’s white luster has a unique ability to set off diamonds and colored stones, especially the Big Three (sapphires, rubies, and emeralds) like no other metal. Even white gold, which was invented to imitate platinum during the embargoed years of World War II, does not quite match the luster of platinum. Because of its color, strength, and malleability, jewelers consider platinum the best metal to use in setting large, exquisite stones of every color.

The metal’s white luster has a unique ability to set off diamonds and colored stones, especially the Big Three (sapphires, rubies, and emeralds) like no other metal. Non-bullion uses for platinum include catalytic converters, laboratory equipment, electrical contacts and electrodes, platinum resistance thermometers, and dentistry equipment. In 2010, 46% of platinum sold was used for vehicle emissions control devices, 31% went into jewelry, and the remaining 23% went to various other minor applications such as investment, electrodes, anticancer drugs, oxygen sensors, spark plugs, and turbine engines.

Over time, platinum became known as the “metal of Kings,” mostly due to France’s Louis XVI’s claim that it was the only metal fit for royalty. It is because of the enduring luster and quality of the metal that platinum vintage jewelry still sells very well today. Because of platinum’s durability, vintage pieces are typically in very good condition and are able to be worn on a daily basis. Numerous vintage jewelers, especially on the east and west coasts, deal in nothing but platinum vintage jewelry from the Art Deco, the Edwardian, and the Art Nouveau periods. 56 | American Hard Assets www.ahametals.com


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It is because of the enduring luster and quality of the metal that platinum vintage jewelry still sells very well today. Because of platinum’s durability, vintage pieces are typically in very good condition and are able to be worn on a daily basis. Platinum was the metal of choice for jewelry during the early 20th century, but is use was sharply curtailed during World War II when it was declared a strategic metal by the US government. Once the war was over, it was slow to regain favor with jewelers. However, it saw a large jump in popularity in the 1970s in Japan. Popularity surged again in Italy and Switzerland in the 1980s, and yet again in the US, the UK, and China in the 1990s. Because of its unique durability, ductility, and malleability, it remains popular for bridal and premium fine jewelry today.

Platinum is also widely used in the design and manufacture of fine watches. Notably, platinum is frequently the metal of choice for the Patek Philippe timepieces, not the least of which was the Eric Clapton ref. 2499 perpetual calendar chronograph that sold for a record $3.66M last year. Rolex also chose platinum for its 50th anniversary Cosmograph Daytona this year.

Exquisite jewelry, timeless watches, stately bullion bars, or historic coins—whatever form your platinum investments take, these assets are sure to appreciate in value over time. Ed Estlow is a freelance writer and custom jewelry designer based in Minneapolis, MN.

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S E C T I O N N A M E | Story Name

Market Predictions AHA sat down with Michael Haynes, CEO of APMEX, to answer five questions about the upcoming year and to provide some 2014 Predictions for the metals market as well as the economy in the year to come.

1. What do you expect to see from the gold/silver market in 2014? In one word: Uncertainty. Early in 2014, there will be Federal Budget battles and the Federal Debt ceiling issue. The Federal Reserve Bank stance on “tapering� the bond buying program will also create uncertainty. However, as 2014 progresses, there will be a realization: the U.S. Debt to GDP ratio is too high and likely will not diminish for many years, hence more uncertainty.

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H AR D A S S ET S | Market Predictions

2. Where do you see APMEX’s business headed in the new year? Any different strategies for 2014? APMEX educates, informs and provides access to the Precious Metals markets for investors around the world. In 2014, APMEX will provide more information and education designed to help the individual make informed decisions on Precious Metals and their role in a balanced and diversified portfolio.

3. What bold predictions do you have for the market in 2014? Again, uncertainty is a key factor and the only sure prediction. The U.S. Debt, the Federal Reserve policy, the European Central Bank “easy money” and the continuing Yen valuation are all set against a rapid growth of China. Anything is bound to happen when these global programs collide in their objectives.

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4. What emerging markets or asset classes are you excited about in the coming year(s)? Gold, Silver and Precious Metals are the Fourth Asset Class, behind Cash, Stocks and Bonds. Gold is underutilized as a diversification tool and perhaps increased allocation to Gold and Precious Metals will be the important and prudent move for 2014.

5. Gold/Silver fell to lowest levels in 5 months as of today (12/2), do you feel bullish on metals in 2014 and the years to come as it relates to the economy? For 2014 and perhaps the next decade, no one can predict how the major economies of the world will grow with the debt-heavy burden and rising interest rates. More of the available cash will be taken for debt service. Lowering Sovereign Debt is not an easy option and growing the economy will be more difficult with interest rates continuing to rise. “Balance” will perhaps be the most important virtue of portfolios as what is up may come down, and what is down may come up. Perhaps a reasonable position in the Four Asset Classes of Cash, Stocks, Bonds and Gold will be the best way to “balance” in the uncertain world.

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The Bitcoin Controversy A New Disruptive Consumer Currency

BY SUSAN KIME Just Luxe

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ven though the Bitcoin idea appears new, it has been around since 2009. And the idea is part of an important, economic disruption: the emergence of the peer-to-peer (P2P) economy.

have never had to deal with before. This often comes with the new ideas territory.

The argument for this seemingly necessary emergence is postulated by Charles Eisenstein, author of the popular book, Sacred Economics: Money, Gift & Society In The Age of Transition. “Today’s national and supranational currencies have become a blight…created through interest-bearing debt, controlled by financial elites, tracked by the surveillance state, and necessitating endless growth, money as we know it is a primary agent of inequality, injustice, and ecocide,” states Eisenstein. Really? He continues to say that one solution for these currency consequences is the emerging formation of the P2P economy. Bitcoin is the first digital currency that can be used in this emerging exchange system, but certainly not the last. It is a fascinating idea, with extremely controversial subtexts. It is a virtual currency used only for online transactions. Though not backed by any central bank, it is traded on a number of exchanges or swapped privately and generated by a process called mining, which requires particular software. Theoretically, it is possible for all computers across the world to run the software and locate Bitcoins by solving an algorithm. The Bitcoin owner has a virtual wallet, and through the use of a key, a transaction can be made through key identification, but not the identity of the user. Understandably, Bitcoin’s digital money seems to solve many problems from which our current currencies suffer, while also creating many problems that consumers, economists, and bankers

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Bitcoin Upsides Low Inflation Risk – Unlike in traditional paper economies where governments can print as much currency as they need, the Bitcoin system is designed to be finite. As of this writing, only 21 million Bitcoins are set to be released, or, mined. No more. No Government Dependence – As Bitcoin is a global virtual currency it does not depend on governments collapsing or re-


The Bitcoin Controversy | H a r D a S S e t S emerging. In theory it is not a political product, though it seems that most all currencies created by human beings will become political at some point. It is safe and cheap – There is really no intermediary involved in a purchase transaction. With credit cards, PayPal and other online payment systems, there are middlemen who are paid transaction fees. With a Virtual Wallet, money is easy to carry – With Bitcoins, you could carry a million dollars on a memory card. Bitcoins are untraceable – The final upside is the first downside. For those who have had identity theft through online transactions, this idea of untraceability, or genuine anonymity, is a great relief. No one knows who you are, your Bitcoins can be sent to purchase or sell, and that is that. Furthermore, unless you have told someone about your Bitcoin wealth and your passwords, there is no way for a third party to know how much Bitcoin wealth you have.

governments began issuing rulings against it, its market value plummeted. In November 2013, the United States Senate held a committee hearing on virtual currencies. At this hearing, held by Senator Tom Carper, Bitcoin and other currencies were received generally positively, with it being stated that it was a “legal means of exchange” and that “online payment systems, both centralized and decentralized, offer legitimate financial services.” But it was also noted, that the Justice Department’s Criminal Division has seen an increased use of virtual currencies for illegal purposes. Some suggested that due to its close association with illegal purchases, governments could outlaw Bitcoin. They are not currently illegal, however. In the same month, November 2013, Richard Branson announced that Virgin Galactic would accept Bitcoin as payment, saying that he had invested in Bitcoin and found it “fascinating how a whole new global currency has been created,” encouraging others to also invest in them. With all this said, and as of this writing, there are two other recent iterations of Bitcoin that are also doing well as P2P virtual currencies: Litecoin and Freicoin. Litecoin is a peer-topeer digital currency that enables instant payments to anyone in the world. It is based on the Bitcoin protocol but differs in that it can be efficiently mined with consumer-grade hardware. Litecoin provides faster transaction confirmations (2.5 minutes on average.)

Bitcoin Downsides Bitcoins are untraceable – Many news items have shown that illegal drugs and other items have been bought and sold with Bitcoin currency. Lost Bitcoins are LOST – If you lose them, you have lost them for good. There is no system yet to recover the lost or stolen ones.

Freicoin is another P2P digital currency, and unlike Bitcoin, has an anti-hoarding mechanism built into it. In the Freicoin system, money is subject to a negative interest or a “demurrage” charge. The value of currency decreases by 5 percent a year, so that if you have 100 Freicoins in your virtual wallet, in a year you will have only 95. In theory, at least, this creates an incentive to spend rather than hoard, which as Charles Eisentein, states is one of the challenges facing Bitcoin. If all of these digital currencies and their uses seem like an economic version of the Wild West, this is the usual terrain created by new ideas. Some will inflate, some will deflate, some will blend — creating an unusual, new consumer currency community. Stay tuned!

Bitcoins are volatile – Currently Bitcoin prices are rising. It’s likely that the price will stabilize at around USD $10 from the current USD $200. But, each day brings a different price, or so it seems. And this leads to a major challenge: Bitcoin’s value is not yet stable; it has fluctuated wildly, which makes its dubious as a long-term currency. These fluctuations are often due to speculation, which usually happens when supply is fixed (remember: only 21 million will be mined), and demand is erratic. People with money tend to hoard it, expecting its value to rise. In addition to these downsides, Bitcoin has also experienced its share of serious problems with governments. Under the best of circumstances, Bitcoin expected to be immune from government interference, especially concerning its legality. But when the

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Real Estate Star Joe Farrell On Giving People the Homes They Really Want BY SUSAN KIME Just Luxe

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When I asked Mr. Farrell about the article, he had nothing negative to say and even complimented the writer’s writing. He stands by the fact that his success comes from building the houses people want.

In 1995, Mr. Farrell left his position as a member of the New York Mercantile Exchange to build homes, founding Farrell Building Company and breaking ground on his first home in Brookville, New York. A year later, he set his sights on building residences in the Hamptons and has since created the fastest growing building company in that area. Currently living in Bridgehampton, New York, Mr. Farrell’s success has not been without controversy.

Though he owns six himself, his most interesting (which is on his website for sale at $43M) is his primary residence called The Sandcastle in Bridgehampton — 11.5 acres, 31,000 feet of living space on three floors, a 2,800-square-foot master suite, eight ensuite bedrooms, a recreation pavilion, a separate apartment on the second floor with two bedrooms, and according to the video accompanying the New York Times article, has its own ATM, stocked with $20k in $10 bills. Beyonce and Jay Z rented it for over $500k for two weeks this past summer.

oe Farrell is one of the few people who is changing the face of high net worth real estate — more specifically, moderate luxury estates from three to $10M in the Hamptons. Because the Hamptons isn’t a very large area, land is at a premium, and much of that land is being developed by Mr. Farrell (so much so there has been talk of the “Farrellization of the Hamptons”).

Hampton McMansions Herald A Return To Excess, an August 2013 article in the New York Times by Jim Rutenberg, characterized Joe Farrell as a “McMansion Man” — someone who builds homes quickly, with each one looking identical to the others. This is a sobering sobriquet, and one that carries certain quarrelsome components that can be argued in a multiplicity of ways. Yes, Mr. Farrell specializes in properties that typically range between $3-$6M, because as he says, there are many more people who can afford this price range. And yes, he is building a lot of homes. By his own admission, rather, it’s a statement of pride, as he has over 60 projects underway. He boasts that he can build an estate home on a budget, in under a year. Many of his properties are selling before they’re even completed.

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I had the chance to speak with Mr. Farrell recently about his success and business processes. He also provided some thoughtful advice about money. JustLuxe: Did you always wanted to build houses? Joe Farrell: Well, what I really wanted to do was be an architect. But the grandfather of a friend pulled me aside one day, and said, “Listen Joe, don’t be an architect — you will always have to depend on others to make a living. Go into real estate, be a builder, then hire an architect.” And I listened to that. Even when I made a lot of money on Wall Street, I still wanted to build houses. So, in 1995, I wasn’t getting any younger, and I decided to follow my dream.


Real Estate with Joe Farrell | l u x u r y & l i F e S t y l e JF: I have a lot of advice! And the most important piece of it is to “live in your money” and by that I mean, don’t hoard it. Spend it on real estate or something that will accrue in value as times goes on, and something you will enjoy now. And why not now? Interest rates are very low. I am prejudiced about real estate, of course, but even in the worst of times, say in that recession in 2008-2009, real estate was still doing okay — not great — but still okay. And as for New York real estate? Smart people feel that real estate prices in New York are still in their infancy. We have a longer, higher way to go. The fact is, in desirable locations, there is very little land available. And, so long as people want to live in desired locations, where land is getting scarcer, the prices will be going up. And up. JL: There seems to be a strong relationship between high-end homes and high-end art investing — passion investing some call it — do you do that with your homes?

JL: You have been called a celebrity developer — and have built many hundreds of high-end homes in the past 18 years. Are you surprised by this success?

JF: I love art, and I love to buy art to put in my homes, but I am not really an art investor. I buy what I like, what I get pleasure from. To that end, I invest in art passionately, but I am not sure I am a highend art investor per se. JL: But your primary residence was highlighted in American Art Collector in September 2013. It appears you have chosen your art wisely; in addition to many exceptional local artists, you have some Andrew and Jamie Wyeth’s, Roy Lichtenstein’s and a Peter Max. JF: I do choose wisely, and I enjoy exceptional art. It seems to me that any builder who loves design, both interior and exterior, must have an eye for detail, and that eye, or sense or intuition — call it what you will — expands beyond the building materials of homes – to art, to cars, to many other aspects of life. JL: This is a good point, and somehow it relates also to the sense and detail awareness of handling money, as well as the success that comes from choosing the right time, and handling investments wisely. Do you have any advice for people who have money available? JF: I am grateful, I am humbled, but not surprised. I think we created something that was needed in this high-end Hamptons culture: a type of consistency. I can get a home built in 6-12 months and can keep the home costs what I said they would be. I also have a business that is really a community of employees, architects, and contractors. In our community, integrity and transparency are so important, most especially in building and construction of upper end homes. We work together as a community works together, and everyone benefits. To discover more homes available, check out Farrell Building Company. From the Sandcastle Bridgehampton home for $43M to the Water Mill home for $2.6M, there are plenty of prices available across the board.

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L u x u r y & L i f e s t y l e | Art Market in 2014

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Art Market in 2014 | L u x u r y & L i f e s t y l e

What to Expect from the Art Market in 2014 by Nicholas Forrest

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wenty thirteen has been one of the most exciting years in the history of the art market thanks to record-breaking auctions in New York and the influence of emerging economies such as Brazil, India, and China. Francis Bacon’s “Three Studies of Lucien Freud” became the most expensive work of art ever sold at auction when it fetched $142.4 million during the Christie’s November 12 Post-War and Contemporary Art evening sale in New York. The event boasts two new records: one, highest total revenues from an auction in art market history ($691.6 million), and two, most expensive work by a living artist sold to date (Jeff Koon’s “Balloon Dog (Orange)” for $58.4 million). Sotheby’s also found success with their November 13 Contemporary Art evening sale which produced the highest sale total in Sotheby’s history ($380.6 million). The highlight of the sale was the $105.4 achieved for Andy Warhol’s “Silver Car Crash (Double Disaster)”; the sale made a new world auction record for Warhol and the second highest price ever paid at auction for a work of contemporary art. As 2013 comes to a close, the focus shifts to 2014 and predictions regarding the trends that will shape the global art market. Judging by recent events around the world, the following four trends stand out as having the potential to impact the art market in 2014.

Jeff Koons, Balloon Dog (Orange), 1955, Chromium Stainless-Steel

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1. Indonesian Art The Indonesian art scene has gone from strength to strength in recent years and has emerged as one of the world’s most vibrant and dynamic centers of creativity thanks to artists such as Dadang Christanto, FX Harsono, Eko Nugroho, and Jompet Kuswidananto. In 2012 the Art Dubai art fair acknowledged the dynamic Indonesian art scene by dedicating its curated Marker section to Indonesian art. Art Stage Singapore followed suit in 2013 by hosting a dedicated Indonesian pavilion which the fair organizers promoted as the largest 70 | American Hard Assets www.ahametals.com

international showcase of contemporary art from Indonesia to date. Indonesian art has also fared well at auction. During their November 23 Asian 20th Century and Contemporary Art evening sale in Hong Kong, Christie’s set a new world record price for a work of Southeast Asian Art at auction with a painting by Indonesian artist Lee Man Fong titled “Bali Life” which sold for HK$35.96 million (US$ 4.66 million).


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Lee Man Fong’s, Bali Life, circa 1960s, Oil on Masonite Board

2. Paris Up until the Second World War, Paris was recognized as one of the main centers of the global art market. Over the last few years, new gallery openings and successful art fairs have helped Paris re-emerge as an art market center.

Major developments also took place in 2013 including the opening of auction house Phillips’ new central Paris office, the launch of influential French gallerist Emmanuel Perrotin’s first New York gallery space, and the launch of the first American edition of the Paris Photo Fair.

In 2012 two major art dealers opened new spaces in Paris. Powerhouse art dealer Thaddaeus Ropac opened a new space in the northeast of Paris and Larry Gagosian expanded his presence in France with the launch of a new space at Le Bourget in the north of Paris.

Other indicators of the rise of the Paris art scene include the successful 2013 edition of the Paris art fair FIAC as well as the positive response to the 2013 edition of Paris Photo, the prestigious French photography fair.

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L u x u r y & L i f e s t y l e | Art Market in 2014

FX Harsono, Threats And Freedom no 1, 2012, Oil on Canvas

3. Digital Art In 2013 auction house Phillips partnered with Tumblr to present Paddles On!, the world’s first auction dedicated exclusively to digital art. The groundbreaking sale brought together artists who are using digital technologies to establish the next generation of contemporary art.

The launch of the inaugural edition of The Wrong – New Digital Art Biennale Online Art Expo in 2013 was another major milestone for the world of digital art. Featuring more than 300 artists exhibiting as part of 30 curated online pavilions, the aim of The Wrong is to “create, promote and push positive forwardthinking contemporary digital art to a wider audience”

The sale was a great success with a sale total of $90,600 and final figures of 92% sold by value and 80% sold by lot. Bids were placed on every single work with the highest price achieved by American artist Addie Wagenknecht’s “Asymmetric Love Number 2, 2013” which sold for $16,000.

4. Art Title Insurance

Lyndsay Howard, the curator of Paddles On!, commented that one of the legacies of the sale will be the “ongoing exploration surrounding best practices for collecting and preserving digital works.”

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It is estimated that between $300 million and $500 million worth of art-related insurance claims were made as a result of damage caused by the devastating Hurricane Sandy super-storm that hit New York in October 2012. A combination of rising art prices and an increase in the frequency of natural disasters around the world has focussed


Art Market in 2014 | l u x u r y & l i F e S t y l e

the attention of art collectors and art dealers on the issues surrounding the insurance of fine art. Rising art prices have also increased the value of blockbuster art exhibitions which has forced museums and galleries to focus their attention on ensuring that exhibitions have adequate insurance. In 2013 international art insurance specialist AXA ART and the executive team behind Beijing’s Today Art Museum announced a new partnership to develop a set of safety measures for protecting artworks in museums in China. The announcement by AXA is evidence of the rapid development of the art market in Asia and the growing demand for art insurance products in the Asia region, which is emerging as one of the most lucrative markets for the art insurance industry.

Protey Temen, The Wrong, 2013, New Digital Art Biennale

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STEP UP TO THE PLATE

Maximizing YOUR Numismatic Inheritance By Fred Reed

After familiarizing and inventorying your numismatic legacy, it may be time to liquidate these assets for the benefit of the coin collector’s heirs.

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our loved one has died, but you survived the necessary mourning process, and now it’s your responsibility to liquidate the estate for the benefit of the heirs. You may be a relative, the sole heir of the deceased, or an estate administrator, either a lawyer or a layperson. However, your goal should be to maximize the returns to the beneficiaries named in the will. This can become complicated if the deceased had many assets, especially if significant numismatic assets are concerned. But relax, you are not the first person to shoulder this load. In fact, if you read the article “Coins & Inheritances: Arm Yourself with Knowledge Before You Liquate,” in the previous issue of American Hard Assets (AHA #6, December-January 2014, pp. 20-26), you are already ahead of the game. First things first-you have familiarized yourself with the coins in the estate, the marketplace, and have at least a rudimentary knowledge of coin grading and its effect on coin values. You have compiled an inventory that includes any pertinent

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purchase information available about the various items, and you have also calculated the bullion or “melt” value of non-numismatic coins, bars, or other precious metal items. Now what?

OPTIONS ARE AVAILABLE “The biggest potential pitfall for heirs is being too eager to sell,” professional numismatist (i.e. coin dealer) Jeff Ambio told this writer recently. “Many times heirs jump at the first purchase offer they receive, being excited that the coins they inherited are worth, say, several hundred dollars.” However, “With patience, persistence and insistence of contacting multiple reputable sources, the heirs could find out that the coins they have are actually worth considerably more,” Ambio, who has cataloged for several of the largest commercial coin dealers in this country including Heritage Auctions and Stack’s-Bowers, added.


Story Name | S ECTI O N N A M E So what’s the estate liquidator to do? Your inventory should suggest the appropriate venue or venues to take. Today, electronic merchandising on sites such as eBay have put the power of the web at the hands of even novice sellers. I visit such sites often and am constantly amazed to find desirable numismatic coins, paper money, medals, and tokens up for sale by heirs or estate liquidators. For regular-issue U.S. coinage items cataloged in the resources we mentioned in the last issue (i.e., annual catalogs such as A Guide Book of United States Coins or monthly listings such as that found in Coin World or Coins magazine), advertising type, date and mintmark, and a good set of photos, or a slabbed third-party grading decision should be enough to get a fair value for many items. Note that your inventory should also have suggested which of the coins in the estate should be sent out to such a third party grading company, several of which were listed in the prior article. I suggested coins valued at retail in the price guides at $100-$250 or more based on rarity and your perception of their grade, but each individual estate is different so you may want a higher or lower threshold.

So-called “junk silver” may include coins with additional numismatic value. This would have been revealed by your inventory.

“The biggest potential pitfall for heirs is being too eager to sell. Many times heirs jump at the first purchase offer they receive, being excited that the coins they inherited are worth, say, several hundred dollars.” Charges for sales on such sites as eBay have risen appreciably in recent years as auction volume has fallen, according to a recent Stanford University study. Still, auctions are the preferred route of inexperience sellers of collectibles, the study found. So this may be just what the doctor ordered for the estate heir selling off grandpa’s “old coins.” There is less congestion in the marketplace today for auctions as more and more experienced sellers have switched to fixed prices. Thus a highly visible auction offering of grandpa’s old Morgan silver dollar has a likelihood of attracting competitive bids and a reasonable return to the estate. And most importantly, for the novice estate liquidator, auctions have a higher rate of completed sales than fixed price offerings, determining the price of which may be problematic for a novice numismatist. Not everybody wants to go to the work of photographing and listing their inherited coins in this way, however, so a local coin dealer may be just the ticket to receiving a reasonable return for granddaddy’s coins. Many cities

Often novice sellers employ an electronic bidding venue such as eBay to dispose of estate coins, such as these sets and third-party graded coins.

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L u x u r y & L i f e s t y l e | Step up to the Plate

Gold bullion with no significant numismatic value may be most easily disposed through a bullion buyer with a small buy-sell spread.

have more than one local coin dealer with a retail shop so the heir can solicit competitive offers.

generation. The family collection attempted to own one of every U.S. coin by date and mint mark.”

There are also a legion of professional numismatists nationwide that eagerly solicit such business by advertising in the numismatic trade publications. It’s a truism in this field that you can’t sell what you don’t have, so inventory acquisition is important to keeping these coin dealers in business.

He continued, “After researching who to sell to, the last collector in the family came to us with a small portion of the collection his Draped Bust dollars - which we purchased. He continued to bring in other coin types, one or two at a time. He was gathering information and confidence as he was liquidating his assets. He chose to do multiple dealings versus selling off everything at once. This was a successful strategy for him and he gained confidence with every sale. We eventually bought the entire collection,” Sundman noted.

All reputable experts in the numismatic field agree with dealer Ambio: get several competitive offers on those numismatic assets. A well-known national numismatic dealer, Littleton Coin Company president David Sundman is one who seconds this. “Look for numismatic dealers with established companies that have a good reputation,” Sundman suggested. “In the end, select a dealer like you’d pick any professional. Ask for references. Have conversations with them in person or by telephone. Stay away from pawn shops, jewelry stores and hotel wholesale buyers,” he cautioned. In cases of very large collections, it may be prudent to parcel out the holdings piecemeal to develop familiarity and the business relationship with the numismatic dealer. Sundman described one situation, “A remarkable collection was formed over three generations and handed down within the family, generation to 76 | American Hard Assets www.ahametals.com

AVOIDING THE PITFALLS “Tales of woe” are legion. “A couple inherited a gold coin from a recently deceased relative,” Ambio recalled. “Without contacting a reputable dealer, auction house, or otherwise researching the value of the coin, they sold it to a local pawn shop for “melt value” of the gold in the coin - a little more than $500 at that time. The coin turned out to be an 1842-C Small Date Liberty half eagle, a rare date that the owner of the pawn shop promptly consigned to a major national auction house, through which the coin sold for more than $30,000.”


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L u x u r y & L i f e s t y l e | Step up to the Plate But success stories are also plentiful. Beth Deisher, former editor of Coin World (the largest of the numismatic publications), reported on the widow of a recently deceased coin collector who found seven safe deposit keys among her husband’s effects only after “payment due” notices started arriving for the boxes that she was not aware that her husband had rented. “Visits to each bank revealed safety deposit boxes filled with gold coins,” Deisher recalled. “She didn’t know a thing about coins. ‘In fact, she told me,’ the journalist continued, “‘I’m scared to tell anybody that I even have these gold coins!’ Later she found an invoice for one of the gold coins from a nationally known numismatic auction firm. I encouraged her to contact the firm and its owner. The owner revealed that he had helped her husband build his gold coin collection over a number of years. She consigned the coins and they were sold at auction over a two-year period. She received enough for a very comfortable retirement and set aside tuition money for her two grandchildren’s college education.” Other examples are equally spectacular. Sundman pointed to another success story for relatives of a deceased numismatist. “A couple came to Littleton with a collection of about 40-50 pieces of large size U.S. paper money that had been in the family since the 1860s. They’d taken the group to two other New England dealers and received offers between $1,000 and $2,000, which they instinctively thought was too low. The day

they arrived in our offices, one of our appraisers gave the group a thorough review and told them that there was one note that needed review by another in-house expert, but the remaining notes would be worth $5,000 to our firm. “The remaining note was examined a few minutes later, and our expert told the couple. ‘I can’t make you an offer on this note. You’d likely accept whatever I offered, but… the note is so rare, it should be sold at auction.’ The couple allowed Littleton Coin to pick the auctioneer and agreed that Littleton would receive a percentage of the hammer price. The note was an 1863 $20 Gold Certificate, Friedberg catalog 1166b. Prior to our discovery there were 5 known, this being the 6th example. “The note sold at public auction, and the couple received a check from Littleton Coin in March 2001 for $198,000. The combined amount they received for their collection was $203,000.00 – a hundred times greater than their next highest offer of $2,000!”

SWING FOR THE FENCES So don’t let procrastination stymie your numismatic liquidation. Many numismatic professionals are eager to assist in your efforts to maximize the returns from your

If the numismatic assets are primarily souvenirs brought home from vacations or business trips, a local coin dealer may be the appropriate venue for selling them.

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If your parent, uncle or other recently deceased relative left you a pile of coins instead of a pile of cash get started. Do something about it. Swing for the fences . . . loved one’s collecting pursuits. If your parent, uncle or other recently deceased relative left you a pile of coins instead of a pile of cash get started. Do something about it. Swing for the fences!’ And collectors, if you are reading this, don’t leave your loved ones in the lurch concerning your numismatic pursuits. “Make sure your heirs understand the value of your collection and don’t leave them in the dark,” author Deisher reflected. “Keep a detailed, updated inventory of your collection. Include information with your will or trust documents as to the location(s) of your inventory and your collection. Suggest the best way to sell your collection and provide the names and contact information of specialists or trusted, knowledgeable people who could be of assistance to your heirs,” she concluded. Both Ambio and Deisher have penned recent guidebooks to the liquidation of numismatic holdings that are aimed at the numismatic heir with little prior experience. Deisher’s book Cash In Your Coins: Selling the Rare Coins You’ve Inherited, was published by Whitman. Ambio’s What To Do with Granddaddy’s Coins: A Beginner’s Guide to Identifying, Valuing and Selling Old Coins was published by Zyrus Press. Both are highly recommended.

A professional coin dealer may be the best way to dispose of estate coins. Experts recommend you get several competitive offers.

This rare note surfaced from an inherited numismatic collection and brought nearly $200,000 at public auction after the heirs “shopped around” for the best way to liquidate it. (Photo courtesy Whitman Publishing LLC) www.ahametals.com American Hard Assets | 79


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Discovering Baseball Gold | l u x u r y & l i F e S t y l e

DISCOVERING BASEBALL GOLD By Matt Markey

THE SLEEK, BLACK MERCEDES and its ultra-courteous chauffer met Karl Kissner and his wife at New York’s LaGuardia Airport before whisking them through Manhattan to a luxurious hotel near Rockefeller Center. After taking in the best of the Big Apple, the Kissners headed to the studios of NBC’s Today show the following morning and there they were treated like royalty. There was socializing time in the green room, a generous breakfast buffet, and a makeup session before Karl and his cousin Karla Hench sat down with host Matt Lauer for an interview on national television. “The thought that our interview was going to millions of people never really crossed my mind,” recalls Kissner, who owns a restaurant back in Ohio. “I was excited to meet Matt Lauer, but when he asked questions, it was like sitting at my restaurant coffee counter talking to customers.” Kissner and Hench were there to talk about a treasure trove of 1910-era baseball cards their family uncovered in their grandfather’s attic – a collection that is expected to bring the heirs at least $2 million, and which has already made them celebrities in the world of vintage sports memorabilia. “It’s a cliché, but this is one of those once-in-a-lifetime discoveries that came out of nowhere, the ultimate buried treasure find,” says Joe Orlando, president of Professional Sports Authenticator, and editor of Sports Market Report. “It’s one thing to find a $10,000 autographed baseball or a $50,000 coin, but it’s extraordinarily rare to find a single group of vintage baseball cards worth millions of dollars.” That afternoon, after the interview, Kissner was on a flight home, and at 7 the next morning, he was back working the griddle at his restaurant in the small manufacturing town of Defiance in northwestern Ohio. “I guess my 15 minutes of fame were up, so I was back making

coffee and slinging hash browns,” says Kissner, the designated spokesman for the unassuming consortium of cousins that discovered the cards in a soot-covered cardboard box. “It was back to the real world.”

WORLDWIDE HEADLINES

The story of the cards has been well circulated, about how Kissner and his cousins had been conducting a tedious clean up and inventory of the old family estate that had belonged to his grandfather, Carl Hench, who had operated a meat market in Defiance. The family believes Carl also sold dry goods. The baseball cards, they assume, were promotional items, manufactured as giveaways to customers. “We guess they were leftovers,” Kissner says. “Because of the way they were stacked neatly in box, he probably intended to use them later, but he just forgot about them.” Carl had been gone more than 60 years, but his daughter Jean lived in the family home until she passed away in the fall of 2011, leaving the house and its nearly overwhelming amount of contents to her 20 surviving nieces and nephews. A string of marathon sorting sessions ensued, with cousins arriving from around the country to assist. “It was a huge project, but we had fun with it,” says Mike Walz, one of the heirs. “My aunt, God love her, was a bit of a hoarder, so there was a lot of work to be done.” The family didn’t find the treasure box until the group had basically cleaned its way to the attic. Inside, shielded from sunlight for more than a century, were more than 700 near-mint condition cards with images of baseball’s legendary heroes … Ty Cobb, Christy Mathewson, Honus Wagner, Cy Young. “There was that slight moment of euphoria when we first saw the cards, and then we thought, ‘It can’t be,’” he recalls. After all, he www.ahametals.com American Hard Assets | 81


L u x u r y & L i f e s t y l e | Discovering Baseball Gold thought, the cards looked almost new. Maybe they were reprints. He was soon on the Internet looking for clues. “After we researched it some more and looked at some dealer sites and found out just what we had ... then we hit that ‘wow’ point.” Getting an expert opinion was next. And that led them to Peter Calderon, a baseball card expert at Heritage Auctions in Dallas. “A friend of the family who had previously purchased items from us called to find out more about the cards,” Calderon says. “He sent of a picture of six cards to my cell phone. Nothing said to me they were not authentic, so we were interested in seeing them. “Oh, my God,” Calderon recalls saying when he opened the package the next day. “I was in complete awe.” “When we heard his expression over phone,” Kissner says, “we knew they were real.” Kissner, talking to Calderon from his restaurant office, recalls turning and seeing the box sitting on his desk chair. “This was a Saturday. It was after noon, so all the banks were closed,” Kissner says. “So I hid them there at the restaurant office. I didn’t sleep that night or Sunday night and Monday morning I went to the bank and put them in a lock box.” The family initially wasn’t sure about going public with their discovery. Like lottery winners, they were nervous about sharing the news of a sudden windfall. But after discussing the significance of the find with Chris Ivy, director of sports auctions at Heritage, they concluded going public was the prudent thing to do. “Heritage suggested that it would make a great human interest story, with my grandfather, this German immigrant and his legacy, so we felt that was the right way to go,” Karla Hench says. “Those previous generations are responsible for who we are, and I think we’re proud to share their story.” “The story was just too neat not to tell,” adds Kissner. “This is that golden treasure you hear about, that everybody hopes to find, and here we had it. We had to let that story out.” In July 2012, the story of “The Black Swamp Find” – a reference to the Great Black Swamp that helped protect Fort Defiance during the 1790s Northwest Indian War – made headlines around the world. Collectors everywhere were talking about the cards. “The family’s cooperation with the media helped to make this one of the biggest pop-culture stories of the summer and helped attract bidders,” Ivy says. “The cards by themselves are unique and in strong condition, but it was the ‘found treasure’ angle that captivated people around the world. It’s hard to say if an anonymous consignment would have generated as much interest.”

‘THRILLED BEYOND BELIEF’

Barb Wurst says the discovery of the baseball cards changed little about the way the family handled the estate, but it just became a much more public affair. “We’d been working together on this throughout, and what’s amazing is that we were that way before the cards were found,” says the oldest of the heirs, at 75. “Most of us flew or drove from wherever, just to help sift through it all. It was a lot of work, but it was also fun because we made it fun. Once Karl said they had found something of value in the attic, and had [Heritage Auctions] look at it, we just figured it was stock in Standard Oil.” The collection and the Hench family tale have no real rival, Ivy says. “I consider this the most significant find in the history of the hobby,” Ivy says. “There have been other cases, with fewer cards or lesser cards, but those other ones don’t have anything like this kind of story behind them, with the family going up in the attic and finding this box.” 82 | American Hard Assets www.ahametals.com

It was a story too good to pass up for producers at the Today show, and soon, they were asking family members to fly to New York to tell their story. “It all seemed a little surreal,” Karla Hench says about the experience. “My nerves were on edge. You see that show a thousand times, but you just don’t picture yourself being there.” Wurst likes to say she saw it coming. Shortly after the family found out they had a treasure on their hands, she joked with Karl that he would end up on the Today show. “And he said, ‘No way’, but there he was, with Karla, talking to Matt Lauer,” Wurst says. “We were all just thrilled beyond belief that our family’s story got that kind of exposure.”

MILLION-DOLLAR ESTATE

About 35 family members, including 14 of the cousins, attended the auction of the initial lots of cards, held at the National Sports Collectors Convention in Baltimore. The heirs were ecstatic that the 37 cards fetched more than $566,000. “It was right within the range that we had been told to expect, so that told me that Heritage, the company we were dealing with, definitely knew what they were doing,” Kissner says. “All of our expectations were met, and the family loved it. They stepped into that world and had a blast.” Mike Walz was also impressed by how close the predictions of the experts were to the final sale price. “I can’t say enough about Heritage – they were so good to work with. And they warned us that the auction would be quick, and it was.” Kissner was one of the executors of the estate, but was unable to attend the auction since he was on vacation with his wife and children – a trip that had been planned before the decision to take part in the auction. That left Karla in the spotlight in Baltimore. “I was the spokesperson at the auction, so I had to learn under fire how to handle all of the interviews, the TV and all,” she says. “I am still in awe of Karl’s ability to take this thing and run with it. He’s done a great job representing this family and really telling the world what we are all about.” Attorney John Weaner, who’s worked in Defiance for nearly 50 years, was contacted shortly after the discovery and advised the family throughout the affair. Ask him how many estates he has handled and he snaps back “thousands.” And how many compare to the Hench estate? None. “This is the most unique thing I’ve ever been involved with, on several levels,” Weaner says. “This went from an estate with a total value of about $180,000, to all of a sudden having a value of over $3 million, but that didn’t change a thing with this family. They all get along so well that when you’re with them, you can feel the love in the room. I’ve had people who fought like cats and dogs over an estate of two thousand bucks, but there hasn’t been a single harsh word with this family. It is a very exceptional group of people.” Ivy agrees, and credits the family for the smooth way in which the find was handled. “Knowing there were 20 heirs involved, I anticipated a situation I would liken to herding cats,” Ivy says. “But from the outset, Karl was adamant about doing this in the most equitable way. And they trusted him, and he’s done that. This is a tight-knit group, and it really couldn’t have happened to a nicer group of people.” None of the heirs ever looked at the cards as an opportunity to get rich, says Kissner, the youngest of the cousins at 52.


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The Hench heirs gathered for a photo shortly after the cards were found. “It was always the case that everything would be split evenly,” Karl Kissner says. “Greed never reared its ugly head, and I can’t even describe how proud I am about that.”

“It was always the case that everything would be split evenly, in a fair manner, no matter if it was $1 or $1 million,” he says. “For this family, it wasn’t an issue of what it was worth. Greed never reared its ugly head, and I can’t even describe how proud I am about that. I’m ecstatic that I’m a part of this family.”

LESSONS PASSED DOWN

In many cases, a treasure of this significance is a launching point for family squabbles. For the Hench family, it was an opportunity to grow close. Sorting and cataloguing the mounds of material in the Hench home gave the cousins a chance to relive childhood experiences. “My aunt Jean couldn’t throw anything out, so that froze everything in time for us,” Kissner says. “She gave us a chance to once again experience the warmth and love we all felt in that house.” “Through all of this,” Mike Walz adds, “I got to discover the grandfather I never knew, and something like that is really priceless.” A sense of fairness was part of their upbringing, says Karl’s sister Ann Branham. “We were brought up to be fair. I can remember my mom stressing that – being fair,” she says. “We’d have fruit cocktail for dessert and, of course, everybody wanted the maraschino cherry, so she would divide it six ways, just to be fair. That’s just what we grew up with. All of us share the same values, so those family connections are much stronger than any amount of riches.” Walz agrees with that simple, yet exceptional, assessment of how such a large group of cousins has remained unified throughout the wave of publicity and the unexpected boost in wealth. “There is a basic sense of fairness that runs through this family, so there was never really any conflict,” he says. “Everyone responded so well. Sure, it’s a little bit about the money now, but it’s much more about all of the fun we’ve had going through the house and digging up all those memories.” “The cards were just something that was left in the house – like a thousand other little things,” Branham says. “They just happened to

have tremendous value elsewhere, but that didn’t change anyone in the family or who we are. We’re still the same people.”

‘WE MADE GOOD DECISIONS’

Back at his restaurant, Kissner says the fame and publicity have made him the target of some good-natured needling from customers, including one regular who says he always wanted to have a millionaire fix him breakfast. “But I’m no different,” Kissner says. “The money is nice, but we’re not foolish – we’ll put it to good use. That money goes into the college fund. I won’t do anything crazy like go out and by a sports car – my wife and kids come first. Besides, you can’t haul kids around in a Corvette.” All of the remaining cards will be auctioned by 2016. Although those auctions will be significant in the vintage collectibles world, the family most likely has seen the last of the media hoopla. But the family still treasures their moment in the spotlight. One of Kissner’s greatest joys from the discovery is that he’s been able to get closer to his cousins, and strengthen the family bond. “All of the sharing of the memories – that’s what is most valuable in a situation like this. The cards were just the icing on the cake,” he says. “These kinds of things shouldn’t tear families apart. They should bring families together. It’s a real tribute to my grandfather, the guy that stashed those cards in that box so many years ago, that his family will come out of this an even closer bunch.” “I think they are all smiling up there now,” Wurst says about the family’s ancestors. “They are looking down at us and seeing all of the fun we’ve had with this. We weren’t foolish about it. We got sound advice, we made good decisions … and we’ve stayed a family throughout.” MATT MARKEY is a sportswriter for the Toledo Blade. This story originally appeared in The Intelligent Collector magazine (IntelligentCollector.com).

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M i N i N G & M i N e r a l S | Mining News

Mining News

Taseko Fails Second Review The Canadian Environmental Assessment Agency predicted significant adverse impacts from Taseko’s (TSE: TKO) second try at approval for the New Prosperity gold-copper mine in British Columbia, further extending a contentious approval process dating back several years. Taseko has commenced legal proceedings to challenge the review. A three-member federal review panel concluded October 31 that the $1 billion project would “result in several significant adverse environmental effects.” Specifically, the panel cited effects on water quality, fish habitat, and the traditional uses of the land by the Tsilqot’in First Nations. The review does not in itself block the mine from proceeding to the next stage of permitting, but Taseko’s previously submitted mine plan was rejected after a similar ruling by an earlier panel in 2010. Taseko submitted a revised proposal in 2012 that included measures to preserve Fish Lake, reduce the area disturbed, and help protect grizzly bears, at an extra cost of $300 million. In early December, Taseko applied for a judicial review, asking a federal court set aside some of the review panel’s findings and to declare that the panel “failed in certain respects to comply with principles of procedural fairness.” A judicial review judges the legality of the decision, not its merits.

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Taseko’s principal complaint is that Natural Resources Canada, the federal agency that prepared the project report, “failed to account for a liner that would be part of the tailings storage facility – thus modeling the wrong project design and assuming water would seep into open ground.” The Tsilhqot’in national government, which has fought the mine since the 1990s, issued a letter to the CEAA contesting Taseko’s allegations. “The proponent in its EIS clearly indicates that its proposal is to preserve the existing natural till layer as a protection against seepage…. There is no indication in the EIS that ‘an engineered liner of compacted materials’ is a specified part of the mine design.’” The letter cites Taseko’s EIS, later communications, and chosen consultancy (Bruce Geotechnical Consultants) to back up its case. The Tsilhqot’in letter added that the panel had predicted adverse impacts unrelated to the seepage issue. “Both independent panels concluded that these impacts cannot be mitigated because the development of a massive open-pit mine, in and of itself, would destroy the deep cultural and spiritual value to the Tsilhqot’in people of these critical lands and waters.” Taseko’s president and CEO, Russell Hallbauer, said in a statement the federal government should “allow the project to proceed to the next stage of detailed permit-level examination.” He said if that happened, the judicial review would not proceed.


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M i N i N G & M i N e r a l S | Mining News

Mining News

Cliffs Quits Ring of Fire Cliffs Natural Resources (NYSE: CLF) announced in November it would indefinitely suspend all investment in Ontario’s Ring of Fire, after encountering several roadblocks to developing its chromite project there. Cliffs had already stopped its environmental assessment activities, after which the Mining Lands Commission dealt another blow to its plans by upholding hopeful rail-builder KWG Resources’ (TSX-V: KWG) claim to land Cliffs had desired for a haul road. Cliffs is closing its Thunder Bay and Toronto offices, shutting down the exploration camp, and halting all technical work. The shutdown also impacts plans to build a chromite smelter in Sudbury. However, the company declared in a statement that it would continue to discuss infrastructure development with Ring of Fire stakeholders and that it supported the province’s proposal to form a development corporation for that purpose. Ontario Premier Kathleen Wynne intends the public-private development corporation to “develop, construct, finance, operate and maintain the infrastructure” necessary for access to the Ring of

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Fire. Further details, including the partners that will be involved and the financing mechanism, are unavailable, although Ontario has consistently declared the need for federal investment. Wynne met with Prime Minister Stephen Harper in December in an effort to convince him to partner with the province and chip in some of the $2.25 billion estimated cost of developing the Ring of Fire. Harper has declined to involve the federal government, saying: “This is a project that is primarily under provincial jurisdiction because ultimately resources belong to the provinces and resource development is a provincial responsibility.” Wynne argues that federal investment has benefited other provinces able to show national economic benefits from their projects. Noront Resources (TSX-V: NOT), which will complete an environmental assessment on its Eagle’s Nest nickel-copperplatinum project in the Ring of Fire, said in a press release it looked forward to participating in the development corporation and hoped to build the region’s first mine. KWG Resources is also supportive of the cooperative corporate model.


Mining News | M i N i N G & M i N e r a l S

Mining News

Mexico Raises Taxes Mexico’s congress in October approved a new corporate tax regime that will raise costs for mining operations in 2014. The move provoked widespread complaints from Mexico-based miners and explorers who say it will have a significant effect on the industry’s viability. The 73-50 vote left in place a 30 percent corporate income tax previously scheduled for reduction. It also added the country’s first mining royalty -- a 7.5 percent tax on earnings before interest, taxes, depreciation and amortization -- and a 0.5 percent environmental mitigation fee on gross revenue for gold, silver and platinum miners. A 10 percent withholding tax on dividends was also instituted, although Mexico’s various international tax treaties will likely reduce the rate for many shareholders. The senate passed an amendment designed to help out smaller firms with annual sales under $3.85 million by crediting their payment of the 7.5 per cent royalty against other tax bills. Companies operating in Mexico had sought to soften the new tax since President Enrique Peña Nieto proposed it in September. Endeavour Silver (NYSE: EXK), which has three mines in Mexico, published a letter signed by 16 mining CEOs asking Peña Nieto and Congress to consider a 4 percent royalty instead on operating profit instead. The letter estimated that their overall tax burden would jump from 40 to 57 percent. This comes at a time when falling metal prices and sky-high equipment, materials and service costs have badly dented profits across the industry. Several companies threatened to reduce their activity in Mexico. The CEO of Canada-based Goldcorp (TSX: G), Chuck Jeannes, has said his

company could reconsider its Mexican investments. Meghan Brown, director of investor relations at Endeavour, said the abrupt cost escalation could mean the company would look elsewhere to build its fourth mine. She pointed out that Mexico is the largest silver-producing country in the world, suggesting its move could hurt the entire silver industry. Rosalind Wilson of the Canadian Chamber of Commerce told the Economist that Mexico was “complete pricing itself out of the market,” citing a drop in the country’s share of Latin America-focused TSX financing from 53 to 17 percent. Not all miners took the news badly. Agnico Eagle (NYSE: AEM) reportedly plans to expand its Mexican production via the Pinos Altos and La India precious metal mines. The CEO of Gold Resource (NYSE MKT: GORO) saw a silver lining, remarking in a third-quarter results call that the additional charges could win support for new mines thanks to a provision that directs 50 percent of mining tax revenue to affected communities. Gold Resource has struggled to win over its Oaxacan hosts at its El Rey project. The changes to mining tax were packaged within a widereaching reform intended to shore up Mexico’s tax base by collecting more contributions from high-income individuals and corporations.

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M i N i N G & M i N e r a l S | Mining News

Mining News LEADERSHIP CHANGE AT BARRICK GOLD Barrick Gold (NYSE: ABX) announced in December that founder Peter Munk will retire from his 30-year position as chairman of Barrick Gold at the company’s annual general meeting in 2014. He will be replaced by his chosen heir, co-chairman John Thornton, a former president of Goldman Sachs who was elected to the board in 2012.

GAHCHO KUÉ APPROVED The 49 million-carat Gahcho Kué diamond project proposed by De Beers Canada and Mountain Province Diamonds (TSX: MPV) secured approval from Canada’s Minister of Aboriginal Affairs and Northern Development in October. The largest diamond development project in the world, Gahcho Kué is scheduled to start construction in 2014. The ministerial decision followed a July approval by the Mackenzie Valley Environmental Impact Review Board (MVEIRB), which recommended measures to mitigate the effects of what it expects to be “significant adverse environmental impacts.” Gahcho Kué may now apply for permits and has already received a permit to do early construction work. Three aboriginal groups opposed the project. The Lutsel K’e Dene, the Yellowknives Dene, and the Tlicho had asked the minister for further review, saying the MVEIRB’s recommendations do not go far enough to mitigate the impacts to water quality, caribou, fish, and aboriginal culture. They also questioned the fate of Kennady Lake after it is partially drained. In response to the approval, the Tlicho government issued a press release stating it had not given its consent to the project, and that consent was contingent on a satisfactory impact and benefit agreement with De Beers and the creation of a joint venture-funded, aboriginalled environmental monitoring agency for the mine called Ni Hadi Yati, a suggestion that De Beers has praised. Gahcho Kué began its environmental impact review process in 2006 and submitted an impact statement to the MVEIRB in 2011. Public hearings were held over a five-day period in 2012. Gahcho Kué will pick up the slack left by the aging Ekati and Diavik mines, producing a forecast average of 4.5 million carats per year over an 11-year life. 88 | American Hard Assets www.ahametals.com

Munk’s tenure has defined the course of Barrick Gold, beginning with the acquisition of half an Ontario mine in 1983 and ending, in 2013, with 26 projects on five continents. The company hit a rough patch in recent year; it reported a net loss of $0.67 billion at the end of 2012 and has spent 2013 cutting costs while watching its market value drop. In November it suspended work on its $8.5 billion Pascua Lama project in Chile. Among the changes Barrick will introduce in 2014 is a new executive compensation plan that will more closely tie pay rates to the company’s financial performance. Barrick made further changes to its leadership in December, apparently in response to shareholder demands. Jim Gowans will take over as executive vice-president and chief operating officer as of January 20, 2014. Gowans’ recent experience has been in the diamond industry, including a 2006 to 2010 stint as president and chief executive of De Beers Canada in which he oversaw the opening of two new diamond mines, the Victor and Snap Lake projects. The board also appointed four independent directors, including Ned Goodman of the Canadian investment firm Dundee Corporation.


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H a r d Ass e t s Info r m a t i on | Preferred Dealers

Preferred Dealers Look for American Hard Assets at these locations! To become a Preferred Dealer, contact 1-877-695-1258

2801 John Hawkins Pkwy | Suite 117E Hoover, AL 35244 (205) 637-7033 4710 University Drive NW | Suite 17-A Huntsville, AL 35816 (256) 722-1550

Alabama Southern Bullion

6850 US Highway 90 | Suite 6 Daphne, AL 36526 (251) 625-1818 1605 Beltline Hwy (Highway 67) D-8 Decatur, AL 35601 (256) 686-2220 245 Cox Creek Parkway | Unit A Florence, AL 35630 (256) 349-2782

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3698 B Airport Blvd Mobile, AL 36608

(251) 287-6565

6371 Atlanta Hwy Montgomery, AL 36117

(334) 356-5116

1420 McFarland Ave | Suite 7 Northport, AL 35473 (205) 469-9079 3909 Pepperell Pkwy | Suite E Opelika, AL 36801 (334) 209-2170 100 Ali Way Oxford, AL 36203

(256) 241-0131


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1963-B Cobbs Ford Road Prattville, AL 36006

Georgia

(334) 356-0741

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1423 Gadsden Hwy Suite 103 Birmingham, AL 35235 (205) 661-2621

California London Coin Galleries

4519 Woodruff Road | Unit 2 Columbus, GA 31904

(706) 221-4974

4209 Cloud Springs Rd. Ringgold, GA 30736

A Coin Exchange 18631 Ventura Blvd. Tarzana, CA 91356

(706) 891-2646

hawaii

Wild West Coin Company

Aikahi Aloha Coin Stamps Jewelry and Collectibles

(916) 967-2646

25 Kaneohe Bay Drv.#109 Kailua, HI 96734

Colorado

idaho

Chamberlain Coins & Collectibles LLC 385 Main St. Longmont, CO 80501

404.460.2783

100 W Walnut Ave | Suite 142 Dalton, GA 30720 (706) 278-6272

27 The Shops at Mission Viejo Mission Viejo, CA 92691 (949) 364-0990

6723 Winding Way Fair Oaks, CA 95628

3145 Peachtree Road Atlanta, GA 30305

Infinity Coins

545 Shoup Ave Suite 108-A Idaho Falls, ID 83402

(303) 774-9661

(208) 201-5007

florida

illinois

Coin & Bullion Reserves

Dallas Gold & Silver Exchange

2621 East 15th St.

Panama City, FL 32405

1831 St Johns Ave Highland Park, IL 60035

(850)785-9546

missouri

David Reynolds Jewelry and Coin 4009 Central Avenue Saint Petersburg, FL 33713

Crystal Coin & Jewelers

(727) 327-2646

521 Bailey Rd. Crystal City, MO 63019

A Coin and Stamp Gallery Inc. 6217 St Augustine Rd Jacksonville, FL 32217

847-780-006

636-937-5017

north carolina

(904) 733-1302

Triangle Gold

Southern Bullion

16055 Emerald Coast Pkwy | Suite 105 Destin, FL 32541 (850) 424-7627

3 Glenmore Drive Durham, NC 27707

4771-6 Bayou Blvd Pensacola, FL 32503

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(919) 403-0143

1636 Hendersonville Rd | Suite 100 Asheville, NC 28803 (828) 575-2134

(850) 912-6557

new hampshire Seacoast Coin & Jewelry 725 Lafayette Rd Ste 1 Hampton, NH 3842

(603) 926-7771

new york LI Coins and Jewelry 1846 Grand Ave North Baldwin, NY 11510

(516) 223-1212

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H a r d Ass e t s Info r m a t i on | Preferred Dealers

Ohio

Halex International/Extraordinary Jewels

HCC Rare Coins

7151 Spring Meadow Dr. West Holland, OH 43528 (419) 865-8461

12900 Preston Rd. Suite 1112 Dallas, TX 75230 (469) 774-8951

DGSE

190 East Stacy Road The Village at Allen Allen, TX 75002 972-481-3870 13534 Preston Road Dallas, TX 75240

972-481-3850

6174 Sherry Lane Dalla s, TX 75225

972-481-3800

11311 Reeder Road Dallas, TX 75229

972-484-3662

200 N. Kimball Ave. #205 Southlake, TX 76092

817-722-0075

(864) 226-0010

1201 Airport Freeway Euless, TX 76040

817-283-4469

1175 Woods Crossing Road | Suite 2A Greenville, SC 29607 (864) 288-6544

1109 West I-20 Arlington, TX 76017

817-505-1005

tennessee

6115 Camp Bowie Blvd. Fort Worth, TX 76116

817-840-1546

south carolina Southern Bullion

120 Commons Parkway Anderson, SC 29621

Nashville Coin & Currency PO Box 3361 Brentwood, TN 37024

(615) 377-4949

Southern Bullion

4521 Brainerd Rd. Chattanooga, TN 37411

(423) 622-1298

843 Keith St. NW Cleveland, TN 37311

(423) 479-2646

2244 North Roan Street | Suite 103 Johnson City, TN 37601 (423) 434-0400

west virginia Bronze Element

311 Mercer St. Princeton, WV 24740

texas C S B Williams Inc

711 W Bay Area Blvd #100 Webster, TX 77598

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(304) 920-2081


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H a r d Ass e t s Info r m a t i on | Events

Events January 19-20, 2014 Vancouver Resource Investment Conference Vancouver, BC, Canada

May 19-23, 2014 LPPM Platinum Week London, England

www.cambridgehouse.com/event/vancouver-resource-investment-conference-2014

February 7-8, 2014 California Investment Conference Indian Wells, Calfornia

May 29-30, 2014 Precious Metals Summit Hong Kong www.precioussummit.com

www.cambridgehouse.com/event/california-investment-conference-2014

February 7-9, 2014 World Money Fair Berlin, Germany www.worldmoneyfair.ch/wmf/english March 2-5, 2014 PDAC 2014 Toronto, Ontario, Canada www.convention.pdac.ca/pdac/conv/ March 24-28, 2014 Mines and Money 2014 Hong Kong www.minesandmoney.com/hongkong/ March 27-28, 2014 Calgary Investment Conference Calgary, AB, Canada

June 1-2, 2014 World Resource Investment Conference Vancouver, BC, Canada http://cambridgehouse.com/event/world-resource-investment-conference-2014

June 7-10, 2014 IPMI 38th Conference Orlando, Florida www.ipmi.org/seminars/conf_detail.cfm?id=35 September 14-17, 2014 Denver Gold Forum 2014 Denver, Colorado www.denvergold.org/gold-forums/ October 20-23, 2014 LME Week London, England www.lme.com/lmeweek.asp

www.cambridgehouse.com/events/calgary-investment-conference-2014

April 6-7, 2014 Dubai Precious Metals Conference 2014 Dubai, UAE www.dpmc.ae April 8-11, 2014 Denver Gold European Gold Forum 2014 Zurich, Switzerland www.europeangoldforum.org/egf13 April 27-30, 2014 Milken Institute Global Conference Los Angeles, California www.globalconference.org April 29-May 1, 2014 Mongolia Investment Summit 2014 London, England http://mongoliainvestmentsummit.com/london May 12-13, 2014 Metals & Minerals Conference New York, New York www.metalsandminerals.com/ny 94 | American Hard Assets www.ahametals.com

November 7-9, 2014 Expominer Barcelona, Spain http://www.biztradeshows.com/trade-events/expominer.html

November 11-14, 2014 Metal-Expo 2014 The All-Russia Exhibition Center, Moscow http://metal-expo.ru/en/programm November 20-21, 2014 Minerals Engineering International - Precious Metals 2014 Vineyard Hotel, Cape Town, South Africa http://www.miningnews.net/eventdetail.asp?eventid=2970950

December 11-13, 2014 Jakarta International Expo (JIExpo) Jakarta,Indonesia http://www.biztradeshows.com/trade-events/indo-metal-jakarta.html

January 26-29, 2015 Mineral Exploration Roundup 2015 Vancouver Convention Centre - East Facility http://www.amebc.ca/roundup/overview-2014.aspx


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l as t word

ANTI-PREDICTIONS By John W. Garibald

A

s everyone gets ready to turn the page on the calendar year, a lot of ink will be spilt and hands wrung in some vain effort to predict the fate of plainly unpredictable markets. The problem is those who try to style themselves as financial clairvoyants tend to be a dull, hackneyed sort: assuming that the future will look much the same as the past, and lacking the imagination to consider the major events that can truly affect the future of the markets.

• • •

• As such, these self-styled Oracles of Delta almost always miss by a wide margin, often with a worse winning percentage than a Browns fan trying to handicap cricket. As far as markets are concerned, the economic, geopolitical, fiscal and monetary events that determine price action are too complex and subject to short term variances, but we can find some underlying themes. With all of that in mind, I present my inaugural annual anti-predictions. Here is a list of things that almost certainly (or at least probably in some cases) will NOT happen: • • • • • • • • • • • •

The bankers that largely contributed while amassing astounding person fortunes will NOT suffer any real person setbacks, much less go to jail Inflation will NOT suddenly rise like the phoenix from the ashes This commentator will NOT sign up (successfully) for Obamacare Congressional popularity will NOT improve to 15% Twitter and Snapchat (and anything else like it) will NOT turn a profit You will NOT sustainably outperform the market by hopping from one hot sector to the next. We’re not playing Frogger here. The Financial Media will NOT turn down the panic levels Bitcoin’s meteoric rise will NOT continue. Regulation always trails innovation. Also, you don’t understand it nearly so well as you think you do. Santa will NOT deliver me a new Tesla. Or a new Patek for that matter. Miley Cyrus and Justin Bieber will NOT cease to be the butt of every pop culture joke that I don’t really understand. Quantitative Easing will NOT go on forever, but Zero Interest Rate Policy might. Janet Yellen will NOT grow a beard in homage to the previous Fed Chair

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It will NOT snow for the winter Olympics in Sochi, Russia. Putin will NOT let you point out that it was bad location for the Olympics. The economy will NOT collapse, but: We will NOT fix the budget deficit or entitlement spending, nor will we make any meaningful strides towards addressing immigration, education, tort reform, greenhouse gas emissions, or patent trolls. The Miami Heat will NOT repeat. Nor will they finally manage to sell out a home game.

Have a great holiday season. Spend quality time with your loved ones and cherish the short time we have together on this planet. Enjoy a break from the useless exercise of worrying about things and markets that you cannot control.


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