The Next Best Thing to Investing in Gold
- From: bromselick@xxxxxxx
- Date: 11 May 2006 13:49:25 -0700
If you think investing in gold coins is a great idea, I've got
something you will really love -- investing in pennies and nickels.
They are worth more than their face value the second you get your hands
on them.
Apparently, the ability to mint your own money is not such a great
thing. It can actually be a losing proposition, at least if the
American government is doing it.
According to the latest report from U.S. Mint, soaring commodity prices
are having a dramatic impact on their coin production. Sky-high metal
prices are forcing the mint to produce pennies and nickels at a loss.
Currently, the metal used to produce a nickel costs about $0.0525. A
penny contains .84 cents worth of zinc and copper. Add in striking and
transportation costs and the losses widen. It costs $0.014 for the mint
to produce a penny and $0.064 to make a nickel. That is a 40% loss per
penny and a 28% loss per nickel.
While the losses may appear miniscule on the surface (what's a few
pennies to a country with trillions in debt?), they add up quickly. The
Mint is expected to produce nearly 1.7 billion nickels and 8.7 billion
pennies.
That adds up to an estimated loss of nearly $32 million. But wait. It
gets worse. While the only coins the Mint is actually losing money on
are nickels and pennies, the profit margins on other denominations are
rapidly diminishing. Altogether, the Mint will see its revenues shrink
by approximately $77 million due to rising metal prices.
In all likelihood, rising production costs are eventually going to
change the look of American coins. Once the Mint gets its act together
-- it currently lacks a permanent director - it will likely look for
cheaper materials to use.
The only problem is the new coins have to be direct replacements for
our current coins. If not, thousands of coin-operated machines will
turn useless overnight. A new coin must have the exact same weight and
size of existing coins. That's a tough challenge to overcome when you
are switching alloys.
For investors, the problems at the Mint mean very little. I don't
think many folks are willing to hoard tons of nickels just to lock in
the fraction of a cent the metal is worth over face value. Besides,
isn't destroying a coin illegal?
Investors need to realize the commodities boom is not going away
anytime soon. The soaring economies in India and China are gobbling as
much metal as possible. They need it to grow.
Copper is a great example of a metal seeing lots of price pressure. In
fact, it is sitting on fresh highs. Copper is currently selling for
nearly $4 per pound. Just a few years ago, it was selling for about
$0.50 per pound.
China is responsible for the latest runup in metal prices. Earlier this
week, there were strong rumors that China would be starting a mineral
resource strategic reserve. If it did, the extra demand it would cause
would certainly keep prices soaring. Funds across the globe scrambled
to get their hands on more metal.
Unfortunately, the rumors may not be true. The Chinese are saying it
was a misrepresentation of translation. They claim there are no plans
for a strategic reserve, only plans to invest in securing more domestic
supply.
No matter which way you look at it, China is a leading factor in the
current commodities boom. While experts tend to disagree on the
strength of the commodities boom in the future, it is hard to deny that
the boom will continue.
Over the next few years, miners across the globe are going to see
incredible demand for their products. Anything from uranium to copper
to gold is going to be extremely valuable.
If you are not already investing in the industry, you better do it
quick. If not, you will be missing out on some easy profits.
Enjoy your Thursday.
Andrew Snyder
Executive Editor, Fear and Greed
Crunching the numbers...
Rising fuel costs are inching their way into the economy. The latest
numbers prove that consumers have a few less bucks to spend each week.
April's retail sales are weaker than expected.
According to the Census Bureau, retail sales climbed by 0.5% last
month, lower than the 0.8% most economists were anticipating. Retail
customers are spending more cautiously, thanks to rising gasoline
costs.
Why am I so confident fuel prices are to blame? The numbers prove it.
Sales at gasoline retailers jumped by 4.6% in April. When you subtract
that industry's strong report, sales across the board only jumped by
0.1%. Let's hope we see better results next month.
.
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