By Bruce Smith, Senior Portfolio Director and Numismatic Writer at Blanchard and Company

One of the first symbolic, political, and critical economic actions to announce the independence of the newly forming American Colonies was the coining of monies. Investors should embrace these historically significant symbols of the American story when investing in rare coins. More than paper or a certificate, and more than just money to be handed down to the next of kin, these are investments with meaning, virtue, history and passion.

This begs the important question: How do I go about investing money, hard-earned money, in this market?

After two decades of handling portfolios both large and small, I am convinced that several critical principles must be embraced to achieve success.

From coins that cost as little as several hundred dollars apiece to those into the millions, the clients who have prospered the most are those that have implemented the principles shared in following paragraphs. Regardless of ones budget, applying these principles can help deliver handsome rewards.

Investors should always focus on quality over quantity. Many investors come to the rare arena thinking they need to acquire as much bulk as possible that owning many lower priced gold coins is better than placing the same amount of capital into a smaller number of truly rare coins. This is not the case, and the principle is true in any collector market. The rarest art, cars, watches, and historical artifacts are always the ones that are most coveted and the ones that appreciate most substantially. Translate this over into the rare coin arena, and investors should focus on the quality coins that will be sought after by the entire market.

Invest in the rarest coin a budget will allow, and acquire the coins with the lowest populations, the greatest allure, and the biggest story. Acquire the coins that others will compete for when it is time for you to sell.

In the stock market, blue chips are those stocks that have been around for a long time and have historically given strong returns to investors. The rare coin market has its blue chips as well. Blue chip rarities are those sectors of coins that have been very strong producers of investment return over the long-term. These are the various segments of the blue chip market where collectors and investors should put their focus:

Key Date Gold/Key Date Coins
These coins have smaller populations, strong investor sentiment, are important parts of set-building strategies and have great history behind them. Mintages for key dates vary from year to year depending upon certain political, economic, or historical realities, but their demand rarely wanes. Coins become key date through time and circumstance, becoming rare and desirable by comparison to other more common coins.

Early Date Gold: Coins Minted Prior to 1838
These coins are magic. They are full of the history of Americas founding, its patriarchs, and the American ideal. As such, and because they are exceedingly rare especially those dated prior to 1800 these coins are sought after by all savvy investors. Early date gold coins also are very tough to acquire, and when they do appear, they can trade in the moment regardless of the price. Early date silver is also very desirable and extraordinary. Many of these remarkable early silver coins, aesthetically speaking, capture the imagination and hearken back to the early American period unlike any other coins.

Proof Gold
These coins were minted for collectors and have mirror-like finishes that are absolutely breathtaking. Japanese investors have been in the states in recent years acquiring these coins rabidly. Many seasoned investors build entire portfolios of proof coinage. They are truly mesmerizing to view, and the populations are minuscule. In many cases only handfuls were minted. Struck by highly polished dies with precise requirements in place, many were only given to dignitaries. The famous $4.00 Stella coin is one great example.

The Civil War
Talk about history! Has there been another moment in American history that has captivated authors, storytellers, and movie makers more? Because of their history, low survivability, and collector fervor, these coins are a very sought after segment of the market. A rare and exceptional niche would be Civil War proof coinage, which is one of the more coveted sectors of all coinage.

Gold Rush Gold
One could be argued that the American West and the American economy really got their starts on the back of this epic American saga. From the fields of the Gold Rush grew the American spirit of adventure, enterprise, and entrepreneurship. Due to the relatively small number of coins, the history, and the ability to build sets from this period, this is another very strong arena for collectors and investors to explore. Territorial pieces from important sanctioned assay offices make up one of the more interesting sectors for many investors, and some collectors have focused exclusively on this segment.

Branch Mint Gold
Coins minted at mints other than Philadelphia and Denver. The coins to pursue in this category were minted in Dahlonega, Ga., Charlotte, N.C., San Francisco, Calif., and New Orleans, La. These mints generally produced fewer coins and operated for shorter periods of time. Consequently, the rarity factor really favors these specimens, and collectors cannot get enough of them. Typically, the scarcest of these coins are from Charlotte and Dahlonega, but again, it depends on the date, type, and variety. In recent years the New Orleans mint has become a hot market as investors and collectors have gained greater knowledge of coins like the 1838-O half dollar and other rarities.

Pedigree Coins
These are coins with a historically important lineage or story. To own a coin that was previously owned by a famous collector is important to many investors because they realize this history lends itself to a greater potential value. A coin once owned by a king, for example, will have more appeal than the same coin without that pedigree. Some of the pedigrees to look for are: King Farouk, King of Siam, Eliasberg, Trompeter, Norweb, Garrett, Elrod, Reed, Pittman, and Bass. Further, pedigrees can help establish the authenticity of big-dollar coins.

An investor considering a major six- or seven-figure purchase will find great assurance from the evaluation of a coins trading history and important lineage.

Marquis Coins
This is the really exciting stuff. These are the coins that get most of the press. These are the most aggressive of the blue chips. This is where the big boys play. This sector is not for the average investor, and the returns historically havent been average either. These are the Picasso coins, the Rembrandts. In the rare coin market, this is where the big thrills exist.

James F. Byrnes wrote, Too many people are thinking of security instead of opportunity. They seem more afraid of life than death. To really live in the rare coin market, this is the sector to pursue. In fact, many of these coins were owned by the infamous King of Egypt, King Farouk (1933 St. Gaudens Gold Double Eagle, 1913 Liberty Nickel, and the 1804 Silver Dollar), and others by the King of Siam.

The blue chip coins do not wait for the timid investor. They are rare, they are sought after, and they trade quickly. Moreover, in an environment in which the market is doing well and values are climbing, the fever is greater for the real rarities. Do not assume the rest of the market will wait for a collector to make a decision on a truly rare coin. With coins of great rarity its a matter of availability. If the coin you need comes available, have the confidence in your strategy to make the move. Otherwise, you will in all likelihood have to pay more when and if the next opportunity for the same coin arises.

After topping the $1,300 level last week, gold looked likely to ride that momentum higher, fueled by the tailwind of the disastrous U.S. jobs report issued May 6.

But that hasn’t happened so far this week. Some unexpected strength in the U.S. dollar, feeding on weakness in the Japanese yen, has sent gold back to the $1,260 area. Surging stock prices Tuesday also dimmed bullion’s appeal.

Still, the metal is up about 19% on the year, and many analysts remain bullish. Trading data as of May 3 showed that hedge funds have raised their net-long positions to the highest levels since 2011, while ETF inflows have risen by 50 metric tons since April 25 for the biggest 10-day increase and longest run in two months, Bloomberg reported.

Golds drivers largely intact: The drivers that have lifted gold prices still remain largely intact, including the continuous wavering of the Fed in terms of the rate increases and the softening of the dollar, which introduced a layer of uncertainty in investors mindsets that tends to support the precious metal, Nitesh Shah of ETF Securities told Reuters.

Three catalysts lie ahead this summer that make gold a must-own asset. Warning of a vortex of negative headlines, Bank of America Merrill Lynch strategist Savita Subramanian thinks the S&P 500 could fall back to February lows this June. Whats behind her prediction?

1. Great Britain’s June 23 Brexit referendum, in which voters will decide whether the nation should leave the European Union;
2. the Federal Reserves next big meeting in June, in which it could raise interest rates for the first time since December; and
3. the countdown to a likely bitter U.S. presidential election pitting presumptive Republican nominee Donald Trump versus his Democratic counterpart, Hillary Clinton.

Fed tightening into a slowdown: Although the odds of a Brexit approval are unlikely, the jury is still out, and the fallout could jolt Great Britain and the EU across a range of areas, including confidence, investment, public finance, and GDP growth. Investors are increasingly likely to turn to gold as a safe haven ahead of the vote.

Meanwhile, although last weeks jobs report as of now doesn’t favor any Fed rate hike, what the central bank might do remains a great unknown. The stock market tumbled at the start of the year in the wake of Decembers rate increase, and this past quarter has seen a deepening earning recession. If it raises rates in June, the Fed is tightening into a profits recession. This typically does not happen, Subramanian noted. Typically tightening cycles start with profits growth really healthy and right now we’ve got negative year-over-year growth.

And finally, the markets are now becoming increasingly subject to the influence of presidential politicking. Were heading closer and closer to the most polarized election that we’ve seen in our careers, so there’s a lot to worry about, said Subramanian. One of the things we’ve noticed is that about six months ahead of November in an election year, the market typically peaks and trends downward.

Add to this uncertain picture the candidacy of Trump, who is seen in some quarters as a risky wild card in terms of his potential policies, and the likelihood of volatility is running very high.

With gold currently dipping from its 15-month high set Friday and entering its traditional summer lull period, that’s all the more reason to invest in the metal at relatively bargain prices.

The Shanghai Gold Exchange launched its groundbreaking yuan-denominated price fix last month, and in doing so set the stage for China to potentially displace London as the global epicenter for the gold trade, among other far-reaching implications. Now, ADM Investor Services Paul Mylchreest has issued a new analysis that spells out exactly why Londons dominance is so vulnerable.

Sensationally titled Death of the gold market: Reforming the LBMA and the true price of gold, the thesis of Mylchreests paper is simple: The London Bullion Market Association (LBMA) simply does not have all the gold needed to back up paper and electronic claims on the metal particularly if Western investment in gold suddenly increases.

Based on his calculations, Mylchreest argues that the LBMA is running into a problem and is facing the biggest challenge since it collapsed from an insufficient supply of physical gold in March 1968.

Growing risk of market failure: According to Mylchreest, investors shouldnt make the mistake of thinking that much physical metal actually changes hands over the course of a given trading day in London. Rather, most transactions are just paper and electronic receipts that represent quantities of bullion.

The assumption that the London-based LBMA members are primarily trading physical gold is inaccurate, he writes. In reality, LESS THAN 5% of gold traded on the LBMA is settled by the delivery of physical metal into what are known as allocated gold accounts.

The opposite of allocated is unallocated. The problem is epitomized by the practice of gold leasing, in which central banks and other institutions loan out gold or claims to their gold without the bullion actually ever leaving their vaults. The end result is multiple counterparty claims to the same bar of gold. The only force sustaining the arrangement is blind faith that the system can deliver actual gold if its ever called upon to do so. In other words, its a fractional reserve system.

Stressing the unsustainable market structure of paper gold instruments versus physical gold bullion, Mylchreest warns of the growing risk of market failure.

Western surge could be game changer: Increasing demand for physical gold from a variety of consumers is putting pressure on the system and raising the odds of a delivery failure. Central-bank buying, Chinese consumption, and the rebound of gold ETFs are all straining the system.

The structural flaws in London leave the gold markets integrity vulnerable to increasing offtake of physical gold. In other words, an old fashioned run, writes Mylchreest. A shift in the balance in gold trading from paper instruments towards physical could quickly destabilise the market.

The explosive element in this picture is Western demand. Western investors, both individually and institutionally, are drastically underinvested in gold. Should a crisis occur that stokes a renewed run into gold, then the London system could implode.

The vast pools of Western capital are not underweight gold, they are almost zero-weighted, Mylchreest notes. Ultimately, gold is a bet on financial system mismanagement in many guises such as inflation, deflation, rising credit risk, declining confidence in policy makers, etc. The fact that mainstream investors and commentators have started to have doubt about central bank policies has been positive for gold. An increase in the current tiny allocation of the vast pools of Western capital into physical gold would have a disproportionate impact on the market. Could the physical gold market accommodate even a modest allocation of Western capital near the current gold price? We doubt it.

Two-tiered system emerging: And now, with yields on trillions of dollars of bonds now turning negative, the age-old rap against gold that it doesnt pay any interest is starting to lose its weight.

And waiting in the wings to take over where London falls short is the Shanghai Gold Exchange, which unlike London is a 100% physically traded and allocated bullion market. Its launch this year is part of China’s long-term plan to elevate its yuan currency to world-reserve status.

Mylchreest sees the potential for a two-tiered gold market emerging, in which the yuan-denominated price (with its assurances of physical backing) carries more weight than the London price, which he argues carries little to no guarantee.

Most investors holding flimsy paper: Mylchreests paper is a clarion call for investors who have settled for gold ETFs instead of physical gold. The vast majority of gold investors are holding paper gold instruments. While their investment rationale might be because they dont trust the financial system or require portfolio diversification, their counterparties are banks in which they are on the lowest rung of creditors. The irony.

Its a tale of two exchanges, one in the West, the other in the East. Without drastic reforms, the sun is setting on London while Shanghai is in its early ascendancy. Its also a tale of two currencies, the U.S. dollar and the Chinese yuan (or renminbi). Though the dollar still dominates, China and Russia are madly scrambling to anoint alternatives, and the yuan has now been tapped for reserve status in the International Monetary Funds SDR (or special drawing rights) system.

The main message of Mylchreests paper is: Dont be left holding the bag. Dont settle for a paper promise of gold when you can still get your hands on the physical metal. And dont denominate all your wealth in U.S. dollars when you can still diversify into alternatives like physical gold.

Fridays horrific nonfarm-payrolls report took much of Wall Street by surprise: Only 160,000 jobs were created in April, the fewest in seven months and well short of estimates projecting at least 200,000.

What wasnt surprising was the fact that gold leaped higher on the news, topping $1,297. Although the yellow metal was unable to reclaim the psychologically important $1,300, it erased most of its losses for the week. Silver posted a slight gain, trading near $17.38 in the afternoon.

Devastating blow to rate-hike odds: Up 21% on the year, gold looks poised for further gains next week as the odds of an interest-rate increase at the Federal Reserves June meeting have all but faded after the jobs disaster. The dollar, accordingly, fell toward 18-month lows after the payrolls report.

The jobs number was a devastating blow to the people who believe that a June rate hike is on the table, RJO Futures strategist Phil Streible told Bloomberg. Now the chances have declined significantly, and as a result gold and silver are moving up and should move through their previous highs.

Indeed, $1,300 remains golds target for next week. Now that the slipping global economy is bearing testimony to the sweeping tide of deflation and the U.S. dollar is likely to weaken further from now on, we expect $1,300 to be attacked again and this time more successfully, said Julian Phillips of GoldForecaster.com.

Open interest at bullish record levels: And RBC Capital gold guru George Gero added, Gold is reacting positively to the jobs number, so with record-high open interest for the year in gold, the metal is expected to finally close over $1,300.

Coming on the heels of last weeks shocking 0.5% first-quarter GDP report, the jobs numbers reinforce the notion that the economy is losing serious steam. The labor-force participation rate fell back near record lows, and one analysis showed that 450,000 waiter and bartender jobs have been created since December 2014, versus absolutely zero manufacturing jobs.

With such weak economic fundamentals, its no wonder that hedge-fund legend Stanley Druckenmiller urged investors this week to dump stocks and buy gold. Now Societe Generale strategist Albert Edwards is repeating his warnings about the global economy.

Global economy to sink like Titanic: The dollars recent rapid slide has been accompanied by a constant backdrop of dovish cooing from the Fed, Edwards wrote. Until this week, both equity and commodity markets had embraced the weak dollar as the elixir to solve all their ills. That relief has now proved fleeting as fear of weak economic activity has reasserted its influence on investors. The weak dollar should be seen as merely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves.

Risk assets are once again refocusing on the increasingly dismal prospects for global growth rather than the short-term relief of dollar weakness. The U.S. remains the main concern, although the rapid unraveling of Abenomics in Japan and a likely imminent tightening of monetary policy in China to snuff out yet another housing bubble in the major cities also feature high on investors worry list.

But it is in the U.S. that growth concerns remain most intense, with renewed weakness in the manufacturing ISM as we move into Q2 following on from the moribund 0.5% qoq Q1 GDP outturn.

The sad thing is that … the Fed has boxed itself into a corner, for surely it is clear to all in the markets by now that it’s not global risks that worry the Fed but the impact on the S&P. But all the Fed’s loosey goosey will prove irrelevant as the cycle ends. Get ready to suck it up as the inevitable recession demonstrates the Fed’s total impotence.

It ends with social unrest and double-digit budget deficits (again). It ends with investors losing faith with the Fed as the resumption of QE proves ineffective in reviving the economy. It ends in deeply negative interest rates, currency and trade wars, helicopter money and ultimately inflation. In a nutshell, it ends badly.

Supply-and-demand factors for silver continue to suggest a bullish price picture in the year ahead. Thats what investors can surmise from the new World Silver Survey 2016 produced by Thomson Reuters GFMS in conjunction with the Silver Institute.

Consumption has perhaps never been higher. The surveys look back over the past year confirms that the silver market saw record demand in 2015, with the jewelry, coin and bar, and photovoltaic sectors posting new highs, helping to boost total silver demand to 1.17 billion ounces last year, the institute wrote in summarizing the survey.

Coin, bar consumption surging: Industrial uses for silver comprise the largest component of consumption, but investment demand also hit new peaks in 2015. Identifiable investment, which includes physical bar investment, coins and medals, and exchange traded product (ETP) build, climbed 16% to a near record high in 2015, the institute noted.Silver coin and bar investment surged 24% to reach 292.3 Moz, the highest annual demand level in GFMS records, overtaking the previous high in 2013. Coin and bar demand accounted for 25% of total physical demand in 2015, the highest market share on record and up from just 5% a decade earlier.

In contrast, readily available supplies are dwindling. Although annual production hit record highs in 2015, the rate of growth is faltering. The overall slowdown in mine production last year is expected to continue, the institute predicted. This forecast follows CPM Groups similar call in recent weeks that newly mined silver production will fall 2.4% this year.

Scrap supply also dried up in 2015, significantly down by 13% at 146.1 Moz, the lowest volume level recorded since 1992 and the fourth consecutive year of decline.

Upward trend for silver price: Given these tensions between supply and demand, its no wonder that GFMS is bullish on the price. Whats surprising, however, is that it seems to be lowballing the white metals potential. After all, silver is up more than 20% this year and was trading around $17.43 on May 5.

GFMS has set an average annual price of $15.90 for this year. If that seems low, consider this: We also forecast on a quarterly average basis, and the average for the fourth quarter is $16.80, GFMS analyst Erica Rannestad told Silver Investing News. So overall, we expect an upward trend for silver prices over the course of this year.

The firm sees silver moving even higher in 2017, producing an average price of $17.50.

With loose monetary policies from global central banks showing no signs of stopping, silver is a great way to hedge against ongoing currency devaluations. And everyday investors by and large are choosing silver American Eagle bullion coins as their go-to method. As of May 4, almost 20 million (specifically 19,915,500) silver Eagles have been sold so far this year. Thats 26.8% more than at the same time in 2015, during the record-setting year that saw 47 million Eagles purchased. Thus, 2016 is proving to be another blockbuster for the U.S. Mints flagship bullion coin.