Numismatics and the Current Precious Metals Boom

Posted on 9/15/2011

Precious metals, gold in particular, are in the news almost daily...

Precious metals, gold in particular, are in the news almost daily. Last week gold reached a new high of just over $1,900 per ounce. Prices have softened a bit since, but only slightly. Silver is less in the news but still hovers around $40 per ounce. For many who have been around numismatics for a long time, much of this is very familiar. In 1980 silver rose to $50 per ounce and gold to around $850 per ounce. How does today’s metal boom compare to the price explosions and subsequent collapse of 1980 you may ask? As we know, those who fail to learn from the past are doomed to repeat it. Let us examine the differences so that we can make better choices going forward.

Many are astounded that gold has reached incredible new heights and that rare coins have in many cases actually fallen. The reasons for this are many. First, unlike 1980, rare coin prices are not starting from almost zero. The rare coin market is much more mature than it was 30 years ago. Most importantly the rare coin market is much broader based than just a handful of newly rich dealers plowing all of their money into numismatics. In fact, many of today’s rare coin dealers are only peripheral players in the present bullion market. More than a few feel like bystanders in the recent boom. Much of the bullion fortunes today are being made by large scrap gold dealers with little interest in rare coins.

The overall weak economy is also a major factor in the rare coin market. Many rare coin buyers felt very flush when their homes were increasing in value at a rapid pace. This has hampered many of the middle market buyers. As we all know, however, the top end of the market buyers seem unaffected by the weak economy. Trophy coins continue to break price records when offered for sale. This wealth gap is felt everywhere in our economy, not just numismatics. Top end retailers like Tiffany continue to do well even as the country seems trapped in an economic malaise.

Unlike 1980, much of the action in rare coin shops is from buyers not sellers of precious metals. With the United States and Europe trapped by promises that can’t be fulfilled, many are turning to precious metals as insurance. For the first time, gold is now seen as a currency in itself, one that can’t be printed to worthlessness. This is the most profound difference from the 1980 boom. 1980 was all about speculation and getting rich quick. Today gold buyers are just seeking safety for the wealth they have already accumulated. Gold is no longer of interest to only gold bugs and the survivalist crowd. It has definitely gone mainstream. Whether or not today’s prices represent a bubble will only be known in the future. Prices may fall from recent highs, but for reasons stated above, I doubt we will see a repeat of the severe 1980 market crash for precious metals.

Rare coins are also being negatively impacted by the high price points now being assigned to even the most common gold coin. Nearly any double eagle now trades for over $2,000. This has reduced the number of available buyers. Other silver and gold related series have been affected as well. Many of the countries largest mass market companies are focusing on lower price coins to increase sales volumes. Expect this trend to continue as precious metals prices edge closer to the numismatic value of many popular series.

Rare coin grading is also another major difference today than in 1980. In 1980 grading was nearly a free for all. Grading was much less standardized and fraud was commonplace. Rare coin certification has made buying numismatic items a much safer proposition. We also have population reports to accurately gauge actual rarity. Most underestimate the true value of this incredible tool. In 1980 some thought a Gem 1881-S Morgan Dollar was actually rare. Who could have guessed that 30 years later NGC would have graded over 65,000 coins in MS 65 or better condition? The same can be said for coins that actually turned out to be very rare. Several dates of Morgan Dollars have very few graded in gem condition after 30 years of certification.

The highest impact that the current precious metals boom has on the rare coin market is the attention now being paid to tangible assets. Lots of investors have lost faith in Wall Street and think stocks are a rigged game. Others worry about the decline of the dollar. The list goes on for the public’s dissatisfaction with paper assets. In the last year or so several funds have been created to purchase rare coins. I fully expect more to follow as rare coins become a more attractive investment choice. If the recent ANA convention is any indication, rare coins are certainly popular. The Chicago show was the largest ANA ever and many dealers had record sales. Over $70 million dollars worth of coins sold at auction that week.

Everyone worries about the possibility that the gold prices represent a bubble. Gold prices might fall and rather quickly. This time, however, the rare coin market is positioned much better to absorb a fall in metal prices. The market is many times larger than in 1980 and most of the rare coins are spread among a large number of collectors. The basic fundamentals for rare coins remain strong. We have a large, very educated collector base and a rather limited supply of nice coins. The future of numismatics looks bright regardless of how gold and silver perform. Just remember, coin dealers are not the best predictors of precious metals—I cleaned out the jewelry box when gold hit $1,000!

Jeff Garrett bio

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