Looking For Opportunity

The headline for the weekend edition of the Wall Street Journal loudly states "Market Rout Claims New Victim." The lead article was about the record declines for precious metals last Friday; gold dropped 5.9%, the biggest loss in over 5 years. Silver really took a pounding, falling 18% in one day. This is the most severe one-day percentage decline of silver since 1980! Friday’s drop capped a week of falling prices. The stock market had skidded sharply on Wednesday and Thursday. Suddenly gold and silver were no longer the "flight to safety" option for those seeking to protect assets. On Friday there was quite a crowd at the "cash in window."

Over the weekend, market pundits blamed the fall on several possible causes. Many thought worries about the global economy and consumer demand were at fault. Others blamed large hedge fund selling and possible European bank sales of gold. Of course, profit taking by those seeking to fill voids left by other losses is another possible factor. The truth is probably a combination of the above, with a good dose of panic–selling causing a rush to the exits. Gold had become a sort of international currency and many ignored the speculative nature of precious metals.

Although the markets have fallen sharply in the last week, prices are still far higher than they were a couple of years ago. It seems like just yesterday I was amazed that gold had broken the $1,000 barrier. For anyone who has been around coins and precious metals for a long time, last week was not a complete surprise. Markets have a tendency to react in very unpredictable moves. Most coin collectors and dealers are best advised to stick to what they know. In the 1980's the numismatic landscape was littered with broke coin dealers who thought they had the inside track on gold and silver. History may repeat itself for those reckless enough to engage in leveraged speculation.

The last year or so has been very difficult for many numismatists. Prices on common issues have soared, but many rarities have been unaffected by the rise in precious metals. Generic gold coins refused to budge, and some actually fell as gold hit new weekly highs. Last week's sharp drop will hopefully result in a rise in the premium for many issues of generic United States gold coins. Of course, large denomination issues will be more affected by the drop than the small gold coinage. Silver dollar premiums had fallen to near zero when silver prices were above $40. Prices are sure to drop for most of the above mentioned coins, but probably far less in relation to pure bullion investments.

The bigger danger to collectors and dealers is a deepening of the economic situation not only around the United States, but also the globe. A few months ago the possibility of a double dip recession was off the table, according to most market gurus. Now, several important analysts are warning of that exact scenario. Hopefully, the economy will crawl along and avoid a steep decline that would adversely impact rare coins. However, if the last week or so has taught us anything, it is to expect the unexpected!

For now, it seems that wealthy individuals still have the funds to invest in their collecting passions. Tangible assets still appeal to a large number of investors. Gold and silver may have dropped, but no one has solved the problem of runaway spending by governments around the world. Having a diversified portfolio spread across many assets classes seems to be the safest play to most. Coin dealers and collectors would be well advised to follow this strategy when faced with our current volatile markets. Your PR 65 Three Cent Nickel probably has not gone up in value much in the last couple of years, but you are unlikely to wake up one day and see the coin trading down 25% in one week.

Rare coins are still rare, regardless of what precious metals do. If you are collecting Gem Morgan dollars, you know how difficult it is to find a well struck, fully lustrous 1894–O. Anyone who is passionate about collecting will have little interest in the price of gold and silver. Their interest is in finding that elusive coin that will improve and complete their collection. Gold and silver may very well drop to new lows for the year in the weeks or months ahead; if this has an impact on coin prices, savvy collectors will take advantage of the opportunity to save money on coins they have been seeking. Remember the sage advice of Warren Buffet, "Be fearful when others are greedy and be greedy when others are fearful." It takes courage to follow this advice. When the world seems to be collapsing, look around for opportunities, not the exits!

Jeff Garrett bio