Jeff Garrett: Numismatics and the Precious Metals Boom

Precious metals, gold in particular, are in the news almost daily. This week, gold reached a new high of very nearly $2,000 per ounce. Prices have softened a bit since, but only slightly. Silver is also in the news, hovering around $25 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. In 2011, gold was over $1,900 per ounce, and silver approached $50 per ounce.

How does today’s metal boom compare to the price explosions and subsequent falls of 1980 and 2011, 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.

In 2011, bullion prices rose in response to the banking crisis and the near collapse of the global financial system. Gold was the ultimate safety-net play for investors around the world. Silver rose sharply on speculation. As the banking and financial crisis worked its way out, however, precious metals dropped accordingly.

The current metals boom is most likely the result of a rush to hard assets as governments around the globe print money to forestall a deep recession or worse. A lot of smart investors believe there must be consequences for creating and distributing so much new money out of thin air. Prices above $2,000 per ounce for gold are highly likely in the coming months.

The rare coin market rallies

Many are surprised that gold has reached new heights while many rare coins have remained unchanged in price. 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 40 years ago.

Also, and 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 run-up.

The overall uncertainty of the economy due to the COVID-19 crisis is a concern, but despite these headwinds, the rare coin market is showing signs of life, and prices may soon start to respond. Millions of Americans are at home and rediscovering their hobbies online. The ANA recently added nearly 4,000 new members in one month!

The supply of coins is also limited by the lack of coin shows and fewer coins being offered at auction. For the last several years, there has been an oversupply of rare coins in the market. That trend has come to a screeching halt. Many large marketing companies and coin companies with an active web presence are scrambling for new material. Silver Dollar prices have jumped sharply in recent weeks.

As we all know from the headlines in the numismatic press, the top end of the market is still going strong. Trophy coins continue to break price records when offered for sale. The wealth gap in the United States is evident in the world of numismatics. Top coins in the population reports still seem to set records whenever they cross the auction block. The demand arising from set registry collecting is as great as ever. The new ANA/NGC set registry program that is scheduled to launch later this year may further demand.

A 1796 Stars on Obverse $2.50 graded NGC MS 62 and a 1797 Small Eagle $10 graded NGC MS 62 are expected to realize six figures at a Stack's Bowers sale in August. Click images to enlarge.

Gold’s gone mainstream

Unlike 1980 and 2011, much of the action in rare coin shops is from buyers, not sellers of precious metals. With the United States and Europe printing money to avoid financial distress of their citizens, many are turning to precious metals as insurance. For the time being, gold is seen as a currency in itself, one that can’t be printed to worthlessness.

This is the most profound difference from the 1980 boom. In 1980, it 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 survival crowd. It has definitely gone mainstream. I doubt we will see a repeat of the severe 1980 market crash for precious metals.

There will be some negatives to the rapid rise in precious metals. Rare coins will be 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. Expect this trend to continue as precious metals prices edge closer to the numismatic value of many popular series.

Rare coin certification is another major difference today. Back in 1980, coin 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 people 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 40 years later, NGC would have graded over 400,000 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 40 years of certification.

An 1870-CC Liberty Double Eagle graded NGC AU 50 and a 1915-S Panama Pacific Octagonal $50 graded NGC MS 65 are both part of a Heritage Auctions sale in August. The Liberty Double Eagle has a bid of $260,000, as of July 30. Click images to enlarge

Tangible assets in the spotlight

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 are concerned about Wall Street stock prices and think stocks are overpriced given the worries about the COVID-19 crisis. Others worry about the decline of the dollar. The list goes on for the public’s dissatisfaction with paper assets.

The basic fundamentals for rare coins remain strong. We have a large, very educated collector base, and a rather limited supply of nice coins. Like much of the rest of the economy, commerce is being driven online by the COVID-19 crisis. Companies such as Amazon, Apple and Facebook are thriving while brick-and-mortar businesses suffer. The same dynamic has been occurring in the rare coin market in recent years.

Next week, Stack’s Bowers and Heritage Auctions will be conducting their online versions of the now-canceled ANA World’s Fair of Money. The events will be held in conjunction with small, mostly wholesale events, in Dallas and Las Vegas. Tens of millions of dollars of rare coins will be sold online in the next week or two. This will be a great test of the market and will give collectors and dealers a better understanding of how the rise in precious metals has impacted prices.

I will present a full report in my next column.

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