Rare Coin Investor

The rare coin market remains on solid ground after the metals gyrate, with individuals continuing to buy, seeking an alternative to other investments and as a hedge against future inflation. Established collectors are carrying on with their endeavors, but continue meeting some headwinds as it gets more difficult to locate the coins they want and/or as selective prices climb higher. Still, strong prices are being paid to acquire better quality coins, especially CAC approved material, which can be sold sight-unseen for all the premium and no hassle of returns or any of the other obstacles to rapid liquidation. Better date Morgans are particularly hot this week in this regard.
Coin shop activity continues on the buying side with the public still bringing in coins, jewelry, and precious metals to sell with some in a panic as metal prices have plunged during recent weeks. More sophisticated collectors, however, are continuing to hold, but some are liquidating to cover losses in other areas. Gold has remained above the $1,600 per ounce mark lately, currently at $1,656, recovering from a recent decline to $1,593 September 26. For the last two weeks, Platinum has traded below Gold, and is now hovering around 10% lower than the yellow metal, while Palladium has dropped to below $600 which hasn’t taken place since late October of last year.
This is an off week for some dealers who only attend the major shows, a welcome break from the busy August and September schedule of the ANA, Long Beach, and Whitman Philadelphia shows. Other dealers are already in the area of Pittsburgh for the Fall National Money Show beginning October 13, attending a pre show in nearby Monroeville, PA, which runs through October 10. Several smaller shows are filling in the gaps around the country for some collectors and dealers who would normally attend the major shows. However, some of these smaller one-day shows used to be two, or even three-day events, but have shrunk during the past decade or two because of increased internet trading and the slow coin market that occurred prior to the bull market of the 2000s. Many of the dealers who set up at the smaller shows are shop dealers who have been buying from the public and have precious metal related products and less expensive coins the average collector is seeking; whereas the major shows have a larger presence of national dealers who serve high-end collectors and investors with a different inventory make-up.
ICTA, the Industry Council for Tangible Assets, has been receiving calls about stepped up enforcement of local and state Secondhand Dealer laws which require dealers to hold items such as scrap jewelry, flatware, precious metals, bullion coins, and sometimes even high-priced rare coins and currency. Increased appearances by hotel buyers, and other itinerant buyers, are a concern to policing authorities, as are established coin shops and offices. Many dealers are surprised to learn that their cities and states have laws already on the books that are now increasingly being enforced. Most of these laws require dealers to hold this merchandise from usually 7 all the way up to 30 days.

With Europe teetering on a knife edge gold has once again resumed its role as the custodian of safe – and perhaps sane wealth. Gold prices firmed throughout late New York trading yesterday where it breached the $1700 level. The firm tone prevailed during Asian trading hours this morning, when gold traded to a high of $1719.80 before easing slightly. Behind the move higher has been a surge in purchases of gold ETFs as well as ongoing strong demand for physical bars. The ETFs have seen 16.5 tonnes of new gold buying over the last 2 days which is driving gold higher. It will be interesting to see if the futures traders on COMEX reverse their recent thinking by following suit and drive this market significantly higher.

The speed and nature of the gold price rise seems to suggest to us that gold is back to its old self again and behaving in the manner one might expect, with equities off as gold rallied.  That is to say it is rallying during bouts of heightened economic crisis. The VIX Index is modestly firmer underscoring market concerns, while more worrying Italian 10 year bonds are nudging the 6% level (Greece received its initial bail-out when theirs breached 7% – currently at 25%).

In short – gold is back.

The financial markets are giving a very clear signal. They are saying that they doubt that the 27 EU nations will reach an accord on policies to resolve sovereign debt while stimulating economic growth. The market is looking for “specifics” and not “generalities”. There is a sense that we have heard too much talk and we need clear, cogent and do-able proposals.

At stake is the potential collapse of the Euro and therefore Europe – it’s as simple as that. As such gold which has been behaving more like a risk asset, has reverted to its safe haven role and showed appropriate gains.  Whilst inflation may not be with us at present investors clearly believe it may only be a matter of time. Gold investors clearly recognize that the potential for inflation is now with us and they are buying the physical… put another way, they know that its a bit too late to start buying house insurance after there is the clearest smell of smoke in the air.    

I don’t think any sane person would relish the meltdown of the EU (with its untold consequences) but many will see the current inability of political leaders to gain consensus and support for what may become unpopular political decisions to be endemic to the sort of structure that has been created. That is to say a fragmented decision making process by unelected leaders when these times call for quite the opposite. As such, it is falling to Merkel and Sarkozy to lead the way.

With such epic economic and geo-political themes at play, each with with unknown consequences it is difficult to make forecasts. But the uncertainty that this is creating is almost certain to be gold-friendly and we scope for gold to continue making strong gains from here. As such, we would see the next $100 in gold to be to the upside rather than than the downside.