Gold Drops Below $1,200 - Now What?

Last week the Federal Reserve announced a forthcoming slight drop in the fiscal stimulus known as “quantitative easing”. They will start scaling back on monthly bond purchases that have been in place to keep interest rates at near zero. Apparently, the Fed feels the economy is now healthy enough to survive slightly higher interest rates. The stock market agrees, and has reached record levels on most indices. For now, large sums of money are moving from the sidelines, bonds and gold into the red hot stock market. The once perceived safe haven of gold has taken it on the chin. Gold briefly fell below $1200 last week for the first time since 2009. The price of gold will drop in the neighborhood of 25% for 2013, its first loss in over a decade. Now what!

Many now wonder what the impact of lower precious metals will be on the rare coin market. Will buyers of rare coins be spooked by falling metals prices or has the market for these two finally separated? That is the million dollar question! Years ago, the price of precious metals was very closely aligned with the price of rare coins. Many of the largest rare coin booms in history were sparked and sustained by a rise in metal prices. The biggest reason for this was that many of the biggest consumers of rare coins were newly enriched coin dealers. If metals prices dropped, a coin bust would soon follow. The metals drop of 1980-81 and the coin crash of 1982 was epic. Rare coins were nearly free in the summer of 1982. Check the auction prices realized for the 1982 ANA sale and dream.

Times have changed however in the last decade or more. No longer are rare coin dealers the biggest consumers of rare coins—not even close. The internet has created and sustained an incredible number of new buyers for rare coins. Decades ago coin dealers purchased more than 75% of the coins in an important auction. That trend has reversed and now retail buyers purchase more than 75% of the coins in an important auction. This has brought considerable stability to the market. For now at least, the retail buyers of rare coins have easily and eagerly absorbed fresh rare coins entering the market regardless of metals prices. The buyer of the NGC MS67 1796 Draped Bust Quarter in the Newman sale is probably not too concerned that gold has drop below $1,200.

The drop in metals prices could actually be a positive for rare coins. Many new buyers of rare coins are first introduced into the hobby when purchasing a semi-numismatic coin. The sharp drop in price of numismatic staples such as Silver Eagles, Silver Dollars, and generic gold coins might entice a new crop of bargain hunters. Silver Eagles below $30 and Saint Gaudens double eagles for less than $1500 will attract lots of new buyers. A certain number of these buyers will graduate into other numismatic areas. Some will eventually become serious rare coin collectors, and maybe even the buyer of the next million dollar coin offered for sale.

Generic gold coins have recently been trading for historically low premiums. The recent drop of precious metals will create a great opportunity for those interested in a precious metals investment. Buyers can now purchase Choice Uncirculated $5, $10, and $20 gold coins for the lowest premium I have ever seen in relation to gold bullion prices. It would be a great time to assemble a Type set of United States gold coins. The price of gold could drop and these coins could still rise when the premiums on these coins approach their historical norms. The coins are also a wonderful introduction into the world of United States gold coins.

Another great idea with gold prices at these levels would be to collect a set of as many different date Mint State double eagles as possible. There are dozens of different dates than can be purchased for a small premium over the price of gold. Other than about 15 or so dates, a nearly complete set of Saint Gaudens double eagles can be assembled for small premiums. Caution should be exercised however. If you buy a nearly complete set of Saint Gaudens double eagles, you will soon be hooked on numismatics and going after the rest! Collecting can be a very addictive, yet fulfilling hobby. The same strategy as the above can also be applied to Morgan Silver Dollars. There are a few dozen dates that can be purchased for less than $100 in Mint State. Both coins are large and fun to collect. They are some of the most sought after and liquid rare coin investments you can make.

There are also now great bargains to be had in world coins that are tied closely to precious metals. In recent years there has been a boom in the collecting of world coins. Buyers now can purchase many of the popular issues for prices that would have been thought unheard of a couple of years ago. For those collecting Chinese Pandas, Canadian Maple leafs and others, the recent price drops will prove irresistible. Like the Silver Eagles mentioned above, many of these are “gateway” issues for those new to coin collecting. The lower prices may create a new crop of collectors in coming years for rare coins of the world.

I have no idea where precious metals prices will go in the next year or two. There may be some rough sledding in the next few years as the lure of higher stock market prices takes center stage. Regardless of bullion prices, rare coins will continue to attract new buyers and lower prices for many of the popular issues is a plus!

Questions about the rare coin market? Send them to wmr@ngccoin.com.

Jeff Garrett bio