There’s something beyond the popping of corks on champagne bottles and the blowing of horns that excites coin and precious metals collectors and investors about the New Year.
For decades, the most commercially successful coin show in the world—the early January convention of the Florida United Numismatists (FUN)—has kicked off the New Year with much fanfare. The FUN show, held in Florida, features a blockbuster coin auction at which tens of millions of dollars is spent and an acclaimed series of educational seminars is held. In January 2014, the auction brought in excess of $90 million—a record…and a great way to start off a New Year. I’ve given seminars at FUN, always on a Friday afternoon, to collectively thousands of people in standing-room-only convention center rooms each year since the 1980s.
The sense of unbridled enthusiasm for collectible coins and precious metals, especially gold, that everyone feels at FUN is exhilarating. It’s the combination of that fresh new start on the calendar feeling—a New Year—and the warmth and comfort of sunny Florida that propel many coins at the FUN auctions to new heights.
But it seems that over the last decade or so, some coins and metals sales in the months following each year’s FUN show have not met the lofty performance expectations set by the FUN show participants. Gold wavered and, to be quite candid, a number of high-quality rare coins actually went down in value and paralleled gold’s lackluster performance.
So as this is written in December 2019 on the dawn of a New Year and a few weeks before the 65th Annual FUN Show, it seems appropriate to consider what it might take for gold to increase in value…and to analyze the historically close relationship between gold bullion and vintage rare coins.
In 2001, gold was $248 per ounce. Today, gold is hovering around $1,500 per ounce. Even though gold has increased in value by around 600% since 2001, not a lot of people know that. This is a stealth, below-the-radar market. If gasoline goes up by 50 cents per gallon, everyone pays attention. Gold rises by 600%, and it’s still substantially underheld in investment portfolios.
Americans regained the right to own gold bullion on December 31, 1974. Prior to that, only gold coins that had a collector premium—a value above the intrinsic value of the metal—were legal to own in the US. There is no gold standard anymore, although gold has been a store of value for more than 5,000 years and is widely viewed as a universal currency. In the event of an economic emergency, gold can be used for barter and trade.
Gold sees a rise in value when people distrust governments…see a weakening of the US dollar…lose faith in fiat currency…see domestic or global monetary inflating…and/or need a safe haven in turbulent times.
Even in the absence of substantial inflation, fear or anticipation that higher inflation is near can propel a rush to the yellow metal. Such anticipation has been occurring in 2019. Inflation has been low, but an increasingly greater number of people are concerned that inflation will reemerge at some point.
Opponents’ greatest argument against gold ownership has been that gold doesn’t pay interest. In our 2019/2020 economic environment, where interest rates are at historic lows and negative interest rates are being discussed, that argument loses strength. If you get near zero interest for your money in the bank, holding some money in gold becomes a glittering alternative.
Prominent gold prognosticator Maurice Rosen, who joins me on the annual FUN stage, makes a strong case, with which I agree, for the relationship between gold prices and collectible coin values. We agree that if there were to be a bull market in gold, there would be a corresponding bull market in collectible coins. Rosen calls a rise in gold prices “economic justification” for a rise in rare coin values.
To simplify understanding the relationship between gold bullion and collectible coins, let’s take a look at a Saint-Gaudens double eagle ($20 gold piece), a gold coin that was manufactured by the US Mint from 1907 through 1933. These coins contain 0.9675 ounces of gold apiece. A 1927 $20 gold piece assigned a Gem grade of Mint State-65 on the one-through-70 scale by the Professional Coin Grading Service (PCGS) is a collector coin valued at $1,750. It contains $1,417.39 worth of gold with gold valued at $1,465 per ounce. But if gold were to increase in value to $2,500 per ounce, that Gem 1927 $20 gold piece would have to be worth at least $2,418.75, as that would be the melt value of the gold it contains. The higher gold price would force the coin to have a higher value, even in the face of flat or no collector demand.
Historically, higher gold prices significantly lifted the prices of high-quality vintage US coins, which themselves are often viewed as inflation hedges. If history foretells the future with economic justification, a rare US gold coin from the 1700s containing a half ounce of gold and valued today at $50,000 could possibly rise in value to $60,000 or substantially more if gold were to rise to $2,500 per ounce. It’s all in the mood and momentum of the intertwined rare coin and precious metals markets.
In 1980, when gold rose to a high of $875 per ounce on the international market and the Hunt Brothers tried to corner the silver market, the rare coin market saw its greatest bull run in history. The mood of high inflation and perception of rare coins as a hedge pushed $100 coins to become $1,000 coins, irrespective of their precious metal content, sometimes during the same coin show! Tenfold value increases of rare coins were commonplace. Dealers were themselves consumers of coins, as many dealers plowed their gold bullion profits back into vintage coins. I was an undergraduate at Brandeis University at the time, and I remember attending a coin convention in 1980 where a pencil with an eraser, needed immediately to adjust the price on a coin holder, sold for $50.
With 2008 being the last great bull market in rare coins, all 2020 eyes are on the price of gold.