by Louis Golino for CoinWeek
A weak economy has made it harder for collectors of average means to keep adding to their collections, and many better-off collectors who have been buying in the last couple years seem to have been mostly acquiring bullion or high-end rarities. As a result, the market for many collectible coins have been lagging, and coins prices below $2,000 have been especially weak, though there are of course exceptions.
The type of collectors who mostly purchases coins valued below $2,000 are precisely the kind of people who are most likely to be facing economic problems, job loss, and similar financial pressures that leave them with little income for coins. They are more likely to be selling than buying, and until they begin buying again in a substantial way, this segment of the market will remain weak in my opinion.
In fact, many segments of the market remain depressed from classic commemorative coins issued between 1892 and 1954 to many key date classic coins and pre-1933 gold coins, whose premiums are today at all-time lows. I would point out, however, that as someone who collects classic commemoratives, I would say there are deals out there now, but that does not mean such coins are not selling. In addition, better quality, hard-to-find coins continue to do well.
The high end of the market, especially major rarities, has been immune to the market lull of recent years. New auction records for rare American and world coins continue to be set all the time.
Meanwhile, several new rare coin investment funds have been established, including those set up by Certified Assets Management International , which builds portfolios of rare coins and bullion for its clients and even offers investments with a fixed rate of return, similar to what bonds provide.
Scott Travers, a best-selling coin author, coin investment guru, and consumer advocate, has written that such funds will be looking to acquire quantities of better-quality collector coins like uncirculated and proof Seated Liberty and Barber coinage, which will drive prices for those coins to much higher levels in the coming years.
In the past couple of weeks a number of prominent dealers have began to make the case that the coin market is rebounding after five years of mediocre performance.
Former ANA President and longtime dealer, Barry Stuppler , sees a healthy market for rare coins, as evidenced by the brisk pace of selling at the recent Whitman show in Baltimore, Maryland. At the end of March Mr. Stuppler said that he believes the rare coin market will move 30% higher this year, in part because of a record-high ratio of bids vs. ask prices on coin dealer trading networks. Mr. Stuppler is a strong advocate of investment-quality numismatic coins.
And coin dealer and Coin Week columnist Vic Bozarth argued on this web site that the market will eventually explode. I agree that this will happen at some point, but I don’t think it will be any time soon.
Moreover, I agree with Mr. Bozarth that the lack of quality coins is driving down prices, and that the Greysheet often publishes incorrect information based on the sale of lower quality coins and perhaps because it lacks a numismatist on staff, as he noted. But I see that as continuing to put downward pressure on the numismatic market, and I would further argue that the lack of solid pricing information is a serious impediment to growth in the coin market.
The recent improvement in the economy, if sustained, is indeed likely to provide a key underpinning for a resurgence of the collectible coin market.
But I in my view, and from what I hear from dealers who actively buy and sell, the market is a long way from returning to anything like a real bull market as we saw in 2007 or earlier. They tell me that many areas of the modern market are also soft right now, including low mintage American gold eagles.
First, while there has been a discernible improvement in the economy that has been evident in the strong stock market performance of the first quarter of 2012, numerous clouds remain on the economic horizon. By later this year or early next year, I expect the economic situation to look a lot worse than it does now. Unemployment is still far too high, economic growth is too sluggish, and the potential for major tax increases next year are among the many clouds hanging on the economy.
The recently-released minutes of the Federal Reserve’s latest meeting showed that many of the Fed’s members believe the improving economy means there is less need for more quantitative easing, or QE. That was interpreted by stock and bullion investors as a signal that the Fed was taking a possible third round of QE, known as QE 3, off the table. That led to a big sell-off in metals and equities.
But according to Peter Schiff, CEO of EuroPacific Capital and one of the most prominent bullion bulls, the market havoc that followed the Fed minute release was based on a misunderstanding of what the Fed was saying. As he explained to King World News , the Fed will have to do more QE in the near future because otherwise long-term interest rates would rise and choke off the moderate economic recovery.
Besides, as Mr. Schiff said, the Fed did not take further QE off the table, as many people think. It only said it sees less need for it in the short-term. In his view, its goal is to create inflation without making it obvious that it is doing so, which I would add increase inflation expectations and become a self-fulling prophecy. Inflation reduces the value of our debts.
What does all this mean for the coin market? First, it supports my contention that the collectible coin market will remain largely depressed for some time still because the kind of people who purchase numismatic coins are likely to continue having trouble finding the resources to buy.
Second, more QE this year, whatever form it takes, will push precious metal prices back up, possibly to their previous highs from August 2011, or even to new nominal highs. This will probably keep a lot of the action squarely in the bullion market, where is has been for the last couple years, as precious metals outperformed most other asset classes. Millionaires will keep buying major rarities, but middle class investors with solid income are likely to continue to be more attracted to bullion than collector coins.
Of course, smart collectors are taking advantage of the lull in the market to acquire key-date and better-date coins they need for their collections. But collectors of average means tend not to think in a contrarian way, looking for bargains. They are more likely to do what everyone else is doing. If metals resume their upward momentum, lots of buyers will chase bullion because they think prices will keep rising.
In addition, the collector coin market can not thrive without fresh material in dealer inventories, and the lack of such coins has been a problem for several years now. Most dealers who do a lot of retail business and attend coin shows frequently say that business is pretty solid on the selling side, but they simply can not locate and buy the fresh coins they need.
Collectors who own such coins realize that they are likely to do better by waiting for a new bull market in collector coins than selling at current levels. So they are holding on to their better coins and if they sell, they are most likely getting rid of lesser quality coins and items they don’t really need, or selling bullion and using the profits to acquire coins they want while prices for collector coins remain low.
Until the economy is really on a solid footing, and until more better-quality collector coins return to the marketplace, I think it is unlikely we will see a new bull market in numismatic coins.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.
Excellent analysis. Your thoughts mirror mine on the chances for a resurgence in the market for collectibles.
On the subject of QE, I do not believe we will get further easing until after election time. Ultimately I expect many of the economic moves the government makes (even though the Fed is technically not a government agency) to revolve around US electoral politics, and fresh QE means higher gas prices, and higher gas prices means lower poll numbers for Obama.
I think as the election draws near or passes, however, we will see fresh waves of QE. I think we will probably see gold prices oscillate violently between $1600-$1800 for awhile until this period of uncertainty passes. I for one am finding myself taking more and more care to plan my purchases of coins (especially gold!) around what I think the metals markets will be doing in the short term.
This is why I have yet to buy the Star Spangled Banner gold coins. I think it is possible we will get one more price drop.
In the context of the broader economy, I am not at all confident we are really recovering either. I believe things will become clearer after the elections are over, regardless of who wins.
Thanks for your comment, Captain. On the prospects for QE, I think it will be tied to the economy rather than the election. For example, if jobs and economic growth continue to slow, we are more likely to see new efforts to keep rates down for an extended period. But more QE will mostly likely not translate into more growth and jobs, and will mainly produce more asset bubbles in gold, stocks, oil, etc. and set us up for the next major crisis. It’s time, as Jim Rickards, author of Currency Wars said in congressional testimony recently, to reward savers, not bankers. And savers who get some return on their money will spend some of it.
“…Until the economy is really on a solid footing, and until more better-quality collector coins return to the marketplace, I think it is unlikely we will see a new bull market in numismatic coins.”
I totally agree. What is keeping many small coin shops in business is bullion-related trading, not buying and selling collector coins. One point worth pondering is the lack of ‘good’ coins in dealer inventories. The problem is not that these coins aren’t available at all, it’s that they typically cannot be purchased by dealers (for resale) at prices low enough for dealers to make reasonable profits without pushing prices to points where collectors balk. Increasingly, auction results for nice coins have tended to mirror (or exceed) retail prices, so this avenue for dealers is becoming more problematic too.