John Brush and I have just returned from the Long Beach show which was held last weekend. The show coincided with the events of one of the most bizarre weeks ever witnessed by the United States financial markets. And yet, dealers bought and sold coins during the show trying to pretend Wall Street wasn't actually crumbling around us! Even more strangely, gold surged over $80 during show hours on Thursday. A huge plasma screen in the corner of the convention hall allowed us to follow the numbers. For years, we've often joked that gold always goes down during Long Beach, and this was the reversal of a lifetime -- the single largest one-day gain of gold spot!
There's no lack of opinions about the severity of the bloodletting on Wall Street right now. We certainly seem to be paying the price of our excesses for the past 20 years. We all drank from the ample goblet of corporate (paper profits), house price increases and, of course, all that EASY credit.
Whomever you blame for the current conditions, the fact of the matter is, this is going to be a very painful pill to swallow. But I know why you're reading this. You want to know how Wall Street's woes will effect the the value of your coin collection.
As John and I walked the floor in Long Beach doing business with all our dealer friends, we sought answers as well. Before Wednesday's gold surge, the mood was mixed with some thinking prices couldn't hold while others felt the opposite. The price surge certainly shook things up a bit. Not everyone rushed to a quick judgment that the coin market would turn on gold-bug enthusiasm, but we ALL held our collective breaths. We (coin dealers) are constantly looking for positive arguments to support the fact that we carry large inventories whose value we'd prefer not to see decrease. So the gold surge felt good. But we all feared that the day's close would bring a quick correction. When that didn't materialize on Thursday everyone heaved a collective sigh of relief. In fact, gold even continued to post some gains over the next 48 hours!
So, perhaps the gold bugs are ready to assert themselves. This theory plays into the hearts of all numismatists. The logic is basically that gold (above all) will hold its value when government paper fails. In times of financial instability (anywhere in the world!) gold tends to benefit as folks wish to stuff their mattresses... and government coppers as well! If this is the case now, gold could be in for a HUGE run. And rare coins tend to run with gold; mostly because the greatest amount of value in the rare coin market is derived from rare gold coins. The rest (type coins, coppers, etc) will benefit from the "drafting" effect as they always do.
So there you have it. A simplified theory that gives us confidence that rare coins could be a wonderful hedge market in these turbulent times. Of course, I remain steadfast in my assertion that one should not buy rare coins as a pure investment play. One should buy rare (or not-so-rare coins) because of a passion to collect. However, I love that the rare coin market has been a wonderful investment for the past 2 decades. Many of our clients have seen their holding increase in value -- and they've benefited by physically enjoying their asset. I, for one, have learned more about world history through coin collecting than in any book, or class. And I see the same recognition in the next generation of collectors.
Is there a better career than being a coin dealer? Possibly not, I think. The longer I do this (20 years full time now), the more I love my job.
Until the next post, let's all hope that the financial markets shore up quickly (not likely) and the gold continues to shine.
Subscribe to:
Post Comments (Atom)
Posts
4 comments:
John,
I very much appreciated your comments related to the financial markets and how it may impact the coin market. My job is in the stock/bond markets and while I will not to pretend to have ANY idea of when the markets will turn, I will say that leverage is the key and until company's and individuals lower their debt levels (a lot) things will not improve. So my question to you is, how many delaers and collectors buy coins on credit? because if there is leverage in the coin markets, I do not beleive it will improve anytime soon-people will be forced to sell. I also agree 100% with what you said about not INVESTING in coins to make money-and I would argue gold as well. There are MANY ways for investors to "bet" on gold without buying coins and thus I do not think even $1,500 per ounce gold means coins go up 50%. I welcome your thoughts as always.
John,
One other thing, can you please tell me how many coins you consider defines a "hoard?" How do you feel about hoarding as a way to control the market? Do hoards really impact pricing? Thank you for any thoughts you have.
I chose to wait and answer this question for a few days to see how the markets would settle. Last week was far to crazy to make any realistic judgments. Now that we've had 2 extra days to reflect and bear witness the the great 900 point comeback, I feel so much more confident in my opinions. (Just kidding!)
The best I can say is this...the last few weeks have been a little quieter than usual, however, I was prepared for the phones to ring off the hook with collectors selling. Guess what... we've gotten the same amount of contact as usual. There's been no increase in selling activity by collectors who seem quite content to hold on to their coins! Sure, a few folks have called with the need to sell quickly, but that's been the exception rather than the rule.
That's good news, of course, because we want to see the coin market remain helathy. But we wouldn't mind buying some great deals either!
Regarding your leverage question, I don't think that most coin dealers (of size) are highly leveraged. The last major down cycle in the coin business started around 1991 (the year I joined my father full time, by the way) and many dealers were in real trouble thanks to highly leveraged inventories through a numismatic lender and the margin calls killed many of them. Many dealers always seem cash-strapped but that's the norm. They tend to spend all their money and sell into in.
We've been waiting for signs of fire sales with a loaded check-book and we haven't found any deals yet! If you know of any... call me!
I agree that collectors can bet on gold spot (via bullion or generic pieces) but the volatility is crazy. I think your risk is greatly reduced by putting together a sensible collection of scarce/rare coins that match your budget.
I suppose a hoard is any accumulation of coins greater than one. The coin market is quite thin and key coins are so scarce that often a single trade can affect a coin's price. So, a savvy collector can buy several of the same item and gradually raise the value through simple demand creation. If only 10 example of a certain Seated quarter are known in XF-MS65,then buying 3-4 of them can have a severe impact on that coin's value. Obviously, you don't want to be the only buyer in the room either. One famous hoard currently being assembled is 1844 dimes. The collector has bought hundreds, if not thousands of 1844 dimes in every grade. When he started, a Fine grade coin was worth $25 or so. Now it's in the hundreds.
But, how will he sell hundreds of 1844 dimes considering there might be fewer than 75 active Seated dime collectors currently building high caliber sets.
As a dealer, we constantly grapple with supply/demand theory. I always lose if I buy against demand. What I mean is...make sure you buy coins that other collectors want.
For example, patterns have always cycled in and out of popularity on the basis of a few aggressive collectors coming in. When one or two of them leave, the coins become illiquid again, especially if the other collectors don't need the coins being offered.
That said, I love contrarian cycles in the coin market. Right now, Barber halves in mint state are far too cheap. Walkers too...
Post a Comment