Further Thoughts on the Coin Market in These Trying Times

If the Financial Crisis has proven anything, it’s that people seemed to have forgotten that stocks are volatile and that investing in the markets entails a degree of risk. Enough risk that you have to question the sagacity of middle-class people having the majority of their retirement funds tied-up in something as speculative as stocks. Through all of this chaos, tangible assets such as precious metals and rare coins appear to have held up pretty well. As I mentioned in my last blog, the demand for bullion-related coins such as Liberty Head double eagles and Saints has been nothing short of incredible and after a few very slow weeks, I’ve noted on a personal level that collector coins are beginning to sell again; albeit on a scale that is certainly reduced from what I was seeing a couple of months ago.

One comment I’ve heard from a number of clients in the last few weeks is that they are looking at their collections from a much different perspective now than prior to 9/15. Before the stock market imploded, many high net worth individuals viewed their coins as a minor part of their overall portfolio and thought of numismatics as a sort of a plaything. Now, after these individuals have lost 20%, 30% or even more of their net worth, their coin collections are suddenly a much more significant portion of their assets. And I believe that this will cause them to regard coins in a more serious light than in the past.

As someone who has lived through any number of bad coin markets, this one feels like it may be different. I can recall markets where you literally could not get other dealers to look at your coins and you could literally beg clients to buy something because it “was such an incredible deal” and they would pass. At this point in time, dealers are still buying coins and serious collectors seem to still want to make purchases; just maybe not at the level they might have been before.

It’s going to be really interesting to see what the new levels on rare coins are going to be in the coming months. There is no doubt in my mind that certain coins are worth 10-30% less today than they were a few weeks ago. The question is, of course, which ones are and which ones aren’t. I’m not sure that even the most sophisticated experts know with certainty.

One thing I do know is that in spite of the substantial losses in the markets there is still a lot of cash in the world. I can’t imagine that Joe Investor is going to be hugely anxious to run back to Wall Street or to buy real estate. And returns on conservative investments are so bad right now that once people get over their fear and we see a few days of decent to good economic news (and we will see this sometime in the not-so-distant future) they will regain their sea legs and look for something that provides them with a hedge against inflation and that offers some future potential.

I’m not naïve enough to think that tens of thousands of Intel and Oracle investors are going to come running into the coin market. But is it so hard to think that a small number of investors are going to turn to coins? And I’ve got to think that the part of the market that will benefit most from this is gold.

To be more specific, I think an area that will see a real surge in demand in the coming months will be slightly better date large-sized coins in the $1,000-5,000 range. Even without any of the expected promotions that are likely to occur in the near future, the specific sort of coins that I think will see renewed interest are slightly better date Liberty Head eagles (I particularly like reasonably priced but attractive New Orleans eagles given their ability to be collected as a set), pre-Civil War era Type One double eagles and better date Saints with little or no (current) market premium factor.

I also have to think that really rare material is going to retain a good amount of its value in the long run. If you own a gold coin that is among the finest known of a popular issue or it is one of just 50 known in all grades combined, there is enough money left in the world for the demand level on these kinds of coins to remain high—and maybe even to become higher in the future.

Going back to something I mentioned earlier in this blog, I think it is important to regard your collection right now as an important asset in your overall financial portfolio. I’m not necessarily saying that coins should become a greater percentage of your net worth (the housing, stock and credit markets actually already did that for you, like it or not...) but I think the current economic slowdown should not preclude you from buying coins. In fact, I think it should encourage you, given the fact that your stock picking abilities are likely to be far inferior to your ability to by nice coins.

These next few weeks are going to be very interesting times in the markets. Perhaps I’m biased, but I’m focusing my energies on coins—the one market that I understand.