How Does the Increase in the Price of Gold Affect the U.S. Rare Coin Market?

As I write this, gold has hit a high not seen since 1979-1980 and it is flirting with the $750 mark. How is this run-up in prices affecting the United States rare gold coin market? If you have a position in generic issues (such as St. Gaudens double eagles) you’ve made yourself a nice chunk of change these last few weeks. MS64’s have risen from the mid to high $700’s up to the mid $900’s and MS65’s have seen an increase of around $250 per coin as well.

But if you are a reader of my blogs chances are good that you do not play the generics market. You own “real” coins; issues like New Orleans double eagles or Charlotte gold dollars or Carson City half eagles. How are these rarer issues being affected by the new record levels in the gold market?

In a word (or three) they really haven’t. One of the fallacies of a rising gold market is that anything that is yellow rises in prices when the market shoots up. This simply is not the case. An EF45 1853-D half eagle will rise in price as the result of increased demand, not because its intrinsic worth is now an additional $25-50. Most of the brand new buyers of physical gold (as least for now) are strictly investors and they do not even know what an 1853-D half eagle is.

New gold buyers generally follow a predictable progression. They begin by purchasing gold stocks or, perhaps, modern bullion coins like American Eagles or Krugerrands. For every 1,000 buyers, perhaps 5% graduate to generic issues such as Saints or Indian Head eagles. And of these buyers, a small number may, after some time, become aware of a coin such as the aforementioned 1853-D half eagle. But this is a lengthy process and today’s new buyers of gold may not get involved in numismatics for years, if ever.

So this is, in my opinion, why the current run-up in gold prices impact on the typical coin in my inventory is wishful thinking. I’d love to report that the phone is ringing off the hook with new investors screaming for Dahlonega half eagles but this is just not the case (not to mention that if anyone does call me regarding coins as an investment, my blunt answers tend to send them running for the hills…)

One thing that is a real positive about the run up in gold prices is that this clearly does focus a lot of fresh attention on gold and on gold coins. And any good publicity about gold coins can’t be bad, right?

I’ve had many people in the last few days ask me what my take is on gold in the short and long term. I don’t claim to have any profound insights in this area. I’m probably the world’s leading expert on branch mint gold coins but when it comes to geo-political thought and macroeconomics I’m just another Hack with a Keyboard. My opinion (for what’s its worth) is that as long as we have cheapened the dollar to its currently absurdly low levels, gold will become more and more of a hedge. I could easily see it go to $800-900 in the coming months. I’ll personally be selling into the market once it reaches these levels but I think the days of sub-$500 to $600 gold are long gone; probably for good. I would suggest that everyone own some gold as it seems like a safe place to put your paper dollars right now, especially given the alternatives.