A few years ago I had a hard time believing that gold would ever cross the $1000 threshold. Today, it exceeded $1700 per ounce before retreating, and it seems inevitable that it will break the $2000 mark sometime this year. What impact will this record-shattering price have on the rare gold coin market? I see the impact of high-priced gold in a number of ways. With gold increasing so rapidly, it has gained a tremendous amount of publicity around the world. I feel this locally as well. My neighbors--at least the ones who know what I do for a living--are frequently asking me about gold prices and just today a teller at the bank had a long list of gold-related questions as I made my deposits.
People are buying gold coins and it is inevitable that a small percentage of them will eventually wind up in the rare gold coin market. I'd say that for every 1000 people who buy an American Eagle or a gold Buffalo today, maybe one or two of them will transform into buyers of coins like Type One Liberty Head double eagles or Saints.
For many rare gold coins, gold could rise to well over $2000 per ounce and the intrinsic value of the coin itself will not really be affected. An 1860-D gold dollar in EF45 or a 1907 Wire Edge eagle is a collector-based coin whose value is impacted by demand; not the rise in gold prices. So, I think it's important to remember that skyrocketing gold's greatest impact is on potential demand; not by increasing existing value(s) based on intrinsic worth.
One subtle but dramatic impact on rare gold is dealer profits. Let me explain: when a large wholesale firm makes tons of money in the bullion market (as they should be now) it is likely that they will reinvest a percentage of their profits in the rare gold market. A coin that a firm might not have bought when they were not making profits from rising gold could enter their inventory when they are making lots of gold profits. And the same goes with dozens of other dealers; big and small.
One huge impact on the rare gold coin market is in entry level pricing. When gold was under $1,000 an ounce, coins like Liberty Head double eagles in EF and AU were relatively small purchases; items that collectors didn't think twice about at $1,250 a pop. But now with gold at close to $2,000 even a common date Type One double eagle will have an entry level price at $2,250-2,500. Suddenly this is a lot of money and it might not be considered an impulse purchase anymore for the middle-class collector.
I think this is an important point to consider. I read an interesting article the other day in the Los Angeles Times where downtown LA jewelers were complaining that the high price of gold was hurting their business. The typical jewellery store client was now a seller instead of a buyer and the low end/middle end lines of merchandise that they carried were not selling due to the high price of gold. Could this carry over to coins?
I am not seeing a huge increase in demand on my website regarding gold coins right now. I'm assuming that's because I have the reputation as a dealer in rare gold coins and not in gold bullion or semi-numismatics. I'd be interested to know if the bullion-based gold traders have their phones ringing off the hook today. I'm assuming that they are very, very busy.
I will also be interested to see the impact of $1700+ gold on the ANA convention which begins in just a few days. I'm going to assume that there will be a lot of people at the show looking to buy gold coins. But will they be looking for American eagles or rare date Liberty Head eagles?
There are tons of interesting rare and high quality U.S. gold coins in the two auctions before and during the show. How will $1700+ gold impact them? This will be very interesting to monitor as well.