As dealers move on after the conclusion of the Long Beach Expo, the price action of gold has come to the fore, with multiple events impacting the yellow metal. Wednesday June 15 started with a press conference from Fed Chairwoman Yellen By all accounts it has become clear that the Federal Reserve has painted itself into a corner with regards to monetary policy. Their forecasts for the United States economy – measured primarily in the form of employment and inflation – were tempered, and they lowered the 2016 GDP forecast to 2% from 2.2% previously. This sent expectations for an interest rate increase plummeting, with a rate hike in July now at a less than 12% probability, and a September rate hike at around 16% probability. When one contrasts this to the fact that the expectation for a July increase was well over 40% just three weeks ago, it is clear that the market has lost confidence in trying to predict the Fed’s actions, and indeed the Fed itself. This sent gold soaring to over the $1,300 level, as a more assured rate hike would have certainly been negative for gold. Since the Fed’s only rate increase this year back in January, gold has risen 19%, which is not supposed to happen according to “traditional” economic models. So the global market finds itself at a point where investors have become accustomed (some would say addicted) to zero-cost debt with which to engage in highly leveraged plays in an attempt to find yield, when 30-40% of the world government bonds of various durations are yielding negative interest.
So how does this impact the United States rare coin and bullion market? Steady, long term demand for precious metals seems assured. Many large banks overseas are now having to deal with negative overnight deposit rates, and they will have to take action sooner or later because they cannot simply absorb that cost of carry. One of the few options they have is to buy large quantities of bullion in a world where there is already short supply. Rare coins, meanwhile, can provide something that many paper assets cannot, and that is stability. When a collector and their dealer-advisor take the time to put together a well thought out and quality collection and holds it for the medium to long term that money is insulated from misguided fiscal policy and monetary experiments that the world’s central banks may carry out. The core of this idea is that the rare coin market has a broad base with buyers at all levels which provides the aforementioned stability. This is in contrast to the sometimes fickle art market, where a small percentage of works makes up nearly 50% of the total dollars spent annually at auction. Rather the coin market contains tons of solid coins in the $1,000 to $10,000 range with which to craft a portfolio.
THIS WEEKS MARKET
Gold Type, Modern Eagles & Modern Commems/Gold: Improvements seen in this category thanks to higher spot prices.
Classic Commemoratives (Silver): Continued review shows gains in dated issues from the 144-piece set. More to follow in the coming weeks, but perhaps the market is waking up to values here.
Walkers: Solid gains on early Walkers thanks to a strong performance in this category at the June Heritage auction.