After noting the prevalence of value compression between different grades, Doug Winter attributes it to new grading procedure. Grading has become so meticulous that there's little visible-eye difference between, say, an AU-50 and AU-55. That's why the grade curve for same-kind gold coins has narrowed.
In other words, there's no speculative froth in the rare gold coin market. Speculators are most likely to seize upon specific grades, while regular collectors are less likely to. Sadly, that compression also indicates a lack of demand from passionate collectors right now; they seize upon grades too.
All in all, it's a picture of a quiet coin market - with one exception. Bullion buyers buy as close to spot as possible. Their presence in the coin markets would add to the value compression. That source of demand seems to have picked up relative to collector demand.
If we enter into depression conditions, numismatics may actually drop in value while the gold price rises. As I mentioned above, numismatic coins depend on the demand of collectors. Collectors are folks with plenty of discretionary income. When inflation is eating away savings and the economy is contracting, who are these mystery millionaires that are going to buy your stash of St. Gaudens Double Eagles? Chances are any collectors will also be liquidating their collections as they lose their jobs and their investments go south.
Sure, the coins' gold content will provide a 'floor' to their value that stamps and baseball cards don't have, but the gold value is typically only a fraction of the retail price of a numismatic coin. If you pay twice the bullion value to buy a rare coin, bullion could double in value and you still might not be able to sell your coin for a profit. If you buy a regular bullion coin, the gold price only has to rise the amount of the markup above spot before you profit.
in The Gold Report
Related: SPDR Gold Trust (ETF) (NYSE:GLD), Market Vectors Gold Miners ETF (NYSE:GDX) , Newmont Mining Corporation (NYSE:NEM) , AngloGold Ashanti Limited (ADR) (NYSE:AU) , NovaGold Resources Inc. (USA) (AMEX:NG)
Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.
