The World Breathes a Sigh of Relief
Prospects of War Affects Precious Metals
In the wake of Iran’s seemingly anti-climactic missile attack on bases in Iraq in retaliation for the killing of Qassam Soleimani, the world has dodged a bullet, and everyone breathed a sigh of relief. The financial world, of course, has been no exception.
Whether the crisis is over or will heat up again is left to conjecture, but for now it appears that escalation is unlikely for the time being. So now investors can turn their attention back to economic and financial factors as they seek to protect and grow their wealth into 2020.
Though gold pulled back from greater than $1600/oz levels when the tensions in the Persian Gulf faded, the basic fundamental reasons to own gold investments have not changed:
- World central banks seem set on keeping interest rates at extraordinarily low levels, a condition that has historically proven bullish for gold investments. Gold can’t be printed like dollars, euros, yen and other government currencies. That’s why it remains a valuable asset in the event of a monetary crisis.
- The stock market continues to move into uncharted territory, decidedly overvalued according to many analysts. Because gold has historically been countercyclical to the stock market in the long-term, it is usually a good idea to accumulate gold investments when the stock market appears to be “frothy.” The U.S. stock market bull-run is now old by historical standards. Indeed, it is now in its 11th year, and it has seen around a fourfold increase in stock prices from its 2009 low. According to Nobel Laureate Robert Shiller, this has taken U.S. stock valuations to very lofty levels that have been experienced only twice before in the past 100 years.
1929 before the stock market crash and 1999 before the bursting of the tech bubble.
Since the early 1970s we have seen three bear markets in which the stock market has declined by about 50% and two bear markets in which the stock market has declined by 30%. No one knows when the current long bull market will end and no one knows for sure what will trigger its end. But it is unrealistic to believe that a bear market won’t come at some point. That’s why investors need to prepare ahead of time.
At least one prominent analyst believes that gold will move much higher in the months and years to come. Heritage Capital’s Paul Schatz says, “I think by 2025 gold will be at least $2,500 to $3,000 an ounce.” Such a move in gold suggests great things for the market for rare gold coins. Rare gold coins may very well be one of the best plays for taking advantage of rising gold prices—while at the same time hedging against a fall in the price of gold.incremental increases in demand.
That’s because there has never been an extended bull market in gold in which rare gold coins didn’t take part, but there have been periods in which rare gold coin values increased despite a stagnant, or even falling, price of gold. This is because rare gold coins offer the intrinsic value of gold but combine that intrinsic value with scarcity that has historically responded positively to incremental increases in demand.
Since 2014, the values of rare and semi-numismatic gold coins have fallen and seemingly represents very good value in historical terms. I believe this four-year bear market for rare coins has ended and we are beginning to see that evidence in rising premiums and demand. As inventories fall without an influx of fresh coins, prices will rise. I have noticed a significant reduction in the size of a major dealer’s inventories and public auctions have been half the size they were in 2014-2018. This is a very bullish scenario.
As a result, Finest Known has been very aggressive in purchasing rare gold double eagles since November and will continue to do so. The coins have been selling rapidly, especially in the face of the geopolitical nightmares in the Middle East, and U.S. political quagmire going on in Washington.
Evidence suggests that at least a segment of investors and collectors are preparing and taking advantage of lower premiums on rare gold coins. The tide will turn, and prices will most likely recover