Gold Price Swings Breed Caution|
May 14, 2013
“Gold” is four-letter word that gets everyone’s attention. Unfortunately for collectors, that attention can detract from their hobby. “How much is a coin worth?” is an eternal question. Collectors willingness to pay that price is not necessarily eternal. Collectors know that they must pay a premium over bullion value in order to obtain gold coins. For commercial investors, that premium is basically a carrying charge on the distribution of new coins. For collectors, the premium is built upon the concepts of rarity and condition and the number of active collectors chasing a particular series. While rarity and grade, and even the number of collectors of any particular series, change but slowly, every collector who is connected to the Internet knows that the price of the precious metal can swing wildly from moment to moment.
We have just come through a period where gold dropped about $200 to $1,360 a troy ounce and then rebounded by more than $100. As this column is written, gold has dropped $20 in a few hours to trade around $1,450. Tomorrow it could fall some more, or bounce back. These bullion swings can overwhelm collectors.
Collectors by their very experience have a strong sense of value and of how one coin should relate to another in terms of their prices. However, this sense does not change with every new gold headline, or every jiggle in the precious metals markets. It develops over time and it causes collectors to become cautious when things seem out of whack.
If one collects copper or nickel coinage, the value of the metal is such a small part of the overall value that the traditional relationships between coins created by rarity, condition and numbers of collectors buying them are not disrupted.
But because there are so many gold coins where the metal itself is such a high proportion of value, that metals market swings spawned by outside investors can be very disruptive.
Who wants to buy a gold coin if one is worried that the price of the underlying metal might decline sharply?
Conversely, why be cautious about the price of a gold coin you might have had your eye on for a long time if you believe the price of gold will soon double?
While investors often take the position of pointing out that the price of the precious metal has risen by a factor of five and a half since 2001 and more gains are coming, collectors, who have a hobby lifetime of experience, know that the investors talking the loudest might only have been active in the last year or two.
It would be better if gold would just rise gently year after year in a manner everyone could get used to, but that won’t happen, so collector caution is not only logical, but necessary.
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