By Steve Roach - http://www.steveroachonline.com
First published in the August 29, 2011, issue of Coin World
Investors went crazy for gold the week starting Aug. 7, building on the last decade of gains to an explosive high of $1,801 an ounce in the futures markets while reaching a New York intra-day high of $1,799.20 an ounce on Aug. 10.
The Aug. 5 downgrade of the United States debt by Standard & Poors Corp. from AAA to AA+ shocked the financial markets, culminating in a 634-point drop in the Dow Jones Industrial Average on Aug. 8. Amid this uncertainty, investors have turned to gold as a safe haven.
It has been an amazing 12 months for gold. In August 2010 its price was at $1,200 an ounce, moving to $1,300 an ounce in September 2010. Gold started 2011 at the $1,400 an ounce level, reaching $1,500 in late April and then $1,600 in late July.
This increase in demand was partly fueled by optimistic gold forecasts by major banks including JP Morgan, which announced that it expected gold to reach at least $2,500 an ounce by the end of the year, upping its prior estimate of $1,800 an ounce, citing the possibility of another global financial crisis.
Goldman Sachs also raised its forecast on the possibility of a U.S. recession, raising its 12-month target on Aug. 8 from $1,730 to $1,880 an ounce while lowering its outlook for U.S. economic growth in general.
The market for all gold coins rises with the gold tide. Proof American Eagle gold bullion coins are trading on the secondary market at the $1,870 an ounce level as of Aug. 9. Also on Aug. 9, the Mint temporarily suspended the sale of several gold coins including Proof American Eagle 1-ounce gold coins for repricing, moving them up to $1,985 by Aug. 10.
The premiums between grades of generic gold coins have shrunk dramatically in recent weeks. For example, while a “Jewelry” grade Saint-Gaudens $20 double eagle — the lowest commercial grade, reserved for coins that are heavily polished or with other substantial impairments — is $1,830, a Mint State 63 example is just $120 more as of Aug. 9. Last year this gap was more than $300.
What impact this wild gold fluctuation will have on the upcoming American Numismatic Association World’s Fair of Money is to be determined. While record gold prices bring out a curious public, many coin collectors may be worried at investing in their collections when a dreaded “double dip” recession may be looming.
But how many more examples remain to be discovered is a troubling, lingering question
Steve Roach is a Dallas, Texas, based rare coin appraiser and fine art advisor who writes the world's most widely read rare coin market analysis each week in the pages of Coin World. He is also a lawyer who writes on legal topics involving fine art and collectibles, and helps create estate plans for collections. Visit him online at http://www.steveroachonline.com, join him on LinkedIn at http://www.linkedin.com/in/stevenroach or follow him on twitter @roachdotsteve