by Adam Crum - Monaco Rare Coins ........
This past couple weeks has caused gold bugs a great deal of concern. It's the worst drop in percentage terms in 30 years. You have to go back to the 1983 drop during the Reagan era to find such a collapse in sentiment and price. Of course, in that era we were coming off a horrible decade of double digit inflation and interest rates.
When gold dropped so precipitously in the 80s it was considered a good thing. It showed inflation coming down, confidence in an economic recovery and greater confidence in the dollar. Over the next two decades, gold dropped from a high of around $850 to a low close to $250. Stocks soared, jobs were abundant and the number of millionaires exploded.
While the current scenario is not as rosy as then, there are similarities. Stocks have been soaring with the help of the Feds QE program, real estate is seeing some hope, unemployment is slightly better and we are experiencing at least some growth, although somewhat subdued by the back drop of Obamacare, exploding federal debt and a cumbersome regulatory environment. But it is growth and profits are up due to companies improved efficiencies and their “lean and mean” attitude garnered by the 2008 collapse.
With that said, sentiment is not good with most Americans and one can still here the usual calls for impending catastrophe.
While I'm not willing to use the words “bear market” to describe the current market in gold, I do think that the recent fall is a good thing for rarities. Not because the price is down, but “why” the price is down. Yes, I've heard all the proclaimed reasons on TV of why...like Cypress being forced to liquidate, and other bankrupt countries being forced to soon do the same, JP Morgans market call, etc...the list goes on and on. Some may be true and may not be true, only time will tell. I am sure all compiled, they all played a role. But that is only a small portion of the equation. For the most part there was a perfect storm for gold to drop below levels widely regarded as support and when those levels were broken, the paper trade, which was substantial, had to be unwound.
Poorly capitalized and heavily leveraged ETF fund managers were forced out by the margin clerks who could care less about how the funds perform, their job is to settle trades, and settle they did. I have long been on record of how I disfavor leverage, its like handing the keys to your Ferrari to a teenage boy. You worked hard to get it, and in one wrong turn it is wrapped around a tree. Such it is with leverage when the market takes an unexpected turn. Simply put, the only way a market drops like what we saw the past two days is panic and forced liquidation. A deadly duo for any market!
But is the sky falling? I'm not buying it. While we are seeing some glimmer of hope in the economy, we still have major obstacles and uncertainty ahead and that gives gold bugs plenty of ammo to keep buying. And however the current turbulence plays out, a more subdued price in gold and other commodities bodes well for future job growth. It brings cost down and increases margins for manufacturers, developers and builders...all good things for job growth potential.
There is no end of the world scenario here. Nor is there an end to the U.S. Dollar, as many fear, nor the Euro...and much to the dismay of perennial doom-sayers there is no wild out of control inflation due to overheated printing presses. The fact is that little of the QE reserves from the Fed ever made it to the real economy, at least not yet, most is sitting on the books at the central bank or went to Wall Street.
And while the recovery is not the likes of the Reagan and Clinton recoveries, it is still a recovery. Yes, Obamacare and wild out of control spending by the current administration seems for many to be destablizing to growth and they're probably right. However, there is one significant scenario playing out that could erase deficits and give major support the greenback.
Oil and energy!
Economist David Goldman reminded us recently that the Unites States will become energy independent in the next ten years. I think that is a little aggressive, but I do believe we are on the right track. Huge gains in technology for oil extraction should create countless jobs both inside and outside the oil industry. Energy independence means U.S. imports from Saudi Arabia and elsewhere, which have already dropped significantly, will continue to fall. And that means hundreds of millions of dollars will stay home instead of going to the middle east and elsewhere every single day! According to the EIA, the U.S. imports some 9 million barrels of crude or other refined products daily, so at $90 oil we export $800,000,000+ in wealth every day. Not good!
Can you imagine adding even half of that $800,000,000 to either U.S trade savings and/or investment to our domestic growth potential? That's a lot jobs, added tax revenue, and tons of opportunities to grow new millionaires!
The fact is that energy independence could lead to huge trade surpluses and a stronger dollar, all negative to the value of gold, at least on the surface. No one knows where the current sell off will end...there are even those that are calling an end the current 12 year old great gold rally. I don't really know, but I believe this current drop is a bit overdone. However, for rare coin collectors and investors the “reasons” for the drop should have huge positive effects on the long-term value of their collections.
- Real rarities are predominantly a collectible and free of encumbrances caused by leverage.
- The market is now internationally recognized as a great storage of wealth putting significant upward pressure on demand of our fixed supply.
- With gold rising sharply over the past 12 years there was a huge number of collectors and investors who became aware of the long-term benefits and value of owning a true “fixed supply” hard asset like rare coins.
- If gold doesn't return to its bull market trend, there will be tens of millions of ounces of physical gold sold back into the market. And like in the 80s and 90s, hundreds of millions of dollars will be traded into rare coins by those currently holding gold bullion. This will add upward pressure on the demand of our fixed supply. There are so many incentives for this that I simply can't list them all here!!!
- If gold does return to its rising price trends from this recent correction then the added exposure will continue to enhance and grow the knowledge and numbers of those investors seeking a tangible. See number 3...
I could go on with SO many others, but there simply isn't room in this article. But I am very excited about the future of rare coin values and I think this recent sell off in gold is a good thing. Our phones have been lit up this past week, and it was not due to sell orders, in fact we sold more bullion on April 15 than we did in all of March combined, confirming to me at least that there are plenty who wish to own tangible hard assets.
Yes, our economy has challenges ahead and if the government doesn't remove some of the regulatory burdens imposed by the war in the middle east and the banking crises of 2008, then our growth could be derailed or at the very least delayed. But there are many reasons for hope in the long-term and I believe rare coins will be a great and fun asset to own for generations to come.