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Metal Market Report March 2021 - Week 4 Edition

March 2021 - Week 4 Edition

What Makes a Rare Coin Mega-Bull Market – and Is Another One Beginning?

This year marks the 50th anniversary of the uncoupling of gold and the U.S. dollar, which was finalized when President Richard Nixon closed the Gold Window on August 15, 1971. At that time, gold had been trading at a fixed rate of $35 per ounce for over 40 years. Gold and gold coin sales immediately took off from that artificial price and gold rose to $190 by the end of 1974. This contributed to a major bull market in gold and rare coins.

That time was also marked by political unrest – the Watergate scandal, the ignominious end to the Vietnam war, President Nixon’s resignation, and the Yom Kippur war leading to the OPEC oil cartel with the immediate doubling of oil prices. This led to extreme financial distress with the worst postwar stock market crash to that date, the 45% 1974 stock market crash, amid high inflation and a doubling of interest rates from 4% to 8%. During that time, one major rare coin index rose 348% between 1972 and 1974.

The key elements driving increased gold and rare coins prices and sales then were (1) political uncertainties, (2) a stock market crash, (3) rising interest rates, (4) rising energy prices and (5) rising precious metals prices.

It didn’t take long for that formula to repeat itself in a much stronger manner from 1976 to 1980. 

Gold corrected to just over $100 per ounce in late 1976, on hopes that the new President, Jimmy Carter, would solve all our problems, however, Carter proved to be indecisive in the face of a second wave of OPEC oil price increases, Russian expansion around the globe, the Iranian hostage crisis and another deep recession amid double-digit inflation (“stagflation”). The Dow Jones index fell 25% from 1976 to 1980 in “nominal” terms but, adjusted for inflation, it fell about 50%. Oil prices more than doubled again, from $14 to $35 a barrel, and there were gas lines all across the nation. In Carter’s last year in office, gold shot up from $300 to $850 an ounce and silver reached $50. The dollar kept falling, and bonds were losing value due to inflation. One investment was beating all others: The leading rare coin index rose 1,195%.

After a five-year recovery during the early Reagan years, tensions were building up once again, with the Iran-Contra scandal and the burgeoning Savings & Loan scandal as Wall Street speculation led to a massive 35% stock market crash in 1987. During that time, the rare coin market began its second-best surge in modern times, even though gold bullion prices only rose gradually. The major rare coin index rose 665% while gold rose by less than 70% during the mid-1980s, peaking at $500, well below its 1980 peak.

Now, oil prices are soaring once again. Gold prices and sales rose strongly last year and could rise further this year. The stock market has risen lately, but its sky-high valuations point to the potential of a serious correction. Global tensions are returning since a weaker U.S. president is bowing to China’s blustering demands and new tensions are arising in Turkey, North Korea and the Middle East.   

The new Biden administration is running up massive deficits and printing fiat money in the multi-trillions of dollars to finance new giveaway programs, which will no doubt fuel inflation in the near future, so we could be setting the stage for another Jimmy Carter-style siege of inflation – similar to the late 1970s.

Bullion Coin Demand is Beginning to Soar Again

Whenever financial, political or other world events lead to a continued increase in the buying of gold and silver bullion coins as a form of financial insurance or protection, we often see a bull market in rare coins follow in about six to 18 months. That’s because many of those new precious metals buyers become exposed, by leading rare coin dealers, to classic rare coins. Experience shows that about 10% to 20% of these new bullion coin buyers start collecting and investing in rare coins, and that provides a significant new demand base for the limited universe of rare coins, thereby bidding up the prices of rare U.S. coins. 

Can this be happening again? In 2020, the U.S. Mint noted an increase of 102% in silver Eagle purchases over 2019 and 455% in Gold Eagle ounces purchased in 2019.  In the first two months of 2021, there has also been a large increase in U.S. Mint sales of gold and silver bullion coins. Gold American Eagle coin sales increased by 416% during the first two months of 2021 vs. the same two months of 2020, while Silver American eagle sales increased 77% in the same time period, and American Buffalo gold bullion coins rose 252% in the first two months of 2021.

As I’ve often said recently, we are getting calls from big buyers and customers we haven’t heard from in years, and we are not alone. Dealer friends of mine continue to talk about the recent purchase of high-value (six-figure) coins, including the $4 Stella patterns, only minted in 1879 and 1880. A friend of mine sold two of those very rare pattern coins just this month. No, we’re not in a raging bull market yet, but we’re seeing a lot more of those coins in high four-figure, five-figure and six-figure levels selling now.

This is the time to call your representative and get into the rare coin market before the big surge that we feel may be coming arrives. Call now and lock up some of the exceptional values now available.

Inflation Is Already Here

Precious metals are in a holding pattern, but that is clearly not true for the money supply. The Fed’s broadest definition of money, M2, is up 26% in the last year – the fastest increase since 1943, when the nation was in the midst of fighting World War II, a massive war on two fronts. This much monetary inflation is almost certain to lead to price inflation. Last week, we learned that fuel import prices soared 11.1% in February after rising 9% in January. The Labor Department also reported that export prices rose 1.6% in February, after surging 2.5% surge in January. Combined, that’s a 27% annual rate. In the past 12 months, export prices have risen 5.2% (the highest rate since June 2018), so high inflation is already here.


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