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Brian's Market Report

By Brian Kendrella, President

Author: Brian Kendrella / Thursday, December 20, 2018 / Categories: Brian’s Rare Coin Market Report and Outlook

When I speak with customers, perhaps the question I get asked most is: “How is the numismatic market?”  Like most markets, ours is a little too complex to be covered by a single question or a simple answer.  Coins or bank notes?  U.S. or foreign?  China or Great Britain?  And so on.  There are too many variables in that five-word question to give a fair and accurate answer.

 

However, I did want to discuss some broad and overarching trends that impact the numismatic market as a whole. 

 

Generally speaking, and I will quote Tad Smith, CEO of Sotheby’s who spoke recently on the state of the art market: “The [numismatic] market is very strong.  Not frothy.  It’s a smart market.”

 

We have noticed an ongoing increased interest in quality, and as a result, objects that offer tremendous rarity, that are the finest known, are of great quality and originality, or have superior provenance continually trade at higher prices.  Generally, demand and prices for these objects is growing.

 

On the contrary, common pieces of mediocre quality are less and less sought after at yesterday’s prices, resulting in the prices of objects in the middle and low end market showing a downward trajectory.

 

Ironically, this behavior results in a bit of a self-fulfilling prophesy.  The market is focusing its effort on the rarest, highest quality material as those items have, historically, performed the strongest.  More competition for these objects, which are by definition limited in supply, causes prices to rise.

 

In conjunction with our more public auction business, SBG is a very active participant in the private bullion and generic gold markets, an area that I find quite fascinating at the moment.  Generic U.S. gold coins minted prior to 1933 are priced according to the spot price of gold plus a premium based on their overall grade and demand in the market.  Today these coins are trading near historically low premiums.  At the same time gold is trading in a relatively tight band of $1,200 to $1,300, despite the turbulent financial markets. I find these generic gold coins of great interest. 

 

Gold is inherently scarce, making up roughly 0.003 parts per million of the earth’s crust.  As a result, it has been highly valued for centuries, generally seen as a “safe haven” or hedge.  I recently read that gold has about the same purchasing power today as it did 1,100 years ago.  In recent times, we have enjoyed a robust economy and other trends which historically work against gold prices. These include a strong U.S. dollar, increasing interest rates, and the stock market’s impressive performance, driven by a good economy and record levels of stock buybacks from companies flush with cash as a result of tax reform. 

 

However, the current equity market’s ten year bull run cannot continue in perpetuity and there appear to be some early signs of a correction.  Just recently, both stocks and bonds turned negative for 2018, which hasn’t happened in 25 years.  In addition, “90 percent of the 70 asset classes tracked by Deutsche Bank are posting negative total returns in dollar terms for the year through mid-November.” We also see inflation rising.

 

Stepping back, since 2009 the S&P 500 has increased approximately 300%, inclusive of the recent market contractions.  Tremendous wealth has been created and many will focus on preserving that wealth in a downward cycle.  All these factors signal to me that non-income generating, non-traditional assets, such as gold and numismatics, should benefit from increased interest as traditional equity markets weaken and the opportunity costs of owning gold or numismatics is reduced or even turns positive. 

 

All the best,

Brian Kendrella