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