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Gold goes down again

Gold dropped below the $1,300 mark this morning, according to the Kitco website. This price decline prompts some thoughts.

Wisconsin elected a governor in 1978 who was found of saying, “He who has the gold makes the rules.”

Obviously gold was used interchangeably with the concept of money.

But gold is also something that captures our imaginations. When the price is soaring, owners of it whether they have an ounce or two, or large quantities, suddenly are feeling invincible and they might see visions of great wealth ahead. They then might be more likely to spend money on other numismatic items.

When the price of gold is falling, it can inhibit owners from undertaking expenditures they might otherwise make because they are feeling poorer.

These effects are perhaps obvious to everybody.

Less obvious but still critical for the numismatic industry is the impact of fluctuating prices on dealer cash flow.

When gold is rising some people tend to rush to buy, doing just the opposite of buying low and selling high that is supposed to be the goal of investments. Others rush to empty the nooks and crannies of the jewelry, coins or other things that they have had for many years.

This flow of purchases and sales generates profits for the large bullion vendors and small shop owners alike who handle the transactions.

When gold is falling in price, as it is presently doing, these transactions tend to diminish. This reduces the profits within the numismatic sphere and it has an impact on the rest of the business.

A dealer might pay a little less for a collection in a month that his bullion cash flow is down as he less money to reinvest. There are ripple effects throughout the hobby as many others do the same thing.

A proxy for measuring this cash flow is the monthly sales figures of gold American Eagle coins. When attitudes are buoyant, sales rise. When they turn defensive, fewer gold Eagles are sold by the U.S. Mint.

So whether you look at the price of an ounce of gold or recent gold Eagle sales numbers, we seem to be in a more defensive period.

Trying to figure out how long this period will last is as always the challenge as my other blog posts this year on the topic have shown.

Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

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