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Piling into gold

January is an exciting month for coin collectors, but a dangerous month for long-term gold investors.

There is a human tendency to be optimistic when we turn the page on the calendar and begin a new year.

The risk is being blinded to the true state of the market by this optimism.

A financial news story on CNBC yesterday pointed out that the precious metal was having the best month in a year, being up about 5 percent.

The story was factual.

But long-term investors need to take January trading with a grain of salt.

I checked the January charts for 2012, 2013, 2014 and 2015 on the Kitco website just to see how trading began in those years.

In the five years, 2012 to 2016, January has been up four times and down once.

Optimism clearly prevails.

However, gold has finished down for the year in the last three years in a row.

A good January was not followed by a good year for two of those three.

What will happen this year?

A market evaluation should not be based on January trading.

This January’s results could be followed by an up trend for the year as a whole. But it might not as some prior years have demonstrated.

January results are made unusual for a number of reasons.

A big one is that when the dates on bullion coins change, there is a scramble to buy the new date as soon as possible.

For collectors, this scramble can include getting some sort of first strike designation when the coins are slabbed.

For bullion investors, there is always a higher premium associated with coins of the current year compared to coins offered as random dates of prior years.

For investors, gold should be gold. It is irrational to value one ounce with a 2016 date differently than an ounce with an older date.

But human nature wants the newest product on the market as something no one else has owned before and we humans pay the price to get it.

Because of this January demand bulge, firms that sell bullion coins have to balance their inventory.

If they sell 1,000 ounces of gold coins, they need to buy another 1,000 ounces of gold right away to keep their books balanced and reduce the possibility of being stung by price swings in the underlying bullion.

This standard business method then amplifies demand for gold.

Whatever happens in January should be viewed with this in mind.

Buyers who want to own gold should evaluate their reasons soberly and not be impressed by collectors who enjoy the January scramble. It is our version of the polar bear plunges held around the county.

As a collector, I enjoy the scramble as well.

When a new date has become available in prior years at the Florida United Numismatists conventions, I have often found myself buying it.

After all, I like newest product on the market, too.

That temptation did not exist this year as the Mint’s release date was after the show closed, so I am still without a new date.

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

• If you enjoy reading about what inspires coin designs, you’ll want to check out Fascinating Facts, Mysteries & Myths about U.S. Coins.

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One Response to Piling into gold

  1. Hi ever one! Again MR Harper your wright. However with all the regular gold the mint make’s there is also a lot of anniversary coin’s this year and they won’t be cheep. This s a big problem. What do buy. Keep my regular gold purchases and not the anniversary coin’s? Remember finances. This s turning into the hobby of Kings. Reading some of the articles listened n the ANA alot of young collectors feel their being priced out of the hobby. The is when we need more members,to enjoy collecting coin’s. Not worried about paying for this or paying for that do I need this one? I believe the mint must remember the middle class. We’re still here,we want to collect not all gold. Silver was good for hundreds of year’s, no more gold buy gold. Just my opinion.MIKE

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