If you wonder why the prices of gold and silver are in retreat, yesterday’s financial market headline that the U.S. dollar has risen 7.7 percent against an index of world currencies in just three months is a good place to start.
That is a huge increase in value for the dollar.
Exchange rates usually change very little over three months .
Between major economies changes in exchange rates are often glacial.
The British pound was $1.76 in 1976. It is $1.62 today. This is a decline of 8 percent over a period of 38 years.
It is no wonder bullion investors are a little unnerved or excited by the rapid gain in the value of the dollar.
Gold and silver are often considered to be hedges against the declining value of the dollar. So when the dollar stops declining, the hedges against that possibility lose some of their justification.
However, collectors and investors know that the value of the dollar is ultimately what it will buy and the process of inflation is ongoing over time despite what markets might temporarily be saying.
That perhaps explains why sales of gold and silver American Eagle bullion coins jumped strongly in September.
Smart buyers perhaps believe that the current price decline has gone too far.
Sales of one-ounce gold American Eagles jumped to 50,500 in September. This is the highest monthly sales number this year since the January figure of 62,500.
If you take all gold Eagle sizes into account, purchases totaled 58,000 troy ounces in coin form in September compared to 91,500 ounces in January.
The September gold sales figures are well over double those of August.
For the silver American Eagle, demand also doubled from August, reaching 4,140,000 pieces. This is the highest number since March.
Do buyers of bullion coins know something others do not?
But before we acribe great market timing wisdom to them, it pays to remember the huge scramble to buy gold in April 2013 when the price dropped in just a few days by $200.
Gold looked like it was a bargain then. Bullion coin sales surged.
However, if those buyers still retain their purchases, they are nursing losses of almost $200 an ounce.
That doesn’t mean that in the long term gold buyers won’t benefit from their purchases.
Long-term holders might recall gold at $35 an ounce before 1971, or almost $200 at the end of 1974 or $256 in 2001.
Any purchases at any of those figures look good today with gold at $1,215. They would have looked even better at the 2011 peak of nearly $1,900.
But if someone had gotten into the market in 1974 and assessed the result in 2001, it would have looked like it really wasn’t worth the effort.
That’s why I have always maintained that gold buyers would be better off collecting gold coins and then treating any metal price increases as a bonus.
Unless you find the daily bullion market fluctuations as interesting as I do, following them might be just a huge waste of time.
Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."