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New cycle starts as collector season opens

(From the October 2008 edition of World Coin News)

Whoopsie. Was that gold that went by in free-fall?

As this is written, gold is $780 a troy ounce. Silver is $11.69. The euro is $1.40 and the British pound is $1.75.

The upward spree that characterized the first six months or so of the year seems to be over. As recently as July gold at least was knocking on the door of its March highs of over $1,000 a troy ounce.

If gold were in a universe by itself, it is arguable whether it is in a correction or a downtrend. It is down from the March peak by around 24 percent, but silver has fallen in half. That seems to indicate unambiguously that a downtrend has set in.

The gold bugs are in disbelief, alleging the dark forces of government are somehow manipulating the prices to prevent the setting of new record highs. They point to the record demand for bullion coins like American Eagles, Canadian Maple Leaves and Austrian Philharmonics.

It is certainly true that buyers are chasing the bullion coins and bidding the premiums, or markups, way beyond their usual ranges. Would this happen in a downtrend, the gold bugs ask not without some justification.

However we live in an eBay world now. Anybody active in numismatics cannot help but notice serial online coin fads. Everybody agrees online to buy something. They post messages that whip each other up into lathers of enthusiasm and up go the prices. One fad ends and the next one begins.

We need to begin to ask whether the precious metals in recent months were simply the fad of all fads, where money managers scalded last year by the onset of the financial crisis, helped bid up their prices along with the prices of oil and other commodities.

Sooner or later the borrowed money that finances these trades has to be repaid and economic fundamentals have to reassert themselves.

If the allegation of dark forces driving down the precious metals is true, we would have to assume that they are also manipulating the prices of oil, base metals, corn, wheat and other  staples, which have all weakened from their highs.

The U.S. dollar is also soaring at the moment. What’s that about? Last year at this time it was being written off.

Coin prices benefitted from the action on world foreign exchange markets if higher prices are considered the desired goal. Holders of euros took advantage of the fact that it soared to $1.60. That made prices expressed in U.S. dollars seem awfully appealing. With the exchange rate dropping now, the sense of hurry to take advantage of bargains has diminished.

The high value of the euro also seemed to make the World Money Fair in Berlin seem awfully expensive to those of us holding the incredible shrinking dollar in February. However, balance may be returning. The next convention may be even more fun for us dollar holders.

U.S. based coin dealers might just be able to compete a little better on the buy side during this next hobby collecting season and the European dealers might even want to do a little selling.

We have gone through cycles before. The euro was worth $1.17 when it was created in 1999. It fell to 82 cents and then nearly doubled to $1.60. If a new cycle has started, there is a long way to go timewise. The question will simply be what the bottom value will be this time for the euro and what the affect will be on popular coin  prices.

Time to buy or sell? Let me check eBay and I will get back to you.

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