After being range-bound for a few weeks, gold and silver last week surged about 4 percent from the close the previous Friday. The immediate cause was the Chinese government devaluing its currency on three different days, totaling an almost 4 percent decline in the value of the yuan.
Several other nations responded to the Chinese actions by also declaring that they would devalue their currencies. In a general fear of declining values of all currencies, investors sought the safe harbor of tangible currencies that have never failed over thousands of years.
The price increases brought the gold spot price back above the psychological $1,100 level and silver surpassed $15. Obviously, there had been some pent-up supply of physical metals withheld from the market at prices below those levels. Last Monday, a number of people jumped to liquidate their holdings once these thresholds were exceeded. However, the rise in physical demand more than offset this temporary liquidation surge.
At the beginning of last week, it was revealed that one of the relatively new national bullion marketers had sold some Royal Canadian Mint 10-ounce silver bars on the basis that product was available for immediate delivery. The company defaulted on delivery, sending emails to customers noting that it had discovered a discrepancy in their inventory levels and that the RCM had not delivered a shipment as expected. Customers were asked to contact the company to discuss their options.
In turbulent markets, it is more important than usual to deal with deeply experienced companies. In my opinion, companies that survived 1) the mass liquidations in early 2000 after the world’s computers did not fail, 2) the tremendous buying surge of physical gold and silver products in late 2008 and 3) the occasional buying surges in the years since generally will have deeper pockets, better wholesale contacts and will avoid overpromising delivery times to their customers. As such, they are more likely to satisfy their customers than lesser experienced companies that don’t know from actual experience how markets can get backlogged.
In general, it appears that deliveries for bullion-priced silver coins and ingots are running about two weeks longer, on average, than what most dealers were forecasting to their customers. For gold, which has not seen as large an increase in demand, delivery delays are generally minimal for products other than Canada gold Maple Leaves.
The Royal Canadian Mint held a reception at the American Numismatic Association World’s Fair of Money near Chicago last Tuesday to unveil its 1-ounce gold and silver Maple Leaf coins that have radiate lines in the field that are difficult to accurately counterfeit. Further, the RCM will have the ability to track what it calls the “DNA” of such coins so that it can verify the authenticity of pieces through use of machines that will be offered for sale to coin dealers later this year. Each of these pieces can be tracked back to the individual dies used to strike these coins. While the RCM was striking these new coins for the product launch last week, there have been some unexpected delivery delays.
While I applaud these enhanced security features, I would not be surprised to see a two-tier market develop where the gold and silver Maples struck and sold before this innovation will trade at slightly lower prices that these higher-tech coins.
The rise in gold and silver spot prices occurred at an opportune time for the numismatic markets. There was a significant buzz at the ANA show last week, continuing each day. Dealers were eager to purchase coins. To some degree, rising precious metals prices supported this increase in demand.
From my conversations with a number of dealers across the numismatic spectrum, customers also stepped up to purchase. In my experience, at every coin show there are some dealers who do well, some have so-so results and others consider the show to be a dud. This time, every dealer I talked with (except one who missed much of the show while sick) reported they considered their sales to be strong. I did not hear a single negative report – the first time I recall this happening in attending coin shows for more than 30 years.
There are wholesale shortages of several coins, which can be cured with higher prices. For example, there are wholesale market backlogs to supply Morgan dollars in Mint State-65 and higher grades, Walking Liberty half dollars in Mint State-65 and higher grades, and even some of the $10 and $20 pre-1934 U.S. gold coins in various Mint State grades. Prices for pre-1934 U.S. gold dollars up to $5 Half Eagles in Mint State grades had mostly already risen over the past month, even as gold prices had fallen.
The worldwide competition to devalue paper currencies will almost certainly support higher interest in precious metals and numismatics over the rest of this year and beyond. Stay tuned for developments.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His Numismatic Literary Guild award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
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