What is the current state of the rare gold and silver coin market and what can we expect in the near future? The prices of gold and silver have seen some difficulties but overall the trend has been strong.
Into the second week of January, gold prices are fighting back against their recent slump. On January 10, gold closed up by $22.50 to $1,678.00 while silver was up 2.21% to $30.92.
Over the last six months and the last year, gold is still up by 6.22% and 2.85% respectively despite the recent slump over the last 30 days.
Gold and silver coins as safe havens
Traditionally, investors have looked to precious metals like gold and silver sort of as ‘hedge funds for the poor.’ They seem to retain their value or to increase in value when other investments are in turmoil.
Gold and silver in the form of rare coins, as offered by companies add extra safety features when investors choose them wisely because they also have collector’s value. Even if the particular precious metal’s value is going down, the coin might retain its value or continue to climb depending on its collector’s value
Like all other prices, the collector value depends on the law of supply and demand. If a particular coin is in high demand, but the supply is low, then prices tend to go up. Therefore, it is wise for long-term investors to select rare coins that are timeless favorites because, at the least, they are always in demand.
One of the reasons that precious metals tend to go up in price during hard economic times is their intrinsic value. Particularly in these days of fiat currencies, gold and silver are commodities that have useful purposes in industry and commerce.
Because of their inherent value, investors flock to precious metals as a safe haven during times of wild market swings or currency drops.
Current economy is good for precious metals and rare coins
While there has been a slump in gold prices recently, the long-term trends still look favorable. The fiscal crisis has had varying impact on precious metals with gold and silver having some difficulties during the negotiations.
However, overall, the possible trend of the two major political parties deadlocked and facing one financial “crisis” after another is positive for precious metals in the future.
The current agreement on taxes in Washington, for example, only delays further negotiations on the debt ceiling and budget spending cuts. These are huge uncertainties that push investors to hedge their bets with gold, silver and collectibles.
Many political experts believe that the Republicans will continue to force “fiscal cliff” type situations for the rest of Obama’s second term to prevent the president from carrying out his agenda fully. When one considers this possibility together with the general precarious state of the economic recovery, there is a lot of stimulus out there for cautionary investment.
One thing about gold and silver rare coins is that precious metals tend to do well when the economy is doing badly, while collectibles do well when the economy is growing and people have money to spend. Therefore, these types of investments inherently possess balancing properties.
Gold and silver should rise
While prices are down now over the last 30 days, they should rise in the future according to many experts. Ups and downs in the market are common but the general economy points toward rising values.
The low prices now, then, should be attractive to investors. While tackling the deficit could possibly hurt the status of precious metals as an investment, there are many other factors that should push values up.
For example, the international economy is still in quite bad shape. Europe is having trouble with the Euro and with sagging economies. Many European nations are still on the verge of financial collapse.
The general trend of the European Union has been to follow an austerity track, which leads to lower growth. Europe overall is in recession and many nations really have no way out in the short to mid-term.
Recent news from the United Kingdom, for example, suggests that the country may be heading for a triple-dip recession as large employers continue to cut jobs.
In the United States, the situation is also precarious. In order to control the huge deficit, spending cuts are necessary. However, those cuts can mean lost public sector jobs and fewer, smaller government contracts with private industry. The defense industry, in particular, has been worrying over such cuts and is preparing for the inevitable.
Job cuts mean that consumers will have less money to spend on goods and services. Because the cuts can cause so much pain, there is likely to be much fighting over what exactly goes under the axe.
The political infighting could go on for some time, which will weigh down on the equity markets.
Uncertainty will benefit gold and silver coins
Because people are uncertain on how the budget negotiations will turn out, they will likely seek some shelter, at least until the parties reach a deal. However, we could see repeats of these types of battles for each annual budget over President Obama’s second term, according to some experts.
Even when the parties are able to agree on spending cuts, investors still need to worry about how those cuts will influence the economy.
In particular, state and local government could be in big trouble if the federal government discontinues its budget assistance programs. Smaller governments have faced budget shortfalls since the start of the “Great Recession.”
Although the nation is technically in recovery now, many state and local governments still do not have sufficient revenues to cover their annual budgets. In addition, they are unable to borrow money as they could before the recession. Instead, they have been relying on Washington to bail them out.
If this assistance should fall through the cracks during budget negotiations, many state and local governments will have no choice but to cut their workforces. They will also probably need to cut contracts with private companies. The impact could drive the country into another recession.
Another good indication for gold coins is that gold supply has been down lately with mining sources like South Africa reporting lower output.
Demand, on the other hand, is going up as investors and governments look to gold as a hedge against inflation and market uncertainty. China and India, in particular, are showing a strong interest in gold bullion.
The Shanghai Gold Exchange reported busy trading this week and gold in India is shipping at from $2 to $3 an ounce above London prices, according to local dealers. Even in Japan, where investors have traditionally ignored precious metals as a hedge, there has been increased interest in recent times.
Many analysts believe that the new prime minster, Shinzo Abe, believes in investing in gold bullion to protect against possible inflation. His new economic policies may help drive up the demand for gold in the future as Japanese pension funds look to bolster their gold holdings.
Silver buying up in 2013
As 2013 begins, investors are seeing a renewed interest in silver buying. The market is seeing increased sales in both silver coins and in exchange-traded funds (ETFs).
Even in December, despite sagging silver prices, the market for silver ETFs was strong. A Bloomberg News survey found that 49 financial experts believe that silver will gain up to 31% in 2013 reaching a price of $40.25 an ounce.
Some analysts like Peter Krauth of Money Morning’s Global Resource believe silver will go even higher with Krauth predicting the metal will reach an all-time record nominal price of $54 an ounce. Krauth believes silver will benefit in a big way from the following factors:
• The Federal Reserve will continue the same monetary policy over President Obama’s second term resulting in additional inflationary pressure.
• The ratio of silver to gold is below healthy levels meaning that there will be more demand for silver to balance out holdings.
• Demand for silver will rise due to industrial applications like use in solar panels and electronics.
• Investors will seek silver and other precious metals due to currency instability
While gold and silver have experienced slumps over the short term, the outlook for 2013 looks favorable. Gold and silver rare coins should do well, not only because of their precious metal content, but also because investors may want more balanced holdings.
The European economy is still wobbling and the U.S. economy is in danger of a double-dip recession or at least a very stagnant recovery. The uncertainty over budget spending cuts and the debt ceiling will force investors to seek refuge over the next few months and this could extend out even over the rest of President Obama’s second term.