CMI foresees a strong bull market lasting well into next millenium
Rare coin prices are very strong and indications are that this strength will continue for some time. The charts accompanying this article reflect the market’s bullish trend. The great bull market in stocks has created a surge in personal wealth which is exactly the environment that creates bull markets in rare coins.
But before we look into the future we will examine key factors that have caused the recent move in prices and the question of whether these events will continue to play a key role in rare coin values in coming years. As you can see by the CU3000 chart (Chart A on page 8) prices have increased some 22% since the market bottom in 1996. However, if you concentrate on the smaller indices of rare to key date coins (Chart B, also on page 8) you can see that the performance has been much better than the broader CU3000 index.
The causes driving this market are both broad and significant. Certainly one of the psychological events behind it is concern over the “Year 2000 Computer Bug.”
Recent record sales of gold and silver American Eagles by the U.S. Mint have been influenced by this concern. This growth in sales has forced the Mint to place allocations on delivery, effective February 2, due to severe production problems. This has, in turn, increased psychological demand, causing more overflow into rare coins.
After close analysis, we attribute 15-20% of our common or bullion related gold coin sales to this phenomenon.
Although the price trend in gold bullion over the last year has been relatively flat with a modest decline, bids for circulated $20 Saint-Gaudens have increased by over 20%. The reason for this increase is very simple: Sales of gold coins are going through the roof, and since there is a finite supply of numismatic coins (unlike that of modern bullion coins like the American Eagle), prices are increasing in the face of this demand!
But, while Y2K is creating demand for both common and rare coins, the main factors driving the rare coin market are both economic and psychological in nature. First of all, the coin market moves in very definitive cycles. Examining the CU3000 Index (see Chart A on page 8), you can see that since 1970 there have been three complete bull and bear market cycles, and if you calculate a trend line it shows an impressive 15% average annual appreciation from that point in time.
So…just speculating from past market cycles, one could make a compelling argument for putting some of your money into rare coins!
However, the most overwhelming proposition for a coming boom in rare coins are the massive recent increases in individual wealth and income caused by the stock market and booming U.S. economy, and the current monetary policy adopted by the Federal Reserve and the governments of most every other major country.
Each and every bull market in rare coins has been preceded by months, or in this case years, of significant increases in individual wealth and income. Only this time around, we are watching the Federal Reserve pump up the money supply by 15% annually (see chart below), which has sent stocks up and bonds down.
We believe that great changes are on the horizon. Hopefully, some of these changes will correct the economic flaws of the 20th Century. One of the most severe of these flaws is the monetary system based on fiat currency (i.e., not backed by commodities such as gold) that we have been operating under since 1971. This system puts too much discretion in the hands of central banks and the private sector, where excess credit creation and speculation is rampant.
The weaknesses of this system are evidenced by the implosion of many currencies of distressed economies in Asia, Brazil, and Russia, just to name a few. In response, there is a movement away from paper assets back to hard assets in certain sections of the international economy.
We believe it is very important for investors to pinpoint emerging trends. Because the U.S. sits in the economic driver’s seat in the creation and implementation of new technology and communications, we believe the U.S. economy will continue to grow at an unprecedented rate. However, we also believe we will see major currency policy changes and a continued shift in substantial amounts of new wealth into hard assets.
Massive amounts of new wealth have already made their way into the rare coin market, and the motivation is not just financial in nature. We see investors and collectors alike becoming more comfortable building world class portfolios of rare and unique pieces of American history.
We believe the rare coin market is ripe for the picking and that the current underlying strength of that market is a firm foundation for its continuation well into the 21st Century!