RARE COIN REPORT NEWSLETTER UPDATE:  The fall issue of the Rare Coin Report has been delayed until the middle of November, due to an important announcement that will be made at that time.

 

November 1, 2012

With Hurricane Sandy dominating the news, closing the markets and wreaking havoc on the Eastern Seaboard, many people are taking a much desired respite from the constant drone of election news, political ads and election related stress and worry about their preferred candidate losing the race.

However, this “respite” has been evident in the coin market for several weeks now, as many are refraining from purchasing decisions pending the election’s outcome.  Conventional wisdom is that an Obama victory will bring strength to the gold market, whereas a Romney victory will bring strength for stocks.

Don’t rely on “conventional wisdom.” 

While there may be short term fluctuations in either direction, the long term fundamentals will always win out in the end.   The one long term fundamental of which we can be sure is that the value of the dollar will drop and will continue to drop for the foreseeable future.

The real reason behind the current slowdown in the rare coin market is uncertainty.  People just don’t like to make financial decisions when they are facing uncertainty, and this is one of the main reasons the economy has been weak over the last year.  It is also why prices for rarities are so attractive now, and why the spread between the price of gold and generic $20 gold coins is so small.

Once the election results are in, at least some of the uncertainty will evaporate.  Expect buying to surge.  This is because once the election is decided, people will latch onto whatever additional certainty they can grasp, and one of those certainties is inflation.

Therefore, if possible, buy before the election.

Look at it this way:  if Obama wins, there will be more federal spending and more growth in the federal debt.  There will be more worry about economic weakness and increased chances of a Greek style economic collapse.  Money printing will likely continue at full bore.   That is highly inflationary.

If Romney wins, there will be less worry about economic collapse, but the stage will be set for more economic activity.   This is critical, because up until now, all the monetary inflation from the printing of dollars has been masked by weak demand for goods and services, which has cause price deflation in practically every area of the economy except food and energy.  A Romney win would portend increased economic activity, putting upward pressure on non-food and non-energy prices.

Yet, money printing will likely continue because the massive $16 Trillion and growing national debt requires massive interest payments, and to keep interest rates low, the Federal Reserve will have to continue printing.  Moreover, while Romney is certainly a more stable choice than Obama from an economic standpoint, nothing he has proposed, and no policy he is likely to pursue will be able to stop the printing of dollars any time soon.  In fact, from the standpoint of exports – a critical need in terms of U.S. economic growth, money printing is desirable as it will lower the cost of our goods abroad by lowering the value of the dollar.

As this happens, instead of masking inflation, economic confidence and growth will put upward pressure on prices, and therefore dovetail with monetary inflation, driving up the “official” inflation rate.  An increased inflation rate will push more dollars toward rare coins

No matter how you look at it, inflation appears to be the one constant you can rely on.

Inflation is a positive for rare coin values and for gold, because both serve as a hedge to a falling dollar.  It is no wonder that high end buyers are paying record prices for art, cars and high end coins:  People who have a lot of money to manage know what is coming, and they are preparing.   Furthermore, supply is not that deep, so increased buying will likely soak up available supply relatively quickly, causing prices to advance.

Fortunately, there are excellent deal on many outstanding coins, both rare and gold dominated that can be purchased at virtually every economic level.

Right now, with MS-64 $20 Liberties at below 1.5x the price of gold bullion, and lower grades at an even more favorable ratio, and with rarities selling at well below PCGS.com prices in most areas, there are very attractive buy opportunities.  Waiting until the election will not likely deliver lower prices, because at least some of the uncertainty will be removed, and since inflation will happen no matter who wins the election, more buying is likely.

Thus, there is a good chance that prices for rarities and gold dominated generics will only increase after the election, no matter who wins.  Expect that trend to continue well into the future.