Investing in rare gold and silver coins is a multifaceted approach as these coins have both precious metal and collectibles value.
Compared to investing in bullion or other raw metal options, rare coins also have a premium over their precious metal content. The added value will depend on factors like the supply and demand for the particular rare coin. In order for a coin to have maximum value, it must also be in mint condition.
Precious metals like gold and silver are highly desirable during negative economic periods because they are natural magnets for investors during difficult times. Rare coins balance this facet out as investors and collectors tend to purchase collectibles from suppliers when they have extra money or during periods of prosperity.
Recent downturn masks long-term growth
While gold and silver fell during 2012, analysts note that the long-term outlook for these metals is quite bullish.
Investors like precious metals when they are doubtful over the economic prospects in the near to long term. Anyone looking at the current state of the world economy would have to have some worries because the situation is still quite unstable.
Additionally, banks are not able to finance small and large projects at anywhere near the level they did before the market meltdown several years ago. The European nations are dipping into yet another recession and many analysts fear that they may be pulling the rest of the world with them.
Gold and silver act as shelter against storm
The reason that investors like gold, silver and other precious metals when things look rough is that they have a value that goes beyond simple speculation. These metals are useful for a number of purposes ranging from jewelry manufacturing to high tech materials technology.
As investors tend to be of the same mind, there is also a sort of “herd” effect to buy precious metals like gold and silver in both bullion and coin form when there is economic uncertainty in the air. Therefore, even short-term investors will want to follow the trend if they believe that money is heading toward the precious metals market.
Gold and silver retain this distinction whether the trouble is in the equity markets or due to macroeconomic issues like negative GDP growth. However, these metals are particularly precious when investors see problems with debt bubbles or possible runaway inflation.
Central banks buying up gold
Another bright indicator for the precious metals market is that central banks have been buying or repatriating gold in impressive amounts lately.
For example, the Russian central bank has moved energetically in buying up gold to diversify its holdings. Currently the Bank of Russia has large amounts of foreign currency but it wants to balance this out with more precious metals.
The bank’s gold stocks are approaching about 10 percent of its holding in the medium term. Currently, the Bank of Russia has paper foreign reserves of about U.S. $530 billion making it the fourth largest stash in the world.
According to recent statements at the World Economic Forum by First Deputy Chairman Alexei Ulyukayev, the Russian central bank will continue to buy gold but he would not say what targets, if any, they were aiming to achieve in terms of overall gold share.
Ulyukayev said they would continue to buy gold to diversify their holdings and to reduce their risk profile. Reports indicate that Russia is showing concern about possible future economic shocks.
China and Germany
A Bloomberg report also indicates that China’s central bank may look to bolster its gold stocks in order to diversify its holdings. Currently, the nation is the world’s largest holder of U.S. dollar foreign reserves.
David Marsh, the chair of the Official Monetary and Financial Institutions Forum, said that he believes the Chinese central bank will continue to buy “modest” amounts of gold as a hedge against possible currency fluctuations.
Even more perplexing is the German central bank’s move to repatriate gold held in other countries. The Bundesbank is bringing back all of its gold from France and some of its gold from the New York Reserve Bank. Germany moved most of this gold abroad after World War II and during the Cold War.
Other nations appear to be following Germany including the Netherlands and Azerbaijan. What is behind this move to bring back gold into home territory? Many experts believe that these countries see gold as a good hedge against possible currency shocks.
Basically, they may be viewing gold as the new basic type of money. Unlike fiat currencies, they may see gold acting as a hedge that will protect them if their U.S. dollar or other foreign currency holdings start plummeting.
Economic outlook favors precious metals
If gold, silver and other precious metals do well when investors are worrying over future economic prospects, then the outlook for this sector should look bright.
The situation in Europe is particularly troubling with governments unable to jumpstart their ailing economies. The austerity policies of recent years may be helping in preventing national debt defaults but they are inhibiting any type of economic growth.
With most European Union countries in either recession or stagnation, many analysts fear that the problems could spread across the globe. Already, growth in the Asia Pacific region appears to be stalling.
While the Asian economies, in particular, had managed to avoid much harm from the Great Recession, they no longer look as immune to problems in the rest of the world. The fact that China appears to be moving toward gold is a good enough indication of changing trends.
Southeast Asia, which probably suffered the least from the economic turmoil over the last several years, also appears to be moving toward physical precious metal holdings.
American budget cuts may spur metals
With budget spending talks currently going on in Washington, many economic pundits believe that coming U.S. austerity could lead to significant negative repercussions in the near to mid-term.
Hefty budget cuts will certainly mean public sector job losses and trimming down of private sector contracts. Job growth is anemic even without budget cuts and many believe that further damage in this area could spark another recession.
The U.S. economy depends greatly on consumer spending and a massive round of job cuts will almost certainly lead to belt-tightening. Additionally, cuts at the federal level could also harm state and local government budgets.
These smaller governments have been depending on stimulus funds to keep from cutting their own budgets and from defaulting on loans. If the money stops flowing, they will have to cuts jobs and contracts, and this will lead to even more economic pain.
While it appears that we no longer have to worry in the short-term about the debt ceiling, experts believe the current solution is only temporary. Republicans may continue to use the debt ceiling as a tool to force President Barack Obama into making deeper spending cuts.
The U.S. economy also has broad and deep links with the European nations and particularly with European banks. The current state of the financing sector will have a dampening effect on startups and larger projects that are having an increasingly difficult time in obtaining funding.
Stock market rallies
While stock markets in many parts of the world, including the United States, have prospered in recent weeks, there are reasons to be cautious regarding this trend.
The fundamentals for the U.S. economy, for example, do not justify the current bull market according to a number of experts. Many analysts including Anatole Kaletsky and Robert Reich believe that the market may be ready for a drastic correction sometime in the not-too-distant future.
Investors may be rushing into the equity market more for short-term gains and, in the process, they are helping to inflate a giant stock market bubble. Just looking at the hard economic data would make it hard to rationalize such exuberance as indicated by the recent heavy buying on a number of markets.
If some of the “gloomier” experts are right, then big investors will be waiting for signs that the market has reached a short-term peak before cashing out. In the melee that will follow, smaller investors may find it impossible to dump their own stocks.
Of course, such a bubble burst will only have positive consequences for the precious metals market. When people see market turbulence, they tend either to convert to cash or to buy metals like gold, silver and platinum.
The rare coins market could see impressive gains if this happens and there are other reasons to be optimistic as well. Indicators are pointing to possible currency and inflationary problems in the near term.
George Soros, for example, has hinted that he believes that there may be currency instability coming up that will aggravate the already touchy world economic situation. Additionally, with the U.S. Federal Reserve is considering another round of “qualitative easing,” known as QE3, and there is a general fear that we could see inflationary pressure as an additional future problem.
Of course, inflation historically tends to favor precious metals and rare coins.