Bullion investors vs. collectors

[alloway65 10]

Bullion investors vs. collectors From The Buzz!

 

Whenever the coin hobby experiences a bullion boom of the kind it has been experiencing in recent years, the point is always made that bullion investors could become coin collectors and, boy, wouldn’t that make demand for collector coins soar over the long term.

Well, the evidence gives little support to any kind of mass conversion of investors to collectors.

I have lived through three bullion booms – four if you break the 1970s in half at the 1974 gold peak.

The first was simply as a collector and reader of Coins Magazine and Numismatic News in 1967-1969.

Silver was very frisky then and investors poured in to buy the metal which was getting scarce.

I used paper route money to buy a 100-ounce silver bar at $2 an ounce, which at the time was near the peak. I was a coin collector who wanted to be an investor. I also needed to learn a lesson. Bullion doesn’t always go up.

The price fell. Investors disappeared and times actually got quite hard in the numismatic field, especially for Krause Publications, publisher of my two favorite periodicals.

Why didn’t the investors become collectors? Good question.

Investors streamed back into the field after a bottoming out process in the early 1970s and then again 1974-1976 and then bullion was once again attracting attention. The peak was in 1980.

Then the bullion investors fled.

They began coming back in large numbers after bullion bottomed in 2001. Now they are very much in evidence.

If bullion turns cold, will they stay this time?

Not likely.......they didn’t before..........I don’t expect them to change now.

[Guest Guest]

Do they or don't they?

 

Interesting article.

 

I remember the 1979-1980 Bunker Hunt led silver run very well. I had collected a large amount of old silver coins over many years while working as a teller with Barclays Bank. As luck would have it I was located in country towns like Greytown and Ixopo so came across quite a lot of old silver coins mainly brought in by Africans who lived in the surrounding area.

 

I was a collector of coins before hoarding silver bullion but I was aware, through my position as Marketing Manager at the Estcourt Branch of Barclays Bank in 1980, that a number of people started collecting coins as a result of the silver run. The biggest problem they had back then (pre-Internet) was the quandry as to where they could actually get old coins. In those days this market was tied up by a handful of coin dealers although coins were certainly traded through the Pietermaritzburg Numismatic Society where I was a member. (We don't realise how lucky we are today to have an online auction facility like BoB).

 

I have no doubt that the current growing interest in investing in silver and gold will result in a percentage of these new "coin" investors becoming coin collectors and participating in coin auctions on BoB.... and post-1994 I would not be surprised to see small coin clubs appearing in communities like Soweto.

 

I guess time will tell.

 

Kind regards

 

Scott Balson

[geejay50 10]

Thanks Mr Alloway,

 

You have shared with us the faithlessness of the Bullion investors over many years who merely go in and out of the market depending on profit to be made. How different Numismatics is which is what this forum is mainly supposed to be about. We are collectors through thick and thin, what gets sold is usually a duplicate and there is a richness and history in the subject that bullion investors will never have.

 

For sure Numismatics throughout the world is a highly traded entity and billions worth of coins and medals get traded all the time on all sorts of auctions. It is a source of security of investment to collectors everywhere, made more so by the impartial international third party grading system.

 

It remains distinct from bullion though and has dynamics in pricing that has far more to do with mintage, scarcity and quality than the bullion prices be they up or down. That is why the bullion surges dont usually translate into surges in numismatic prices because they are totally different entities and no real evidence has been given linking the price of Gold say to the price of say a Sammy Marks Tickey or a Veldpond .

 

It is a simple fact that although new deposits of raw bullion get discovered all the time, the number of numismatic coins remain fixed to their mintage and the owner of such a high quality graded coin will always have a buyer regardless of what the state of the Bullion price is.

 

An 82 year old collector in South Africa over 62 years put together one of the finest collections on a shoestring budget of an SADF Dominee. Here is how he did it: He went to the Bank over the years and bought a Kilogram of Silver Coins of all denominations. He then spent hours that same night sifting through these coins until he had one or two of the best of a certain denomination and year. He then went back to the same Bank the next dayand gave them back the Kilo of Silver minus those coins in weight that he had kept. Some time later he bought another Kilogram of Silver and did the same thing over and over again until he had a really fine collection bought at Bullion value. That fine man is a real Numismatist and illustrates the enduring aspect of this hobby that actually gave him back not only a far greater financial return than Bullion would have, but kept his mind forever young !!!

 

Thanks for your posting

 

Geejay

Edited September 6, 2011 by geejay50

[jwither 17]

To my knowldege, the same pattern you describe is also true in the United States. I have never seen any statistics to substantiate it one way or the other but I consider it very likely that it is.

 

However, I am not sure why anyone would expect anything different. The apparent expectation you describe is simply a rationalization which current owners of the material in question (whatever it may be) use to dupe unsuspecting buyers into overpaying for anything they want to sell.

[EWAAN Galleries 11]

Give this some thought.........

 

The 1892 Proof Penny sold for just over 1.4 million rand on heritage. And over 40 people tracking that auction. The buyer or underbidder could have bought 100 Ounces of Gold or 140 kilograms of Silver with the same money.... But decided to invest in a Superb Gem Copper Coin.

 

Interesting!!!!

[Jacques Kuun 12]

Hello Ewaan Galleries

As a stamp dealer who follows the Coin Forum on a daily basis, I find your above post to be the most significant piece of reading that I ever came across on the BoB Forum.

The meaning of your post surely holds true for other collecting fields as well.

Keep well and regards

Jacques

[jwither 17]

Given how expensive so many coins are today, the example Ewann Galleries gave happens a lot more often than most people know. The last time I checked, there were 91 different US coins in the PCGS "Million Dollar Club". For coins over $200,000 USD, there must be as many as 500 to 1,000.

 

Does this lessen the numismatic significance of the 1892 proof penny? No, it does not.

 

Is it particularly significant from an "investment" standpoint. No, not really. Not only is not particularly significant anymore due to the price of the coin, but the same concept can logically be applied to any coin purchase because every coin buyer could have in theory bought something else, whether metals or any other "investment".

 

Additionally, it would be one thing if there was any evidence that this or any other buyer conciously made this purchase and decided to pay this amount based upon an analytical evaluation among alternative "investments". But in this instance, it is unlikely and for most coin buyers, there is no evidence of that at all. The number of coin (or other collectible) buyers who actually make a decision using considerations such as this is essentially zero. Because if they did, then the relative prices within the coin universe would be radically different from what it is today. There are too many coins which sell for prices which bear little relation to their relative numismatic merits, no matter what apparently objective criteria anyone tries to use.

 

I have my set of critera which I consider to be as reasonable as any which I have used to evaluate many coins on this forum. But it is only reasonable to evaluate their relative value and not their prospects for future appreciation or depreciation. The fact of the matter is that people do not buy coins this way.

 

First collectors tend to buy mostly or exclusively within their market. South African collectors buy mostly South African coins and US collectors buy mostly US coins. I have my personal preferences, but I am one of the few buyers who does not and know of no one else who does so. I lived in South Africa at one time and that is why I started collecting these coins, but I do not collect US coins at all and do not limit myself to any particular area like practically every collector does.

 

Second within a market, collectors then tend to prefer and pay more for coins based upon factors such as scarcity, artistic appeal, historical interest, the metal content, size and availability. There may be other factors that collectors use but this generically explains why given approximate equal scarcity, ZAR sells for more than Union, gold coins sell for more than silver and bronze and bigger coins sells for more than smaller ones. Not always, but usually. How much they actually will pay for a particular coin is a combination of subjective preference and financial capacity. Nothing more and nothing less.

Edited September 12, 2011 by jwither

[jwither 17]

Duplicate post deleted.

Edited September 12, 2011 by jwither

[Guest Guest]

Collectables or Bullion

 

Ewaan says:

 

The 1892 Proof Penny sold for just over 1.4 million rand on heritage. And over 40 people tracking that auction. The buyer or underbidder could have bought 100 Ounces of Gold or 140 kilograms of Silver with the same money.... But decided to invest in a Superb Gem Copper Coin.

 

When we talk about very highly priced coins - like the 91 "Million dollar" club coins John referred to - there is a small very elite market of coin collectors largely based in the US who mostly come from ultra wealthy families - thus the high prices they pay for coins - because the supply of (FIAT) funny money is no problem to them. In comparison to the prices paid on the most sought after coins in America the 1892 Proof Penny quoted above is relatively cheap.

 

BUT there are two factors that have been overlooked in the quote above:

ONE: The money we use today is worthless FIAT funny money which, in my view, is about to collapse around the world. When FIAT does collapse expensive coin rarities, like the 1892 Proof Penny, will be among the WORST investments one can make for two simple reasons.

 

a) The means of trade with which it was sold - ie FIAT funny money - will be worthless

b) You won't be able to take a million dollar coin and buy something of like value with it. Conversely, the equivalent in today's value in physical gold and silver will allow you to barter and survive as long as your physical holdings is in a range of bar sizes and bullion coins.

TWO: when FIAT funny money collapses the last thing in the world even these ultra wealthy families will want is another expensive coin. There is only one factor that matters regardless the historic "value" of a coin; that is mentioned in the quote above and it is quite simply SUPPLY AND DEMAND. When FIAT collapses the demand for expensive coins will disappear overnight because people will be more interested in surviving and consolidating their position in a fast changing world.

 

Let us look at the example of the 1892 Proof Penny - who would pay one hundred ounces of gold or 140kg of silver for this coin after the banks start imploding and FIAT funny money collapses? Yet, that amount of physical silver and/or gold would secure your future.

 

I believe the smart investor today is stocking up in physical gold and silver to be prepared for the possibility of a collapse of the financial system as we know it. Owning one hundred equally rare coins like the 1892 Proof Penny will NOT provide you one iota of financial security. Apart from the gold and silver rarities where you would at least get the precious metal value. A copper Penny? Not much....

 

Of course these points are predicated on a collapse of FIAT which in my view is now a mathematical certainty.

 

PS Let's do a revaluation of the value of the Proof 1892 Penny when compared to 140kg of silver or 100 ounces of gold in six months time... then let's discuss what is a better buy and why

 

Kind regards

 

Scott Balson

Edited September 12, 2011 by ndoa18

[ThomasMueller 10]

These ultra wealthy families are...

 

...behind the scenes. They control the world. Ben Bernanke is just a messenger. If funny FIAT money collapses I would not blame on him personally. He tried the best, but it didn´t work.

 

The only problem these ultra-rich people have is to decide which cigar to smoke or which premium wine to drink (Beerenauslese or Trockenbeerenauslese or better Eiswein). Or is German wine gold-fashion, whisky or wiskey could /would be better...or champagner.

 

May be a proof ZAR copper penny is even a better investment than filled up with alcoholic beverages.

Edited September 12, 2011 by ThomasMueller

[Algreco 10]

Here are my 2 cents worth...

 

As long as the US dollar is used as the currency of choice to purchase oil with, it cannot be regarded as a fiat currency. And anyone who does try to change the modis operandi will be blown to smithereens by the most powerful military force on the planet - Iraq and Libya bair testimony to this.

 

The other thing I cannot forsee is our current currency system diminishing. People are so set in their ways, that it would take a cataclysmic event of gargantuan proportions to change the way and thinking of the average individual. This silver and gold craze has only been perpetuated by media hype.

 

I love gold and silver (in both numismatic and bullion form) but I don't ever think it will be used as a form of barter (or replace the existing paper based currency system) in this life or the next.

 

As for the 1892 proof penny, kudos to the new owner.

 

Adios

Nick

Edited September 13, 2011 by Algreco

[Guest Guest]

The US$ is FIAT funny money - from the financial experts... recent articles

 

CNBC:

 

US$ is FIAT funny money... quote:

Governments, such as the U.S., that issue debt denominated in their fiat currencies are not at risk of involuntary default or insolvency. They can default on debt—but only by choice or by accident. They can never be forced by bond markets to default because they cannot roll over debts or make payments. When push comes to shove, they can pay any obligation by spending fiat money that, quite literally, comes from nowhere.

Source: CNBC News Headlines

Bloomberg:

 

Confidence in FIAT (US$) disappearing:

“Today is one of a series of data points that, when taken in aggregate, continue to show a weakening U.S. economy and a lack of confidence in our government’s ability to do something about it,” Steve Shafer, who helps manage $300 million as chief investment officer of Covenant Investors, said by telephone from Oklahoma City. “Combined with the problems out of Europe, there’s a depreciating confidence in fiat currencies. All of those funnel into a heightened demand for gold.”

Source: Gold Heads for Biggest Advance in Four Weeks as U.S. Employment Stagnates - Bloomberg

 

Reuters:

 

All money today is FIAT:

Really what Ackermann is implying, and he is right, is that almost no amount of bank capital is enough to overcome a loss of faith in the sovereign states on which all banks in a fiat money system, by definition, rely. You can dilute the equity stakes of existing shareholders as much as you want, but banks will still fail if the sovereign fails, and that is exactly what is at risk if the euro zone disintegrates.

Source: FIAT money is global

 

There are countless other articles supporting the view that the US$ and all other currencies are FIAT - printed at will with nothing backing it (just Google).

 

Thomas' post today in ON THE CUSP provides answers a lot of what you say... http://forum.bidorbuy.co.za/coins-notes-numismatist/9090-cusp-103.html#post119287. I agree with Thomas' views.

 

Kind regards

 

Scott Balson

Edited September 13, 2011 by ndoa18

[jwither 17]

In a private message exchange, I already provided a reply to the idea that the USD is linked to oil or other commodities. I disagree with the reasoning in the article I read because there is no reason why commodity sellers will not accept other (fiat) hard currency. It just happens that for now at least, other countries have far more USD than they can possibly use and they might as well pay for any purchases they can with them. Thy presumably know that the US will never generate sufficient future trade surpluses to redeem them at full value.

 

That being said, I do not believe that the fiat money system is anywhere near collapse either. Yes, the banking system is in trouble and so are credits whether the banks or governments everywhere. It will collapse - eventually - but I just disagree that the "printing" option will be the first used or anywhere near it to make the debt burden manageable. There are many other measures which countries such as the United States can and will choose FIRST. I have explained this in many prior posts and will not do so here again unless it is necessary.

 

That being said, I agree with Scott that from the standpoint of "investment" or managing your money generally, that coins are a far from optimal store of value. Yes, they provide a limited store of value and in my opinion, always will but gold and silver are far superior to them.

 

Collectible coins are not an inflation hedge and they are not a hedge against adverse economic circumstances either. Yes, given the right set of circumstances, coins will go up with general price increases but I disagree that this correlation is equal to causation.

 

Higher coin prices under most circumstances are the result of economic prosperity which enable people to have more discretionary income and pay more. This is evidenced by the performance of United States coins in the late 1970's and now. In the late 1970's, there was relatively high price inflation but wages rose with the cost of living. Many US coins were also cheap (though not as cheap as South African coins were until recently) and this made it much easier for them to increase significantly in price. I remember more than a few even common coins increasing 10 times in this decade.

 

Fast forward to now and at least since 2007 and to a certain extent even before, most US coins have either stagnated in price or lost value. I'm not aware that they have "crashed" but skeptics need to keep in mind that this is in the context of a big increase in metal prices. The best explanation for this is that the income of the typical American has stagnated and most cannot afford to pay more, especially with high debt loads and employment conditions. If metal price increases have not been enough to push prices higher, then what exactly are the conditions that optimists expect will do so?

 

In South Africa, I can see a price inflation problem coinciding with some coin price increases, but I also expect them to mostly underperform bullion as they have recently. The South African coin market is miniscule in terms of turnover and market capitalization, so even minimal amounts of capital can move it substantially. But as I said in a post a few days ago, if conditions really deteriorate in South Africa, the last thing I would want to do is try to physically tranport a valuable collection out of the country.

Edited September 13, 2011 by jwither

[Guest Guest]

The collapse of FIAT funny money and why bullion

 

The nine minute video I have linked here has been posted on the ON THE CUSP thread before but it is so relevant to this discussion.

 

In the video a Professor of Mathematics explains in the most simple terms and entertaining way the "exponential factor".

 

If you apply this to FIAT funny money you will understand why its value is well on the way to "0".

 

It is an incredibly powerful video... well worth watching:

(if time is an issue just watch part one).

 

PS The video has had over three million views on Youtube

For those who want to see his now famous bacteria in the bottle parody - watch from half way through this clip:

 

The importance of investing in physical silver and gold (that cannot, like FIAT funny money, just be printed or created) now becomes obvious.

 

If, like me, you are fascinated by this simple mathematical logic

and click on the video parts linked sequentially below the video playing.

 

Kind regards

 

Scott Balson

Edited September 13, 2011 by ndoa18

[PBGold 10]

There is a massive difference between an investor and a speculator.

 

A lot of the 'buzz' now in the industry are speculators that want to make a quick buck. These types will always disappear when things go bust. They simply move on to the next target. They care little or nothing for a market and couldn't care less if they themselves cause its downfall.

 

Always protect yourselves from speculators, they are only concerned with turning quick profit.

[Guest Guest]

The Difference between Silver and Gold Bullion Investors and Speculators

 

PBGold says...

 

There is a massive difference between an investor and a speculator.

 

A lot of the 'buzz' now in the industry are speculators that want to make a quick buck. These types will always disappear when things go bust. They simply move on to the next target. They care little or nothing for a market and couldn't care less if they themselves cause its downfall.

 

Always protect yourselves from speculators, they are only concerned with turning quick profit.

 

I totally agree. It has taken me years to build up the range of physical silver and gold holdings that I have today - allowing me to barter for the smallest to biggest items when things fall apart..

 

The bullion buyers INVEST in PHYSICAL silver and gold and store it safely for the LONG TERM to SECURE their future.

 

SPECULATORS play DAILY with PAPER silver and gold - you can find lots of discussion on this topic in the thread "ON THE CUSP".

 

Kind regards

 

Scott Balson

Edited September 13, 2011 by ndoa18

[geejay50 10]

Hi all Numismatists,

 

The cynical one dimensional view of the bullion speculator is not really an asset to a Numismatic website in the long run. Glorifying their selfish performance merely makes the matter worse.

 

Geejay

[Guest Guest]

Totally agree George

 

Hi all Numismatists,

 

The cynical one dimensional view of the bullion speculator is not really an asset to a Numismatic website in the long run. Glorifying their selfish performance merely makes the matter worse.

 

Geejay

 

 

 

I am not aware of anyone on this forum trading in PAPER silver and gold are you? That is where "bullion" speculators make their money.

 

Bullion investors are simply acquiring physical silver and gold to secure their long term future - just as any sensible person does by having a pension fund! It might be alternative but investing in precious metals over the last ten years has certainly beaten any other form of investment I can think of! In fact a pension fund based on FIAT is in my view HIGHLY SPECULATIVE under the current global financial system.

 

I need surety - so owning physical gold and silver are my safe haven.

 

PS I have some of the highest graded slabbed South African union coins in my collection but expect when FIAT collapses they will not attract any more than their equivalent in VF - ie the precious metal value. That's the reality check for me!

 

PPS Numismatics is a love for one's hobby - ie collecting coins, researching and enjoying their history. Don't ever confuse this simple truth. So just "investing" in expensive coins does NOT make a collector a numismatist - in fact many of those "rare coin collectors" are actually nothing more than SPECULATORS!! Ironic isn't it?

 

Kind regards

 

Scott Balson

Edited September 13, 2011 by ndoa18

[geejay50 10]

Hi Scott,

 

There is really no comparison between Numismatics, the title of this website and bullion speculation.

 

 

Geejay

[Guest Guest]

I agree George

 

I didn't start this thread - it really belongs in UNDER THE CUSP but as it is here all I am doing is participating.

 

As you would know this is an area of interest of mine so it would be rather strange if I didn't add my "penny's worth".

 

PS Only you and PBGold have raised the word "speculation", before then it did not feature. As my wife will tell you I detest speculators - because most of them hang out in Wall Street.

 

PPS As you would know I have been proverbially whacked over the head by a couple of people for daring to publish my carefully researched numismatic findings on historical inaccuracies in the past (as they relate to early South African coins) in this forum. So I have a complete understanding of the vagaries and dangers of discussing numismatic issues here!

 

Kind regards

 

Scott Balson

Edited September 13, 2011 by ndoa18

[qball 12]

Gentlemen - please stick to the topic and do not argue with each other...

 

Thank you...

[jwither 17]

In the buying and selling of coins, there are only one group of "investors". These are the dealers and auction firms who do so as a business venture.

 

Those who buy the coins either do so as a collector or as a speculator. There is no difference whatsoever between a supposed "investor" and a speculator. It is purely semantics.

 

Those who buy as a collector are buying coins as a substitute among alternative forms of consumption. "Investors" are buying coins for the purpose of realizing a profit on the price change. That is what most buyers of any financial instrument or for that matter, most assets do. Though some are a combination of both, they do not create or add any incremental value whatsoever.

 

Some try to rationalize that those who buy for the "long term" are "investors" and those who buy for the (undefined) short term are speculators. That distinction is purely artificial and spurious. In actuality, it is a basis for rationalization.

 

It is a basis for rationalization by both buyers and sellers. For buyers, it serves to rationalize paying exorbitant or excessive prices for a coin versus its prior sales or for a coin that many or most collectors would otherwise admit has inferior credentials versus others.

 

For sellers, it is self interest because speculation can be at least temporarily profitable. It is more profitable for dealers and auction firms because rising prices tend to increase business, including as a dumpiing ground to get rid of inventory at inflated prices. Not all sellers are trying to take advantage of potential buyers but I consider it unquestionable that the "cheerleading" I see for higher prices is mostly motivated by this self-interest.

Edited September 13, 2011 by jwither