How Have Gold Coins Performed in 1999?
by David L. Ganz
Column 8 - October 13, 1999
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There has been a truly incredible bull market in the United States during the first three quarters of 1999.
Pricing trends remain upward. There is a minimum amount of instability. Daily (and even short-term) rates of change are insubstantial. Inflation is minimal, and even in the face of regulation by the Federal Reserve (which has twice moved discount rates to slow the economic engine down), the bull market chugs onward.
Yet, there's a surprise in this analysis: the bull market that this refers to is rare coins, not stocks, and as representative samplings comparing rare gold coins, the Dow Jones Industrial Average, and even gold bullion pricing shows, rare gold coins have established themselves as a bulwark of the marketplace.
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The movement of the Dow Jones Industrial Average in 1999 is compared
with the value of a 1910-S $20 Saint-Gaudens gold piece graded MS-64.
The surprising volatility of the stock market shows price swings of two percent or more. One measure of this is in the erratic pattern that a graph of the Dow Jones Industrial Average has shown since January 4, the first day of the new trading year.
It can be even more dramatically tracked with a "rate of change" measure that shows the almost yo-yo effect that has taken hold of the equities marketplace, when expressed as a percentage. These spikes show a very volatile market that turns on a dime, so to speak.
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A 50 year comparison of rates of change for related markets.
By contrast, a typical rare coin - say a 1910-S MS-64 St. Gaudens double eagle - has had a much smoother price run. From January through May, there was hardly a change in the prices, according to data provided by NumisMedia, the electronic price guide run by Dennis Baker.
With a mintage of 2.1 million pieces, it is a decent choice to represent a typical rare gold coin. A bit less than 10% of the pieces certified by PCGS are in MS-64 grade (it trails off even more dramatically for MS-65s, and the prices reflect it accordingly).
A recent price for the 1910-S was $1,260; that's up from $1,155 earlier in the year - a total change of about 9%, but with very little evidence of backsliding.
These type of changes are evidenced not only for coins that are of near gem quality, but also for those which are more closely tied to the bullion market - a double eagle in extremely fine condition, for example.
As an exercise, using NumisMedia's pricing data, I took the 1910-S double eagle and tracked it in XF, MS-60 and MS-63 condition, and then matched the performance against the daily Dow Jones Industrial Average.
What I expected to find - that stocks took off and left coins in the dust - is not what the numbers proved out, and certainly not what the graphs and charts that the numbers that form them demonstrate. The results, to my way of thinking, are surprising.
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The values of three 1910-S $20 gold pieces in different grades, with movement of
the Dow overlaid, show less fluctuation and, in upper grades, appreciation.
As might be expected, the XF-40 coin did not move very much. In July, it dipped slightly, rising again in August, dropping a little at the start of September. The MS-60 example did about the same, until June, when it broke the trend line and began to move upward.
Really surprising, except to those who have claimed all along that MS-63 Saints are not only a good inflation hedge, but a more than decent investment, the 1910-S in MS-63 clocked off at a pace that outperformed even the Dow for a good part of the year, and certainly with a more steady, solid growth.
Condition surely makes the difference, here. But when you add the component to this of gold's price floating gently downward, it's clear that the MS-60, MS-63 and MS-64 coins have a substantial life that goes beyond bullion, and a means to achieve reasonable growth.
Gold's story in the international realm is a sad one - an asset of last resort whose principal holders (central banks and world governmental agencies) are now trying to dispose of it - and dumping it on the market in the process.
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CONTINUED ON PAGE 2
Copyright 2000 by Krause Publications, all rights reserved. Reprinted by permission of the assignee, David L. Ganz. Unauthorized reproduction is a violation of Title 17 of the United States Code and other statutes.
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David L. Ganz
