March 2023 - Week 5 Edition

GOLD Crosses $2k Threshold Twice in One Week

Gold touched $2,000-plus twice last week, reaching $2,006 before dropping to $1,960 on a stronger dollar Friday and some profit-taking Monday by gold traders. The number of failing banks seemed to pause, for the moment, due to promises of bailouts to all depositors – although these were not clear promises, as it turns out, with Treasury Secretary Janet Yellen waffling and sending stocks down, only to recover later.  While gold fell Monday, silver has retained most of its recent gains. Measured from March 8, just before Silicon Valley Bank collapsed, gold is up 8% and silver is up 16%, twice as much.

Today’s Crisis Resembles Other Super Bullish Rare Coin Markets

The PCGS 3000 Rare Coin Index was formulated on January 1, 1970, at a value of $1,000 (It began as the CU 3000 Rare Coin Index and revised its name several years ago). According to the latest valuation, this basket of rare coins is worth $71,705 as of March 24, 2023, up over 7,000% in just 53 years, more than the S&P 500, Dow Jones, gold, or silver.

The PCGS Rare Gold Coin Index was up even more at 12,056%. These rare coin gains did not happen on a continual rise. There were four major surges, the first in the 1970s, characterized by high inflation and economic stagnation, dubbed “stagflation.” In the late 1980s, with a stock market crash, Iran-contra, the savings & loan crisis and multiple bank failures; it rose again. Then, in the 2000s, from 9/11 to the 2008-09 financial crisis, with gold soaring amid severe recessions and a war on terror, rare coins again increased. Now, we see the beginnings of a fourth major surge in the rare coin index, which has already risen greatly from March 23, 2020, to March 24, 2023, with the big surge starting in March 2021.

Here are some of the comparisons from those past four rare coin bull markets to current conditions.

Rare Coin Bull Markets Since 1970

1971-74: Nixon closed the gold window on August 15, 1971, followed by Watergate, the OPEC oil embargo, high inflation, a 45% stock market crash (worst since the 1930s) and the end of the Vietnam War.  In that time, silver rose 250%, and gold and the CU 3000 Rare Coin Index rose 348%, but that was just the start.

1976-80: Inflation continued to rise under Jimmy Carter. The Soviets took control of nations around the world, Iraq and Iran went to war, while Iran captured 54 American hostages and Carter seemed helpless. In that time, silver spiked up 2,300%, gold rose 800%, platinum 400% and the CU 3000 Rare Coin index had its greatest surge of the decade, up 1,195%, to reach $40,000 – a 40-fold increase since its launch.

1986-90: Despite relatively low inflation, this marked a huge bull market in rare coins due mostly to the avalanche of failing banks and savings & loan institutions and a massive 1987 stock market crash. One-third of all S&Ls failed and over 2,000 banks (out of about 14,000, or 15%) also financially collapsed, driving investors into bullion and rare coins. From 1983 to 1989, the CU 3000 Rare Coin Index gained 603%.

2001-2009: From 9/11 and the war on terror to the great financial crisis of 2008-09, there were two deep recessions and record-high deficit spending. Gold soared from $255 per ounce before 9/11 to break $1,000 in 2008 and then reach a record high of $1,800 in 2011. Rare coins also surged from 2002 to 2009, although in this case gold bullion was the clear winner, up 600% in the decade from 2001 to 2011.

Here are two other remarkable similarities during those past rare coin bull markets and now.  The first was a rapid increase of interest rates by the Federal Reserve during these past rare coin bull markets.

• From the end of 1971 to July 1, 1974, the Fed Funds rate shot up from 3% to 13.5%.
• From the end of 1977 to December 1980, the Fed Funds rate soared, from 4.6% to 19.2%
• From October 1986 to March 1989, the Fed Funds rate rose from 5.84% to 9.87%
• From June 30, 2004, to June 30, 2006, the Fed Funds rate rose sharply, from 1% to 5.25%.
• And now, from March 2022 to March 2023, the Fed Funds rate has risen from zero to 4.6%.

Oil prices were also rising rapidly during these past bull markets in rare coins and precious metals:

• Due to the OPEC cartel, oil prices rose from $23.30 a barrel (March 1973) to $63.30 a year later.
• Oil prices doubled again from $65.40 in January 1979 to $143.79 in June 1980.
• Oil collapsed, but then resurged from $28.81 in March 1986 to $90 a barrel in September 1990.
• Oil surged after 9/11, from $33.79 in December 2001 to an all-time high of $177 in May 2008,
• Recently, oil surged from $22 per barrel in April 2020 to over $110 in May 2022.

It looks like we have all the ingredients in place for another surge in rare coins and precious metals: (1)  rising interest rates; (2) rising oil prices; (3) a looming banking crisis; (4) global uncertainty, now in Russia, China and elsewhere; (5) huge deficit spending, as never before, with no intention of stopping it.

The difference is that we are now early in the cycle, so we have time to take positions for the next big rise in precious metals and rare coins. Contact your professional account representative ASAP for the right mix of rare coins and bullion coins for your existing portfolio or IRA balance to create the “insurance” you need for the crisis ahead.

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