In 2022, the annual global investment in precious metal coins and bars increased 10%, according to the World Gold Council; this year, rising precious metal prices could lead to more coin market growth, says Kevin DeMeritt, founder of Los Angeles-based gold and precious metals firm Lear Capital.
With the continued concern about the U.S. economy faltering — including fears of a recession — a number of investors, DeMeritt says, may gravitate toward physical precious metal asset-based gold coin and other investments, which are sometimes viewed as a more volatility-adverse option.
“The economic uncertainty right now is going to be a big factor,” Kevin DeMeritt says. “Gold is typically used as a safe haven during recessions, market volatility, and war. When investors are worried about the economy — like we’re seeing now with bank failures or the war in Ukraine — usually you get more people turning to gold, which can drive up its price. We’re starting to see that more and more.”
Coins, in particular, have historically retained value during turbulent times. Premium precious metal coin prices, for example, performed steadily during the 15 recessions the U.S. has had since 1919. Consistently, between the 1980s and 2012 — including during the 2009-era Great Recession — the CU 3000 Rare Coin index remained above the Dow Jones index, according to Lear Capital research.
A number of factors could determine the direction in which precious metals’ values move during the remaining portion of the year, and, in turn, influence coin market prices — including the following considerations.
Could Paper Currency Give Gold a Boost?
“Gold is priced in U.S. dollars,” Kevin DeMeritt says. “So changes in the exchange rate between the dollar and other currencies can have an impact on [its] price. When the dollar weakens — [which] I believe it will, as we enter [the] recession I think is coming this year — the price of gold tends to rise even more dramatically.”
With the U.S. government printing money at a rapid rate in recent years for reasons such as helping to keep the economy churning during the COVID-19 pandemic — ultimately creating $22 trillion in currency in the past 14 years — paper money may not hold quite the same appeal for some investors, according to Kevin DeMeritt.
“We can only mine so much gold per year,” DeMeritt says. “Every dollar you print, the paper money that’s already out there becomes worth less and less. So paper money is probably going to continue to fall, [as] it has for hundreds of years now, and the price of gold is probably going to continue to increase as more people take those paper dollars and buy gold.”
The recent slew of bank operational concerns — which began in March, with Silicon Valley Bank becoming the first Federal Deposit Insurance Corp.-insured institution to close in more than two years — may have further fueled investors’ interest in gold.
The precious metal rose above $2,000 an ounce during the first week in May, eventually trading less than $0.25 below its all-time high, according to Markets Insider — which cited additional data indicating spot gold prices have increased by 8% since Silicon Valley Bank’s collapse.
Nearly twice as many Americans now feel gold is the best long-term investment — an 11% increase from 2022 — and this has propelled gold ahead of stocks on the list of investments’ perceived potential. Only real estate was ranked higher in a recent Gallup poll.
Resource Shortages May Drive Up Precious Metal Prices
The growing interest in precious metals from individual and other investors and the industrial sector has chipped away at the annual supply, according to Kevin DeMeritt.
While a number of central banks, for instance, previously invested heavily in U.S. Treasury and other securities, some have now switched to purchasing gold, resulting in robust gold accumulation in 2022, according to Lear Capital. By the end of the year, the central bank-related demand for gold had climbed 152% from 2021, reaching a record level.
“Central banks entered the market in 2022,” Kevin DeMeritt says. “They purchased a quarter of all the mining supply, which is a huge jump from [their previous activity].”
Spot gold prices last year also rose to their highest level in more than a year, topping $2,000 in the spring of 2022, according to U.S. News & World Report.
The global demand for silver in recent years has gutted the surpluses that had been produced in the previous decade, with back-to-back shortages occurring in 2021 and 2022, according to mining.com, which said last year’s deficit may have been the most significant on record.
In 2022, silver prices ended the year higher than at the start, according to Lear Capital data; the ongoing demand is predicted to cause further supply shortfalls within the next five years.
“Silver has become a highly in-demand asset, yet the available supply hasn’t vastly increased,” Kevin DeMeritt says. “Numerous investors view silver as a hedge against inflation because it has tended to increase in price during periods of high inflation. Silver is also needed for industrial and clean energy processes, which could help drive its price to more than $30 an ounce this year.”
Rising Precious Metal Values Could Push Coin Prices Even Higher
Constrained precious metal supplies can cause coin premiums — and values — to increase. That occurred during the recent COVID-19 pandemic, Kevin DeMeritt says, when the $2.50 you’d usually pay over the spot price of silver for a 1-ounce American Eagle coin, for example, shot up to $14 or $15 as supply issues affected mint production capabilities.
“If you already owned one of those silver American Eagles, and the price of the silver didn’t go up at all, you could have turned around and sold that coin, [which] you paid $2.50 over the spot price for, [at] $14 or $15 over the spot price — even though [the metal’s price] didn’t move at all,” he says. “If they have these limited mintages and an increase in demand [occurs], you not only get the price of silver moving up, the premium can move up, because there’s just not enough of them out there — and [you’ll] get this double-play profitability.”
In 2022, the U.S. rare coin market’s total volume surpassed a record $6 billion, according to CDN. The numismatic price guides publisher estimates U.S. rare coin public auctions totaled more than $560 million — which included the sale of a $5 Half Eagle gold coin from 1821 for a record $4,620,000 — marking the third consecutive annual aggregate increase in rare coin sales volume.
In a statement, CND publisher John Feigenbaum said the market entered this year on a strong note and appears to have sidestepped the jagged pricing fluctuations other categories of collectibles, such as baseball cards and NFTs, have experienced.
“Gold and silver have historically performed very well in times of inflation,” Kevin DeMeritt says. “With inflation and a recession looming, people should consider precious metals as a hedge against some of that economic uncertainty. Gold was up 300%, silver was up 500% the last time we saw inflation this high; some of [the] smart money is starting to move over to the market.”