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How is it not possible to have bids on generic gold when prices are tied so closely to the spot pric
Longacre
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As I sit here at the office on a Sunday (which is typically a day of rest worldwide, except in the case when you work for The Man), I was taking a read through the Legend Long Beach Report, and I cut and pasted an excerpt below. The excerpt is frustratingly poorly written, but in essence what it is saying (I think), is that no one was putting supportable bids on generic gold during the show. Here are my questions:
(1) How is it possible not to put a bid on generic gold when its price is so closely tied to the spot price of gold? It seems simple, but perhaps I a missing a nuance in the pricing of these coins.
(2) The comment below states that “premiums crashed [on generic gold] in a day”.
a. How is it possible for a premium to crash on a gold coin that is essentially tied to the spot price of gold? In other words, wouldn’t the “premium” on the price of the generic gold coin remain the same, albeit at a lower gross amount, but at the same percentage of the now lower price of the coin overall?
b. With generic gold, does a drop in spot price first reduce the “premium” that existed relative to the former, higher spot price, or does the entire price of the coin (the bullion value and the numismatic value) move in tandem?
Here is the quote:
“Generics are a disaster. The premiums crashed on many denominations in a day. We think things have already bottomed as we have heard of and experienced ourselves, requests to buy at the new lower levels. The only problem-no one is sure of the levels since there are no bids! At the end of the show, there was a smaller telemarker walking around trying to buy up MS66 Saints at levels he felt comfortable (which actually were reasonable). Gold action (or lack of) at the show may really have just been one heck of an overreaction. This week we will see where spot goes. Inour opinion, we believe what just happened was a much needed correction.”
(1) How is it possible not to put a bid on generic gold when its price is so closely tied to the spot price of gold? It seems simple, but perhaps I a missing a nuance in the pricing of these coins.
(2) The comment below states that “premiums crashed [on generic gold] in a day”.
a. How is it possible for a premium to crash on a gold coin that is essentially tied to the spot price of gold? In other words, wouldn’t the “premium” on the price of the generic gold coin remain the same, albeit at a lower gross amount, but at the same percentage of the now lower price of the coin overall?
b. With generic gold, does a drop in spot price first reduce the “premium” that existed relative to the former, higher spot price, or does the entire price of the coin (the bullion value and the numismatic value) move in tandem?
Here is the quote:
“Generics are a disaster. The premiums crashed on many denominations in a day. We think things have already bottomed as we have heard of and experienced ourselves, requests to buy at the new lower levels. The only problem-no one is sure of the levels since there are no bids! At the end of the show, there was a smaller telemarker walking around trying to buy up MS66 Saints at levels he felt comfortable (which actually were reasonable). Gold action (or lack of) at the show may really have just been one heck of an overreaction. This week we will see where spot goes. Inour opinion, we believe what just happened was a much needed correction.”
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
0
Comments
The premium on gold coins may very well get smaller.
Ray
<< <i>While tied to the price of gold to some extent, bid prices for many generic gold coins have represented large premiums over the price of gold. So I believe that your premise "when its price is so closely tied to the spot price of gold" is somewhat faulty. Sure, many buyers would buy the coins at small premiums over the price of gold, but for the moment, at least, apparently not at large premiums. >>
I don't understand.
(1) If there are large premiums on these coins above the price of gold, then they should not be referred to as generics.
(2) If many dealers are currently buying these coins at small premiums over the price of gold, how do you reconcile your first statement that these coins are not tied to the price of gold and have large premiums over the spot price? In other words, the downward trend in spot does affect the premium on these coins, thereby making them more generic-like than numismatic.
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
<< <i>
<< <i>While tied to the price of gold to some extent, bid prices for many generic gold coins have represented large premiums over the price of gold. So I believe that your premise "when its price is so closely tied to the spot price of gold" is somewhat faulty. Sure, many buyers would buy the coins at small premiums over the price of gold, but for the moment, at least, apparently not at large premiums. >>
I don't understand.
(1) If there are large premiums on these coins above the price of gold, then they should not be referred to as generics.
(2) If many dealers are currently buying these coins at small premiums over the price of gold, how do you reconcile your first statement that these coins are not tied to the price of gold and have large premiums over the spot price? In other words, the downward trend in spot does affect the premium on these coins, thereby making them more generic-like than numismatic. >>
What do you consider to be a large premium? $50 over spot?
<< <i>
<< <i>While tied to the price of gold to some extent, bid prices for many generic gold coins have represented large premiums over the price of gold. So I believe that your premise "when its price is so closely tied to the spot price of gold" is somewhat faulty. Sure, many buyers would buy the coins at small premiums over the price of gold, but for the moment, at least, apparently not at large premiums. >>
I don't understand.
(1) If there are large premiums on these coins above the price of gold, then they should not be referred to as generics.
(2) If many dealers are currently buying these coins at small premiums over the price of gold, how do you reconcile your first statement that these coins are not tied to the price of gold and have large premiums over the spot price? In other words, the downward trend in spot does affect the premium on these coins, thereby making them more generic-like than numismatic. >>
1) Regardless of what you think they should be called, many gold coins which are indeed generic, have been trading at large premiums over the price of gold. As just one example, MS63 Saints are very common, rightfully trade as generic coins, and have been trading at large premiums over the price of gold.; 2) I didn't say "many dealers are currently buying these coins at small premiums over the price of gold". I said " many buyers would buy the coins at small premiums over the price of gold...." Thus far, trades have not been occurring at small premiums over the price of gold.
Often, the premium, as a percentage, increasing as gold rises (and demand increases and emotions run high), while the premium decreases as gold falls (and demand slackens and emotions wane). Of course, depending on these factors, rising gold can reduce the premium, and falling gold spot can increase the premium, too.
I would avoid thinking of the premium as a fixed dollar amount or percentage for these reasons.
This is contrary to the hype on ebay, where buffalos in 69 and 70 were getting 250 to 300 dollars over, and some issues even more.
When the spot seems to be tending lower, as it has over the past few days, the premium totally disappears on generic gold. And no dealers want to be holding a large supply of a volitile commodity.
Buyers will come back in when the pricing hits a low( how low?) and/or there is an event wheich says gold is going higher right now.
Since we have little or no inside information on the travails of the day to day pricing, it makes it a stressful occupation . I would stick with numismatic examples, and hold for inflation.
First, in a sense, U.S. gold eagles are modern “generic’ gold coins. Even the Proof gold eagles fall into this category. A couple of months ago dealers were paying $1,600 to $1,700 for one ounce Proof gold eagles when the gold bullion price was between $1,100 and $1,200. So far I’m concerned that premium was much too high, and anyone who paid that with the idea of making a long term profit had to be betting on a significant increase in the gold bullion price.
These are the kind of premiums that have evaporated for generic gold. And when big premiums like this turn to dust, no one is maintaining any bid levels because no one wants to get caught holding the bag or maintaining a market when you don’t know what the bottom will be.
The high premiums were not a matter of some dealers ripping off the public. It was a reflection of a market that did not have enough generic coins available to satisfy short term demand. Such conditions cannot last. Anyone who has been in the coin business as a collector or dealer knows that.
First, in a sense, U.S. gold eagles are modern “generic’ gold coins. Even the Proof gold eagles fall into this category. A couple of months ago dealers were paying $1,600 to $1,700 for one ounce Proof gold eagles when the gold bullion price was between $1,100 and $1,200. So far I’m concerned that premium was much too high, and anyone who paid that with the idea of making a long term profit had to be betting on a significant increase in the gold bullion price.
These are the kind of premiums that have evaporated for generic gold. And when big premiums like this turn to dust, no one is maintaining any bid levels because no one wants to get caught holding the bag or maintaining a market when you don’t know what the bottom will be.
It was a reflection of a market that did not have enough generic coins available to satisfy short term demand. Such conditions cannot last. Anyone who has been in the coin business as a collector or dealer knows that. >>
I agree.
One may wish to add: Some dealers working the retirement investment market were telling the public that generic old gold and proof gold eagles are not subject to confiscation (very questionable) and pushing the common material new or old into price levels well beyond melt and endangered their customers savings.
Eric Jordan
The period leading up to Y2K (i.e., the year 2000) was an excellent example of this. Even without much movement in the price of gold, the premium for classic US gold coins increased for much of 1999, then fell significantly in the last few months of the year (and even more in early 2000, when the "disaster" of Y2K didn't happen).
For some strange reason, there's more demand for gold coins when the price of gold is moving up, so the premium frequently widens - but, when the price of gold drops, often the premium will disappear, as buyers diappear, too.
Check out the Southern Gold Society
1.) Prices for generic gold coins are tied to spot price, but spot price is in no way the only factor in determining prices or demand. Bids are placed when coins are being sought, and regardless of spot price, if coins aren't needed they won't be bid on.
2.a) There is no set percentage or set level of premium for generic gold. If there is demand then premiums will increase and if there is a lack of demand then premium levels will decrease.
3.a) There isn't any absolute correlation between the two. I've seen occasions when spot prices have increased but at the same time the premiums have decreased. Demand for coins is the most important factor in determining prices and premium levels.
At Long Beach generic gold was selling but at a substantial discount compared to prices from a few months ago. There are bids, but there is also a lot of supply available.
Authorized dealer for PCGS, PCGS Currency, NGC, NCS, PMG, CAC. Member of the PNG, ANA. Member dealer of CoinPlex and CCE/FACTS as "CH5"
<< <i>As I sit here at the office on a Sunday (which is typically a day of rest worldwide, except in the case when you work for The Man), I was taking a read through the Legend Long Beach Report, and I cut and pasted an excerpt below. The excerpt is frustratingly poorly written, but in essence what it is saying (I think), is that no one was putting supportable bids on generic gold during the show. Here are my questions:
(1) How is it possible not to put a bid on generic gold when its price is so closely tied to the spot price of gold? It seems simple, but perhaps I a missing a nuance in the pricing of these coins.
(2) The comment below states that “premiums crashed [on generic gold] in a day”.
a. How is it possible for a premium to crash on a gold coin that is essentially tied to the spot price of gold? In other words, wouldn’t the “premium” on the price of the generic gold coin remain the same, albeit at a lower gross amount, but at the same percentage of the now lower price of the coin overall?
b. With generic gold, does a drop in spot price first reduce the “premium” that existed relative to the former, higher spot price, or does the entire price of the coin (the bullion value and the numismatic value) move in tandem?
Here is the quote:
“Generics are a disaster. The premiums crashed on many denominations in a day. We think things have already bottomed as we have heard of and experienced ourselves, requests to buy at the new lower levels. The only problem-no one is sure of the levels since there are no bids! At the end of the show, there was a smaller telemarker walking around trying to buy up MS66 Saints at levels he felt comfortable (which actually were reasonable). Gold action (or lack of) at the show may really have just been one heck of an overreaction. This week we will see where spot goes. Inour opinion, we believe what just happened was a much needed correction.” >>
You also must take into acct "supply & demand"
Heritage is neck deep in U.S. Gold!
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Choice/gem generic gold is basically leveraged to the price of gold and market liquidity. In this case the falling stock market has sucked a lot of life out of the various markets including gold and gold coins. They are strongly linked. And just like the gold mining stocks, generic gold rises and fall with potentially high leverage (2X to 3X the % change in gold price movements). Even though the price of gold has not drastically changed over the past several weeks, the price of gold mining stocks & generic gold has. Considering that gold mining stocks have fallen 25-30% (vs gold at -15%) I'd not be surprised if generic gold also corrected about 25-30% (or 2X the gold price change). One only has to look at how rapidly the price of silver is falling compared to the gold price to realize that speculative money is leaving the stock and commodity markets. At the particular time I'd say the price of generics is more tightly linked to market liquidity than it is to the price of gold. There is no hard and fast rule though.
On a technical standpoint one could say that US generic gold is in "infinite" supply when only considering the boundaries of coin dealers, long time investors, and collectors. When shorer term investors & speculators disappear from this market as they currently are there typically is an overabundance of coins. And those specs can simply be dealers taking huge positions on credit or margin. At other times a hoard comes out of Europe and there is an overabundance of coins. This is not quite the case for AGE's and other bullion coins which have world-wide demand. MS64 Saints are not in demand world-wide unless you're willing to sell them for a very small premium over spot....not the 50-75% they had been bringing.
roadrunner