Looking Ahead to the Next Bull Market in Coins
SETTING THE STAGE FOR ANOTHER JIMMY CARTER¬STYLE WAVE OF INFLATION
2021 marks the 50th anniversary of the uncoupling of gold and the U.S. dollar, which was finalized when U.S. President Richard M. Nixon closed the Gold Window on August 15, 1971. At that time, gold had been trading at a fixed rate of $35 per ounce for over 40 years. Gold and gold coin sales immediately took o from that artificial price, and gold rose to $190 by the end of 1974. This contributed to a major bull market in gold and rare coins.
That time was also marked by political unrest: the Watergate scandal, the ignominious end to the Vietnam war, President Nixon’s resignation, and the Yom Kippur war leading to the OPEC oil cartel with the immediate doubling of oil prices. This led to extreme financial distress with the worst postwar stock market crash to that date, the 45% 1974 stock market crash, amid high inflation and a doubling of interest rates from 4% to 8%. One major rare coin index, the PCGS3000, shows an increase of 348% between 1972 and 1974.
The key elements driving increased gold and rare coin prices and sales then were political uncertainties; a stock market crash; rising interest rates; rising energy prices; and rising precious metals prices.
It didn’t take long for that formula to repeat itself in a much stronger manner from 1976 to 1980.
Gold corrected to just over $100 per ounce in late 1976 on hopes that the new President, Jimmy Carter, would solve all problems. However, Carter proved to be indecisive in the face of a second wave of OPEC oil price increases, Russian expansion around the globe, the Iranian hostage crisis and another deep recession amid double-digit inflation (“stagflation”). The Dow Jones index fell 25% from 1976 to 1980 in “nominal” terms but, adjusted for inflation, it fell about 50%. Oil prices more than doubled again, from $14 to $35 a barrel, and there were gas lines across the nation. In Carter’s last year in office, gold shot up from $300 to $850 an ounce, and silver reached $50. The dollar kept falling, and bonds were losing value due to inflation. One investment was beating all others: The PCGS3000 rare coin index rose 1,195%.
After a five-year recovery during the early Reagan years, tensions were building up once again with the Iran-Contra scandal and the burgeoning Savings & Loan scandal, as Wall Street speculation led to a massive 35% stock market crash in 1987. During that time, the rare coin market began its second-best surge in modern times, even though gold bullion prices only rose gradually. The major rare coin index rose 665% while gold rose by less than 70% during the mid-1980s, peaking at $500, well below its 1980 high.
Now, oil prices are soaring once again. Gold prices and sales rose strongly in 2020, and could rise further during 2021. The stock market has risen lately, but its sky-high valuations point to the potential of a serious correction. Global tensions are returning since a weaker U.S. president is bowing to China’s blustering demands, and new tensions are arising in Turkey, North Korea and the Middle East.
The new Biden administration is running up massive deficits and printing fiat money in the multi-trillions of dollars to finance new giveaway programs, which will no doubt fuel inflation in the near future. So we could be setting the stage for another Jimmy Carter-style wave of inflation – similar to the late 1970s and possibly the next Mega-Bull Market. Prominent dealers across the country tell me that they haven’t seen this much collector and investor interest in bullion and rare coins in 15 years.