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Sunday, February 20, 2011

Gold-stater Ancient Gold Coin market update Feb 20, 2011

It has been my observation that the Ancient Gold coin market acts as a leading indicator for the gold market. It can be no coincidence that the ancient coin market came alive back in 2002-3, just as the price of gold starting moving up. The reason for this is that the same "smart money" that foresaw the imminent problems with paper reserve currencies such as the dollar, the euro and the yen, sought to move into bullion and collector coins for exactly the same reason: diversification of capital into easily stored commodities with established intrinsic value.

However, anyone following the ancient (and world) coin market has noticed how gold issues in general have far outperformed silver issues. Why?

The naturally occurring ratio of Silver to Gold is 17:1. The current gold to silver price ratio is about 42 down from a high of 50 a month ago and 80 at the peak of the financial crisis back in 2008. The reason that gold bullion outperforms silver is clear. Central banks use gold as a reserve currency. They buy silver to mint silver coins. But they only hold gold in their vaults. During periods of monetary instability they typically seek to increase their holdings of the one stable currency: gold.

But why should ancient gold coins that have about the same rarity as a silver coin trade at a premium. Clearly, what Marx termed "fetish value" would be one important reason. Gold has historically commanded a strong fetish value. But perhaps there are other reasons.

In a typical ancient Greek coin auction you find a ratio of silver to gold/electrum occurring at somewhere between 7:1 and 15:1 depending on the auction. However, if you strip out the most common gold issues: Philip, Alexander and late Lysimachos staters and electrum trites, hektes and fractions, you find the ratio comes down to about 25:1. Then strip out darics and carthaginian electrum and you're at about 40:1. So what's the point?

The point is, that after acquiring a nice Philip, Alexander and late Lysimachos stater, a couple of nice hektes, a daric, a Lydian trite and an electrum Carthaginian horse stater - as nice as these issues may be, it becomes relatively difficult to find gold coins in any condition in any auction. And in high grade even these issues are extremely difficult to locate - after 2500 years of storage, excavation, and cleaning.

You may object that the same may be said for rare and sought after silver issues, especially large pieces like Dekadrachms, medallions and signed issues and the like. And these rare issues do command prices similar to those of rare gold coins.

But the simple fact is that whereas every Greek city state minted its own run of silver drachms and multiples and fractions, only the most powerful empires were able to acquire gold in sufficient quantities to produce a standard (or perhaps reserve) currency. Thus we find gold issues of Croesus, then Darios, then Philip and Alexander, then Lysimachos (and types) dominate the world of Greek gold down to the time the Romans launched their empire.

Carthage and Syracuse, though not empires, were powerful enough to dominate trade in their spheres of influence and both produced meaningful runs of gold coins - though in far smaller numbers than the great empires. The same can be said for the Ptolomies who dominated Egypt, and to far more modest degree the Tarantines who conquered much of Italy under Pyrrhos. In fact finding issues of Tarantine gold is becoming next to impossible. Moving on from there we find gold issues so small that coins in nice condition routinely bring high five to six figures: Rhodes, Athens, Abydos, Pantikapaion, Pre Ptolemaic Egypt, etc.

But over the last two or three years the explosion in the price of rare ancient gold coins seems to have accelerated. I believe two factors to be largely responsible. And I believe these factors will become ever more determinative as time passes.

The first factor is the internet. All major auctions are now listed on Sixbid. Many have online bidding platforms. Obviously many more collectors/investors/speculators are now aware of every coin coming to auction. Thus even dealers save their best coins for auction (rather than dealing them to private customers); and each successive high profile auction is bringing higher and higher prices.

The second factor is grading/slabbing. Though still quite controversial in some circles, the fact that ancient coins can be certified as genuine and unaltered is an enormous boon to many world and US collectors who have been covetously ogling the ancient coin market from a safe distance. These collector/investor/speculators are now jumping into the market. Many of them are used to purchasing US coins that minted (and available) in thousands are considered extremely rare. They are finding that extremely rare ancient gold coins are numbered in the dozen (s). And they are thrilled to purchase them for a fraction of what they are accustomed to paying for "rare" coins.

Veteran ancient dealers and collectors are concerned that at the grading companies one person (no matter how talented and knowledgeable) may be imposing an arbitrary grading standard on an entire industry. And over time collectors will have to learn to trust their own eyes along with the grades. But the certification process - like the internet - will come to dominate the coin market in time.

And these processes should help ancient gold coins lead the price of bullion for years to come.

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