TD Securities says to hold off on buying gold for a few months: they predict gold to drop to $1,150, which is about as low as they think it can go just based off manufacturing industry demand.
So, the price of gold dropped precipitously a few weeks ago. One of the selling points that nearly every gold seller makes is that “gold coins tend to retain their value when the price of gold drops.” So, I decided to test it. When I was researching my “rooster” post a couple months ago, I took down some average prices of gold coins on eBay. It’s not particularly scientific, but eBay can show you closed auctions and what they sold for, so you can put together a sample of 50 or a hundred retail sale prices and get a picture of actual money paid for a coin.
Since then the price of gold dropped, so now I had a good use for the data: if I look today, a few weeks after the fall, will I see coins still priced about the same as they were pre-fall, or a softer fall, or no fall at all? Here’s the numbers:
|Coin on eBay||Feb Avg||Apr Avg||% Chg|
|20 Franc Rooster||$345||$320||-7%|
|10 Franc Rooster||$221||$204||-8%|
|Average per oz||$1993||$1819||-9%|
I sampled coins from a space of about three weeks, from just after the big drop, and I got the “average per ounce” based on the actual gold content of each coin.
When I sampled coin prices in February, the price of gold was $1591 an ounce, and had been pretty close to that through the sample period. The price of gold has changed significantly in the past couple weeks, but we can see how close eBay stayed to the price of gold by using our average loss per ounce from eBay and see how close to the actual numbers we are.
Well, now, that looks like a pretty even cross-section of prices that an ounce of gold went for over the past few weeks, doesn’t it?
At first glance, my reaction was, “woah, gotta buy some cheap $10 gold coins”, but like I said, I was rather unscientific: it’s likely that when gold hit the bottom, people went for the big coins first, and the average for $10 is a bit skewed versus the smaller 10 Franc coins which saw less of a drop. What this sampling should show is that gold prices on eBay, and prices of gold coins in general, don’t necessarily keep their value when the market price of gold drops. Coins are an easy way to be certain of how much gold you’re getting with a degree of protection against fakery, but it isn’t safer than a gold fund or buying bars of bullion from somebody.
(Footnote on the price per ounce on eBay: eBay coins on average carry a 20% to 25% premium, according to my sampling. Keep this in mind when buying – you pay more on eBay than at your corner coin shop)
Warren Buffett, business investor extraordinare, says that gold is a bad place to stick your money. His argument is largely that gold does nothing when held as an investment; it’s not a productive business who adds value through activity and improvement.
Now, as with any investment advice, keep in mind that Buffett has different goals than gold investors. Certainly, gold has proven to be quite profitable to those who invested in it during the 70s, after the gold standard was removed in the U.S., and that’s a valid way to hold on to your money. In fact, part of Buffett’s argument about gold investors being loud is that those people view their investment as being a bit more respectable than the wild gambling of the stock market, or the hack-and-slash investment of corporate raiding. There’s something regal, sovreign about owning gold, and I can’t fault people for taking that route.
The key to gold investment, though, is something the link above points out: The price of gold is quite high, and people want you to start buying gold. When the people who own the gold are trying to cash out on their investment, it might not be the best time to start investing, at least not in the long term. The price of gold may have doubled in the past five years, but it’s down 10% in the past six months. Whether you’re Buffett or a daytrader or a casual investor, that’s what you need to look at — and, as Buffett said, there’s nothing inherent in gold to improve its value, so keep an eye out for the objective of the investment. Just because it’s gold doesn’t mean it’s necessarily the right way to go.