As gold hit new highs last week, I remembered a gift my father in law had given Lisa and I on our wedding day a little more than 18 years ago. It took me sometime to find it, but I eventually did, buried under eighteen years of accumulated family video tapes located in one of my fireproof safes.
Ralph, Lisa's dad, had given us us a one ounce pure gold Krugerrand minted in 1979 as a wedding gift. On our wedding day - according to the internet - gold was worth $356 an ounce, a substantial discount to the price Ralph and many folks like him had paid for the precious metal when it hit $800 an ounce in the early eighties. I suppose Ralph had likely given up on the "investment", and advised us to keep it for a rainy day or a time when we could use it, perhaps to buy some "groceries".
While it wasn't raining out and our fridge was reasonably stocked with food, when gold hit record highs near $1300 an ounce last week, I figured it was as good a time to sell as any.
I checked out the prices for recent Krugerrand sales on eBay and decided to list ours in a no reserve, 3 day auction with a starting price of $50 and a Buy it Now price of $1350. Of course, gold had its largest single day price decline in over a year the very next day (humor me), but I still managed to sell it for $1220 to a Virginian who, from the looks of his recent purchase activity, has been a large buyer of coins in recent months. My listing had 150 views and 18 bidders over three days.
It was also interesting to note the large number of Krugerrands listed on the site, almost all of which were coined in the late 70's and early 80's and then in 2008 and 2009. There were very few coins for sale from the years in between. According to the web, the export of African Krugerrands to the United States was banned due to Apartheid in the late eighties and early nineties, which perhaps limited the supply of coins available here. Nevertheless, I can't help but think that the high prices of the late eighties, as now, pushed production levels up considerably.
Historically, gold has done well during periods of high inflation or deflation. While we do not have either of these scenarios today, the metal's rise suggests that a change may be coming. Then again, the price rise may simply be another asset bubble, something we've seen a great deal of in recent years.
Ralph's coin earned Lisa and I a four fold return in roughly twenty years, which as far as gold is concerned, is about as good as it gets. Historically, returns on the metal have averaged 2-3% over long periods of time.
Reversion to the mean, anyone?