SWAG (and rare coins) shelter from the war on cash

The twin policies of negative interest rates and large-denomination cash bans will have a beneficial effect on the prices of alternative stores of value, argues Reuters columnist James Saft, in a Feb. 25 article, titled War on cash to pump up silver, wine, art, gold.

The obvious beneficiary of negative rates will be precious metals, Saft notes, but also collectibles and other investments of passion.

Saft invokes a catchy acronym for go-to hard assets coined by economist and author Joe Roseman: SWAG, for Silver, Wine, Art, and Gold.

Investors are increasingly forced to seek alternative asset classes to insulate themselves in this war on cash, Roseman noted. Simply put, very few asset classes can act effectively as an alternative safe haven.

Bullion is not a collectible: But its a mistake to equate silver and gold bullion with wine and art. The former are commodities, and their prices can fluctuate according to a variety of factors. The latter, though, are collectibles that assume much of their value from their rarity, provenance, and aesthetic qualities.

Silver and gold have their collectible counterparts, of course, and that would be rare coins. Numismatic coins are not limited to just silver and gold: Classic U.S. coins cover the waterfront in composition, with copper, nickel, and even steel being used to create metallic currency. You’ll find copper coins weighing less than an ounce that are worth 10 times or more the value of a full ounce of gold bullion. Just witness the recent sale of Tom Reynolds collection of large cents from the 18^th and 19^th centuries: 332 pennies commanded almost $6.5 million, with each cent averaging nearly $20,000. That inherent numismatic rarity makes certain collectible coins much more valuable than gold bullion.

$500 billion for just 2 paintings: Saft is correct that gold and silver will gain during the new war on cash and savers, but collectible coins could stand to gain even more. We’re already seeing tremendous results in the art world, with billionaire Kevin Griffin paying David Geffens foundation about $500 million for two paintings: one by Jackson Pollock and the other by Willem de Kooning. High-profile sales of other top-of-the-line collectibles also have made headlines, such as classic cars. For example, a rare 1957 Ferrari 335 S Scaglietti sold for $39.8 million to become the most expensive car ever auctioned.

In the numismatic world, the most recent sale of the D. Brent Pogue collection also proved the mettle of rare coins, bringing in a total of $17 million, with one 1793 Chain Cent almost breaking the $1 million mark.

Coins up 232% in 10 years: The record of rare coins speaks for itself, even before the idea of negative interest rates began sweeping the globe. The Knight Frank consultancy’s most recent Luxury Investment Index, updated through September 2015, found that numismatic coins were the No. 3 high-end collectible investment for the preceding 12 months, gaining 13% to finish behind just art (15%) and classic cars (18%) among a group of high-end categories (including stamps, jewelry, watches, etc.).

Over the longer haul, rare coins did even better. Over the previous five years, coin prices finished in second place with a 92% increase, lagging only cars, which generated 161% growth. The overall index gained 63% over five years.

And in the 10-year span, rare coins finished in fourth place with a 232% gain, behind art (239%), wine (243%), and cars (496%). The overall index rose 206% over the decade. In contrast, gold bullion rose by 174% during the decade.

If coins were posting these kinds of numbers in just a zero-interest-rate environment, imagine what they’ll do under a negative-rare regime.

SWAG is where investors want to be when cash has become trash thanks to the reckless central bankers. But don’t forget that rare coins can outperform gold and silver bullion by exponential leaps and bounds over time.