Further Thoughts on the Coin Market in These Trying Times

If the Financial Crisis has proven anything, it’s that people seemed to have forgotten that stocks are volatile and that investing in the markets entails a degree of risk. Enough risk that you have to question the sagacity of middle-class people having the majority of their retirement funds tied-up in something as speculative as stocks. Through all of this chaos, tangible assets such as precious metals and rare coins appear to have held up pretty well. As I mentioned in my last blog, the demand for bullion-related coins such as Liberty Head double eagles and Saints has been nothing short of incredible and after a few very slow weeks, I’ve noted on a personal level that collector coins are beginning to sell again; albeit on a scale that is certainly reduced from what I was seeing a couple of months ago.

One comment I’ve heard from a number of clients in the last few weeks is that they are looking at their collections from a much different perspective now than prior to 9/15. Before the stock market imploded, many high net worth individuals viewed their coins as a minor part of their overall portfolio and thought of numismatics as a sort of a plaything. Now, after these individuals have lost 20%, 30% or even more of their net worth, their coin collections are suddenly a much more significant portion of their assets. And I believe that this will cause them to regard coins in a more serious light than in the past.

As someone who has lived through any number of bad coin markets, this one feels like it may be different. I can recall markets where you literally could not get other dealers to look at your coins and you could literally beg clients to buy something because it “was such an incredible deal” and they would pass. At this point in time, dealers are still buying coins and serious collectors seem to still want to make purchases; just maybe not at the level they might have been before.

It’s going to be really interesting to see what the new levels on rare coins are going to be in the coming months. There is no doubt in my mind that certain coins are worth 10-30% less today than they were a few weeks ago. The question is, of course, which ones are and which ones aren’t. I’m not sure that even the most sophisticated experts know with certainty.

One thing I do know is that in spite of the substantial losses in the markets there is still a lot of cash in the world. I can’t imagine that Joe Investor is going to be hugely anxious to run back to Wall Street or to buy real estate. And returns on conservative investments are so bad right now that once people get over their fear and we see a few days of decent to good economic news (and we will see this sometime in the not-so-distant future) they will regain their sea legs and look for something that provides them with a hedge against inflation and that offers some future potential.

I’m not naïve enough to think that tens of thousands of Intel and Oracle investors are going to come running into the coin market. But is it so hard to think that a small number of investors are going to turn to coins? And I’ve got to think that the part of the market that will benefit most from this is gold.

To be more specific, I think an area that will see a real surge in demand in the coming months will be slightly better date large-sized coins in the $1,000-5,000 range. Even without any of the expected promotions that are likely to occur in the near future, the specific sort of coins that I think will see renewed interest are slightly better date Liberty Head eagles (I particularly like reasonably priced but attractive New Orleans eagles given their ability to be collected as a set), pre-Civil War era Type One double eagles and better date Saints with little or no (current) market premium factor.

I also have to think that really rare material is going to retain a good amount of its value in the long run. If you own a gold coin that is among the finest known of a popular issue or it is one of just 50 known in all grades combined, there is enough money left in the world for the demand level on these kinds of coins to remain high—and maybe even to become higher in the future.

Going back to something I mentioned earlier in this blog, I think it is important to regard your collection right now as an important asset in your overall financial portfolio. I’m not necessarily saying that coins should become a greater percentage of your net worth (the housing, stock and credit markets actually already did that for you, like it or not...) but I think the current economic slowdown should not preclude you from buying coins. In fact, I think it should encourage you, given the fact that your stock picking abilities are likely to be far inferior to your ability to by nice coins.

These next few weeks are going to be very interesting times in the markets. Perhaps I’m biased, but I’m focusing my energies on coins—the one market that I understand.

Economic Impact on Numismatics

Coin dealers are lousy economists so I don’t want to waste your time discussing the economic background of the last few days. What I would like to share with you is my take on how it’s impacted my business and what I see are the short term effects of the credit crunch, liquidity crisis, Dow meltdown, etc. on the coin business. My business was screamingly active in July and August. It slowed down considerably in September and it has been extremely slow in October. I have read on a few dealers’ websites that they are still selling lots of rare coins and that they have people calling from out of the blue purchasing items from their inventory. I think this is a crock. Unless you are a dealer selling bullion right now, you probably (there are exceptions...) are not doing much coin business. You might be purchasing coins from clients who bought them a year or two ago but selling your existing inventory right now? I doubt it.

That’s not to say that the coin business has shut down entirely. It definitely has not. I’ve sold some nice collector grade coins in the past week and my wholesale business is actually a bit better than I would have expected. But my regular clients are taking a wait and see attitude towards the coin market, as am I. With the Dow dropping hundreds of points every day, it’s hard to be excited about the coin market right now.

As recently as a few weeks ago, I commented that the generic gold market was very weak and that premiums for $20 Libs and Saints were as low as at any time I could remember. You literally could not give away double eagles. Three weeks later and the world of generics is a very, very different place. As I write this, gold has a spot price of around $863 but Brilliant Uncirculated (MS60 to MS61) double eagles are worth between $1250 and $1300 each.

I actually recommended in one my recent blogs that it might be a good idea to stock up on gold as the premiums got so low and, for once (!) I was right. I think the moral of the story is that it’s a good idea to have a small position in double eagles for your personal protection and to move in and out of as premiums ebb and flow. My guess is that the premiums will stay very high for a while.

Here are some more thoughts and suggestions for rare coin collectors in these uncertain economic times:

1. If you are looking to time the market perfectly and sell at the height, you are probably too late. It looks like the peak for certain series may have been the spring of 2008. While I think it’s safe to say that faux rarities, widgets and low end “stuff” have seen their best days, I don’t necessarily think that the good times are over for really neat coins or really popular coins or coins that seemed undervalued as recently as thirty days ago.

2. If you were smart enough to buy double eagles at last month’s low premium, pat yourself on the back and start selling into the market. Yes, there is a good chance that gold will continue its upward climb but once the panic buyers have established their positions I would think that the currently high premiums will erode. I would certainly keep some of your position but I would strongly consider selling some of what you have at a nice profit and to maybe even considering putting the profit into rare coins.

3. Clearly, there will be new price levels soon for many series. If you collect early gold or Type Two double eagles or even modern Proof gold, the chances are pretty good that what you were buying on September 14 probably isn’t worth what it is on October 7th. No one—not even a connected expert like myself—is exactly certain what the new levels will be. Part of this depends on the willingness of dealers to sell coins for losses. I expect that the smart dealers out there will take the losses that make sense to them while the not-so-smart dealers will be stubborn and refuse, at least for now, to sell anything for a loss. I would think we’ll really start seeing what the new levels are at the 2009 FUN show and at the auctions surrounding this convention.

4. Whatever you do, don’t be a panic seller. Hopefully you bought coins with discretionary income and you made the decision to be a long-term collector who would stick with their coins through thick and thin. The last year or two was a good time to prune your collection and to get rid of mistakes, duplicates, widgets, etc. Hopefully you listened to my advice and did this. Hopefully you’ll also listen to me when I tell you that selling anything now that isn’t totally top quality might not be the best idea.

5. The “wild card” effect of the current economic chaos is that we may see a dramatic upward movement in gold, a wild run away from anything resembling stocks or bonds and even the return of rampant inflation. Any of these factors would have a significant impact on the rare coin market.

6. If prices do begin to drop and you have the assets available to allocate on coins, it might be a great time to buy. I heard lots of collectors complain that they’ve been priced out of their end of the market in the last few years by Nouveau Riche Accumulators. What if the majority of these NRA’s go away and you can suddenly afford to collect nice coins again?

Numismatics and the Current Economy

If you follow economic news in even the most cursory fashion you are, no doubt, aware of the fact that the news has been pretty grim for the last few days. Lehman Brothers is gone, Merrill Lynch has been sold in a distress situation to Bank of America, AIG is looking perilous and the stock market yesterday had its single worst day since immediately after 9/11. How does this affect the rare coin market? The first thing to remember about the coin market is that no matter how “big” we’d like to say it is, in reality it is a tiny, tiny blip on the financial horizon. Most investors don’t know that there is a coin market, let alone understand the actual dynamics behind it. So from the “drag down” perspective I don’t think we have a lot to worry about. In other words, your set of Gold Dollars isn’t going to lose X% of its value because AIG stock is in the proverbial toilet.

It is pretty obvious to me that the short term affect of the meltdown of the financial sector is not good for the coin market. When the stock market loses close to 5% of its total value in one day and the economic picture looks painful (to say the least), many people’s focus turns away from pursuits like coins. By the same token, you could say that in these times, people turn to pleasurable pursuits like coins exactly because of the fact that it helps them forget about the Big Picture.

I think the medium to long term outlook for the coin market may be better than most realize. Once things settle down (at least until the next round of consolidation in the financial sector) people are going to be seeking new asset classes and markets like precious metals and coins may possibly prove appealing to a new wave of investors.

If you have read this blog over the last few years, you know how I feel about short-term investments in coins. I still do not like being short in any area of numismatics, but if gold continues to drop I would strongly consider buying something like generic double eagles to have a position. It seems to me that the long-term outlook for gold is rosy and given the scary things that we are seeing right now with banks and financial institutions, having something tangible like a little gold position might not be such a bad decision.

I do not expect to see really good coins getting cheaper any time soon. If you are a serious long-term collector, this is a good time to reflect on what your goals are. Hopefully, you didn’t expect to be in and out of the market in a year or two and, hopefully, you will not panic and decide to dump your coins.

I think this is an important point to address. Panic selling is never a smart thing to do and I think anyone who takes their collection to the next major show and announces that they “have to sell” is setting themselves up to get sliced and diced. Yes, the economy looks scary right now. But hopefully you haven’t been buying coins with funds you need for essentials (food, clothing, shelter, etc.). Just sit back, take and a deep breath and enjoy what you’ve got.

I’ve stated repeatedly that your coin collection needs to be viewed as a long-term work in progress. If the market goes up, that’s great. You’ll make some money on your purchases and everybody likes some paper or actual profits. If the market goes down, you might be able to buy the key date that seemed pricey a few months ago for 75 or 80 cents on the dollar. We’ve been in a bull market that’s lasted a long time and many new collectors are spoiled. Just ask a collector who was active in the 1980’s and 1990’s what it was like to slog through a seemingly unending bear market.

The bottom line is I’m not ready to call an end to the Good Times in the coin market. I think people will be more tentative in the next few weeks because of the financial crisis and the overall weakness in precious metals but we’ll continue to see strong prices for nice coins whether at auction or via private treaty sales. The 4th quarter of 2008 is certainly going to be interesting, to say the least.

Affect of Gas Prices on Coin Market

Energy Prices and the Coin Market - How are soaring energy prices going to affect the coin market? I got my first taste of the New Reality today when I decided not to attend a coin show because of what I thought was an exceptionally high price for an airline ticket. The other day I received an email from Whitman Expos regarding their August Atlanta show. I believe that this show is in its third year and I have attended the previous conventions. Even though it is a brutal flight for me to get to Atlanta from the Northwest, I’ve always looked forward to the show. I love Atlanta, I like the Whitman people and want to support their shows and I have some good clients in the Atlanta metropolitan area. So even though this had never been a “major” event on the coin circuit, I was still happy to attend it.

That is, until I went on my airlines’ website yesterday and looked up the price of a round trip ticket to Atlanta. Even booking the ticket more than two months in advance, the best fare I could find was close to $800—and that was with a lovely three hour layover on the way home in Dallas. To get a convenient round trip ticket was nearly $1,000.

Now I know that the airlines are hurting and that Americans have had the luxury of really cheap airfare for the past decade. But when I figure a $1,000 plane ticket on top of a $200 per night hotel (I don’t like to share rooms when I travel and I’d rather camp out under a bridge than stay at a cheap hotel), the price of a table at a show, meals, etc., a show like the Atlanta Expo suddenly gets expunged from my schedule.

I wonder how many other dealers are feeling the same way about non-essential shows. No matter how expensive airfare gets, I’m still going to attend the ANA and FUN shows and I will continue to attend West Coast shows because of the convenience factor. But instead of going to three Baltimore shows per year, I’ll probably cut back to two to reduce expenses.

I have a pretty fortunate set of circumstances when it comes to attending shows. I go by myself and generally split tables with other dealers so my basic expenses aren’t that high. I also have a small inventory so I do not have to check extra bags and get hit with all the new fees that make travel in 2008 so much fun. I wonder, however, about the dealers who bring two or three people to shows (or in the case of a firm like Heritage ten, twenty or even fifty) as well as supplies.

My guess is that you are going to see an immediate change at certain shows. Small, local shows that dealers can drive to probably won’t be affected and the large national shows should remain strong. But the medium size regional and national shows almost certainly will suffer. You might see a number of dealers from the West Coast at the aforementioned Atlanta show this year but next year I would think many of us who have a 4000+ mile round trip flight will punt.

I know there are other trips I’ll now think twice about. I often fly to Dallas to view Heritage auction lots a few weeks before a major show since I have trouble finding the time to look at these coins during a show. When airfare was $400 to get Dallas and I could book a ticket at this price at short notice, it was a no-brainer. When airfare is $800 and I have to book this trip a month in advance, I will think twice; especially if the sale isn’t of interest to me.

Yet I wonder if all of this isn’t somehow for the best. You can put me high on the list of dealers who have complained for the past few years about how grinding the coin show circuit can be. Trust me, five trips in five weeks isn’t anyone’s idea of fun, especially when the destinations include the various Numismatic Gardens of Eden that I find myself in on so many Wednesday and Thursday nights of my life. And, of course, I will be the first to admit that no one is holding a gun up to my head and forcing me to attend Long Beach or Baltimore (especially when they are held back-to-back). Maybe the typical coin dealer’s lifestyle will improve by not being on the road so often.

So here we go into another potential new cycle in the coin business. It will be interesting to see what changes the Era of the Expensive Airplane Ticket (not to mention the $4.50 gallon of gas) brings to the market. I expect they will be greater than we realize.

How Does the Increase in the Price of Gold Affect the U.S. Rare Coin Market?

As I write this, gold has hit a high not seen since 1979-1980 and it is flirting with the $750 mark. How is this run-up in prices affecting the United States rare gold coin market? If you have a position in generic issues (such as St. Gaudens double eagles) you’ve made yourself a nice chunk of change these last few weeks. MS64’s have risen from the mid to high $700’s up to the mid $900’s and MS65’s have seen an increase of around $250 per coin as well.

But if you are a reader of my raregoldcoins.com blogs chances are good that you do not play the generics market. You own “real” coins; issues like New Orleans double eagles or Charlotte gold dollars or Carson City half eagles. How are these rarer issues being affected by the new record levels in the gold market?

In a word (or three) they really haven’t. One of the fallacies of a rising gold market is that anything that is yellow rises in prices when the market shoots up. This simply is not the case. An EF45 1853-D half eagle will rise in price as the result of increased demand, not because its intrinsic worth is now an additional $25-50. Most of the brand new buyers of physical gold (as least for now) are strictly investors and they do not even know what an 1853-D half eagle is.

New gold buyers generally follow a predictable progression. They begin by purchasing gold stocks or, perhaps, modern bullion coins like American Eagles or Krugerrands. For every 1,000 buyers, perhaps 5% graduate to generic issues such as Saints or Indian Head eagles. And of these buyers, a small number may, after some time, become aware of a coin such as the aforementioned 1853-D half eagle. But this is a lengthy process and today’s new buyers of gold may not get involved in numismatics for years, if ever.

So this is, in my opinion, why the current run-up in gold prices impact on the typical coin in my inventory is wishful thinking. I’d love to report that the phone is ringing off the hook with new investors screaming for Dahlonega half eagles but this is just not the case (not to mention that if anyone does call me regarding coins as an investment, my blunt answers tend to send them running for the hills…)

One thing that is a real positive about the run up in gold prices is that this clearly does focus a lot of fresh attention on gold and on gold coins. And any good publicity about gold coins can’t be bad, right?

I’ve had many people in the last few days ask me what my take is on gold in the short and long term. I don’t claim to have any profound insights in this area. I’m probably the world’s leading expert on branch mint gold coins but when it comes to geo-political thought and macroeconomics I’m just another Hack with a Keyboard. My opinion (for what’s its worth) is that as long as we have cheapened the dollar to its currently absurdly low levels, gold will become more and more of a hedge. I could easily see it go to $800-900 in the coming months. I’ll personally be selling into the market once it reaches these levels but I think the days of sub-$500 to $600 gold are long gone; probably for good. I would suggest that everyone own some gold as it seems like a safe place to put your paper dollars right now, especially given the alternatives.

Rarity and Mintage Figures

Many collectors believe that a coin is automatically rare because it has a low mintage figure or that it is common because it has a comparatively high original mintage. This is most definitely not the case, especially in the field of American gold coinage. There are a number of factors that make a coin potentially rarer (or less rare) than its original mintage figure. Some of these are as follows:

1. Acts of Legislation:

The 1933 eagle is a very rare coin as a direct result of the passage of the Act of April 1933 which ended the production of gold coinage in the United States. Banks and individuals were required to turn in their gold coinage and many of these pieces were melted. Just a small number of 1933 eagles were rescued from the melting pot. The same holds true for certain late date St. Gaudens double eagles such as the 1929, 1930, 1930-S, 1931, 1931-D and 1932. All of these coins are much rarer than their original mintage figures would suggest due to heavy meltings that were a direct result of an act of legislation.

2. Contemporary Economics:

In times when the economy was strong, people collected and saved coins. For instance, high grade gold dollars from the 1880’s are more common than their low mintage figures suggest because dealers, collectors and hoarders, during a prosperous era, saved large quantities of these coins. The same is also true, although not to as great an extent, for Three Dollar gold pieces from this era.

3. Exportation:

Once the United States began to actively trade with Europe, Latin America and South America, large numbers of American gold coins were sent overseas in order to pay off foreign trade debts. This seems to have begun in earnest around 1878. Today, quantities of United States gold coins are still being found in foreign banks and other sources. This means that some United States gold coins from the 1880’s and 1890’s are more available in the lower Uncirculated grades than their mintage figures might suggest. It also makes for an unusual grade distribution for certain issues. As an example, the New Orleans eagles from the 1890’s are rarely seen in grades below AU55 but almost never above MS62. This is indicative of issues that were probably sent overseas soon after they were struck but which were very roughly handled and are now heavily abraded.

4. Incorrect Mint Records:

In the 18th and early 19th century, the Mint often kept somewhat sketchy records. There are certain early gold issues which are more common than their mintage figures suggest while others are far rarer. In some cases this has to do with the fact that the original mintage figures are incorrect.

Sometimes, even more modern records appear to be incorrect. In 1910 the mintage figure for Proof Indian Head quarter eagles was recorded as 682. This is nearly triple the highest recorded figure for any other date of this design and from the number of pieces known to exist, it seems likely that this figure is incorrect. The same holds true with the other Proofs of this year and makes us wonder, are the records simply wrong or were far too many Proofs ordered to be struck and were most of these later melted?

5. Hoards:

The rarity of certain United States gold coins has been greatly influenced in recent years by the discovery of hoards. A classic example of this is the S.S. Central America shipwreck which made the 1856-S and 1857-S double eagles very common in the higher Uncirculated grades. More recently, the S.S. Republic shipwreck contained a number of New Orleans eagles from the 1840’s and 1850’s as well as large numbers of Philadelphia double eagles from the early to mid-1860’s. Other smaller hoards have been found as well. As an example, a little-known group of 1840 quarter eagles was found in the mid-1990’s. It contained less than ten pieces but included at least four or five coins that graded in the MS63 to MS65 range. This was a very important group for collectors of Liberty Head quarter eagles as this date had been essentially unknown in Uncirculated before this.

6. Mint Meltings:

This category is especially applicable to Proofs. These coins have always been made specifically for collectors. In the 19th and early 20th century, the Mint would simply melt those Proofs that were not purchased. As an example, in 1859, the Mint struck 80 gold Proof sets. This was far more than needed and it is likely that the vast majority were melted. Today, all 1859 Proof gold coinage is very rare and the larger denomination issues, specifically the eagle and the double eagle, have as few as four or five survivors.

7. Restrikes:

There are certain instances where it is clear that a coin is rarer than its original mintage figure. Two excellent examples of this are the Proof-only 1875 and 1876 Three Dollar gold pieces. These have original mintage figures of 20 and 45, respectively. The PCGS and NGC populations for each of these issues are actually greater than the original mintage figures. Some of these have to be discounted as multiple submissions but clearly the original mintage figures for these two issues have to be called into question. It is my feeling that both of these were restruck (probably in the same year in which they were issued) by the Mint to fill a demand by contemporary collectors and dealers. Before you determine how rare a coin is, there are many factors to consider. The seven mentioned above are important and I would suggest that there are even more that await the curious collector.