Rare Coin Market Liquidity

One of the clear indicators that a market has graduated from an early stage to a later stage in its development is that liquidity spreads to all areas in the market; even those that were left behind in the early stages of the market. This was clearly the case in a market such as tech stocks in the late 1990’s. Is this case in the rare coin market? I do not think that there is a clear answer. I recently read a numismatic newsletter that stated that because of the fact that nearly all 18th and 20th century non-gold coinage had increased in value in the past five years, it was inevitable that weak areas like Seated and Barber coins would rise. I do not agree with this.

Gold coinage is a different market because of the huge rise of bullion prices in the past year. With gold having doubled in value from less than $300 an ounce to over $600, gold coins have seen a level of demand that is unparalleled since the late 1970’s/early 1980’s. At this point there are really no weak areas in the gold coin market because just about any coins that are round and gold have a strong intrinsic demand right now.

In the past few years, there have been some areas in the gold coin market that have been underperformers. These would include $5.00 and $10.00 Indians, Classic Head quarter eagles and half eagles, No Motto gold from Philadelphia and San Francisco gold coinage. For the most part these former weak sisters have seen stronger demand than I can recall in the past year. But how much of this is actual demand for these specific series and how much is gold-based demand?

In this day and age, many formerly weak series become stronger because of cunning promotions. Until recently, a nice AU55 No Motto half eagle or eagle from the Philadelphia mint was a very hard coin to sell because there was minimal demand. Today, the demand for such a coin is twofold: it is gold and, perhaps just as importantly, it is a coin that suddenly has a promotional apparatus supporting its market. I would contend that it is actually more significant that it is being promoted than anything else. Most of the new buyers of No Motto gold are not collecting this series because gold has doubled in value in the past year. They are collecting it because one or two major coin marketers have made a compelling case for the collectability of these coins.

The major reason why certain series continue to be slow performers in this strong coin market is because they are not being effectively promoted (I do not, by the way, consider promotion of coins to be a negative thing as it increases demand for many series that deserve to have more collector support). Seated and Barber coinage appear to be cheap and undervalued because no one is doing even basic promotion of these series. The same holds true with Peace Dollars and Silver Commemorative half dollars. The easiest way to make Peace Dollar prices increase is for new collectors to come into the market and for dealers to start actively buying and selling these coins. If a book on this series was to be published and collectors learned the ins and outs of each issue, you’d see prices rise almost immediately.

Rare Coin Purchasing Strategies

In 1996, two collectors decided to assemble a million dollar collection of high grade United States coinage. Seven years later, both decided to sell. One now has a collection that is worth upwards of $2 million while the other individual's coins are worth $600,000. What did collector #1 do that was so much smarter than the other? I'd like to say that the answer was as simple as collector #1 carefully listening to me while collector #2 took his advice from other people. And while this is ultimately true, there were a number of important purchase strategies employed by the first collector that were ignored by the other.

Collector #1 did the following: he was patient, he chose his coins carefully, he was loyal, he was not a slave to published bid levels, he reached for the best available coins and he assembled a true collection as opposed to an accumulation. Collector #2 made rash, impulsive purchases, bought coins from a wide variety of sources (some reputable, some not), would never purchase a coin unless it was priced at a "bargain" level and wound-up with a strange, disconnected assemblage of coins rather than a true collection.

It is a good idea to look at some of these points more carefully to understand why one collector did so well while the other did not.

1. For the collector, patience is a virtue: One of the key reasons for the success of collector #1 was his patience. Instead of wildly charging out into the market and buying whatever looked interesting, he was highly selective. In fact, he typically purchased just a few coins each year. Collector #2 was extremely impulsive and purchased some coins that, in retrospect, made no sense. As an example, he bought at least three five-figure coins that he didn't really like and which he knew, even at the time they were bought, that they would have to be upgraded. And he purchased some other coins that had absolutely no thematic tie-in to what he was collecting. These were quickly jettisoned at a significant loss.

2. Always buy the best coins you can afford: If you care about the financial returns provided by your coins (and if you are buying coins that are more than $1,000 each you should) then it is important to buy the best you can afford. A collection should be centered around quality instead of quantity. This means that you will have to tailor your collection around your budget.

Both collector #1 and collector #2 had the same budget but collector #2 wound-up buying dozens of coins while his counterpart only purchased a few. The result was that the first collector had a small collection of superb pieces with enough of a synergistic tie-in that it was more valuable as a whole than as a sum of its parts. The second collector had an assemblage of expensive coins that, because of the presence of a number of "dogs", would have to be broken-up and sold piece-by-piece.

3. If you find one or two dealers you like, stay loyal to them: Yes, this is a self-serving comment. But in the non-numismatic areas that I personally collect, I have followed this advice and it works. If you establish a good relationship with a knowledgeable expert, you are more likely to get good deals from this person. He will be genuinely concerned about the coins he sells you, especially if he knows that he will have a chance to resell them in the future. Because I knew that collector #1 was loyal (and because we became good friends as a result of the time we spent together pursuing his coins) he purchased great coins at fair prices. I immediately figured out that collector #2, while a very good person as well, would never be a faithful customer and that as hard as I tried to earn his loyalty, it just wasn't going to happen. As a result, this made me less enthusiastic to sell him my very best coins.

Collector #2 made another mistake that I think ultimately cost him alot of money. He gave out his want list to a number of dealers. I know of at least two instances when many dealers were competing against each other for a specific rare coin, all thinking that it was for their "own" customer. In reality, everyone was working for the same collector and this allowed the original owner of the coin to hold out for a higher price. When it comes to rare or expensive coins, it is highly advisable to keep your want list as private as possible.

4. Truly rare and choice coins are seldom offered at "bargain" prices: Truly good items, whether they be houses, paintings or coins, are not cheap. You don't get a "deal" on a museum quality Van Gogh just like you don't get to "rip" a problem-free high grade 1793 Chain Cent. Collector #1 understood this and was willing to pay well over Greysheet, Bluesheet or Trends prices when it came to rare, important coins.

Collector #2 was always looking for a deal and would never pay above published price levels, even for rare, early United States issues. He was told again and again that they were impossible to buy at these levels but never took this advise to heart. As a result, when he did buy a significant early type coin, it tended to be a problem piece that was priced cheaply or which savvy buyers had rejected due to quality considerations.

Novice collectors typically do not understand what these published prices represent. The Bluesheet lists low sight-unseen wholesale bids. In other words, if a dealer I didn't know called me up and offered me a 1795 silver dollar in a PCGS AU-50 holder and explained that it was dark, poorly struck and enthusiastically graded, what would my offer be? While it is not impossible to buy nice coins at bluesheet bid levels, it should be understood that most attractive, desirable coins are generally priced at levels above "sheet."

5. Collections are better than assemblages: Many dealers believe that a collection of coins is worth more collectively than the sum of its parts. I generally agree with this but would offer the following caution. In the case of an expensive, high-powered collection it is likely that it will have to be broken-up when it is sold. But if the coins in the collection are properly connected than they can add value to each other. As an example, collector #1 had a small but outstanding group of early coins that were not only very choice but they were first year of issue pieces. It was a true collection that was worth more as a whole than as the sum of its parts, even if it were not realistic to think that it would sell intact.

Collector #2 also specialized in early coins but his grades ranged widely (from Extremely Fine to Mint State-65) and he typically chose "bargain dates" to represent a specific type (as an example he chose a 1795 half dollar instead of a 1794 because it was "cheaper.") When it became time to sell, his coins seemed to be more of a random accumulation than a true collection.

Five Beginner's Mistakes and How To Correct Them

Almost every new collector makes mistakes, no matter what hobby he participates in. After many years of working with collectors, there are a number of common errors that I often see. Assuming that a collector is truly interested in correcting them (some people continue to make these basic mistakes, believing that they are "too smart" to receive constructive criticism), most can be rectified with a combination of time, money, patience, and the desire to learn to collect the "right" way. Mistake #1: A new collector pays too much for coins.

"Paying too much" is a relative term. There is a big difference between paying 5-10% too much for very nice, genuinely desirable coins and paying 50% too much for poor quality, unpopular coins. In the first instance, the passing of time will overcome a slight overpayment as will the fact that truly nice coins always sell for a bit too much money. In the second instance, the collector needs to learn how much nice coins really sell for and where to buy them.

Determining the true market value for coins is not easy. Many collectors (and even some dealers) feel that Greysheet bid or Coin World Trends is the ultimate guide for coin pricing. These guides do not take a number of factors into consideration. As an example, nice quality early type coins generally sell for numbers well in excess of CDN "bid." Conversely, certain gold issues, like high-priced San Francisco half eagles, sell for large discounts relative to Trends.

Correction:

Learn what the true market value for coins is. This can be done by studying auction prices realized, looking at what dealers are offering to sell (and buy) coins for and what other collectors you know have paid for their coins. You should also learn which coins sell for levels over published price guides and which sell for levels under these prices.

Do not be afraid to stretch for truly rare and/or desirable coins. As an example, if you pay 20% over Greysheet bid for a truly choice early gold coin, the chances are good that this "stretch" will be repaid when you go to sell your collection.

Mistake #2: A new collector buys his coins second (or even third) hand.

Many (if not most) new collectors buy coins from brokers. In numismatics, a broker is defined as someone offering a coin for sale which is not from his inventory. There is nothing wrong with coin brokers. But often times buying coins from the dealer who owns them will save a collector from 10 to 30%.

Correction:

The solution for this problem is relatively easy. Buy coins from the people who actually own them. Ask your dealer if he owns the coin(s) he is offering you or if it is from other sources. As you become more involved in numismatics, you'll learn how to see if the dealer you ask this question to is telling you the truth. If, for example, he cannot accurately describe a coin, the chances are good that he has not seen it (and does not own it).

There are circumstances when it is acceptable to buy coins from a dealer who does not own them. A dealer may act as your agent at an auction and bid on coins that are not his. Or, a dealer might call you from a show to let you know he's found a piece on your want list that is from another dealer. In this case, there is nothing wrong in using the dealer as a broker, provided his markup is reasonable. In such a transaction, a dealer generally makes a small (5-10%) profit. Since he does not own the coin and will have no downside risk in sending it to you on approval, he does not merit as large a profit as if he owned the coin and had downside risk.

Mistake #3: A new collector decides he doesn't need a seasoned professional to help him.

Every week I speak with a new collector who tells me how he has spent thousands (or even tens of thousands) of dollars with no professional guidance. Unless he is remarkably lucky, the chances are good that such a person has lost at least 50 cents on the dollar.

Buying rare coins is not easy. If you do not have someone to help you pick the right coins at the right prices, you are likely to be taken advantage of. The solution is easy: choose a reputable, knowledgeable dealer and establish a good rapport with him.

Correction:

Other than the small handful of truly expert collectors who can compete with dealers, it is important to admit that you need sound professional guidance. Few collectors have the time or ability to become experts. It is not a sign of weakness to admit this.

How do you select the "right" dealer? The most important factors to consider are the dealer's professional qualifications and reputation. Choose someone who deals in the area you specialize in. Ask for the names of some of his satisfied customers and speak with them about the dealer. Once you have found the right dealer, reward him with your loyalty. Speaking as a dealer, I can tell you it is hard for me to be loyal to a client who has his want list out with six other dealers and who mostly wants to pick my brain for free information.

Another qualification that, in my opinion, demonstrates the character and level of professionalism that you should be looking for in a dealer includes membership in the Professional Numismatists Guild (PNG). The 300+ members are the PNG represent the upper echelon of coin dealers and I would suggest you stay away from any dealer who is not in this organization.

Mistake #4: A new collector buys unencapsulated coins or third-party graded coins from less-than-reputable services.

With very few exceptions, coins that have not been graded by PCGS or NGC are graded on a standard that is too liberal. Many new collectors do not learn about the pitfalls of buying non-PCGS or NGC coins until after they buy "inferior" third-party graded coins. Not all second-tier encapsulated coins are second rate. There are some that might only be a point off. In such a case, I would suggest that these coins be removed from their current holders and sent to NGC or PCGS.

Another mistake new collectors make is to buy expensive unencapsulated coins. At this point in time, the market for encapsulated coins is so pervasive that any item that is worth more than $500 but not in a PCGS or NGC holder must be viewed with suspicion. Coin World is full of ads offering seemingly remarkable values on "raw" coins. In my experience, nearly all of these are either overgraded or, even worse, cleaned, retoned or damaged.

Correction:

Again, the solution to this problem is relatively easy. Buy coins that have been graded by PCGS and/or NGC and avoid coins graded by other "second tier" services. Purchasing unencapsulated coins, whether through advertisements or auction sales, is best left to experts. If you see raw coins listed in auction catalogs that are of interest, have a reputable dealer view them for you. If this dealer likes the coin, hire him as your agent.

Mistake #5: A new collector does not take time to learn about coins and the coin market.

I have long believed that in numismatics, education is a collector's number one ally. It never ceases to amaze me how many collectors will spend tens of thousands of dollars on coins but not one cent on coin books. At this point in time, there is more good information available to collectors than at any other time in numismatic history. There are well-written guidebooks on almost every major series of American coin and there are dozens of excellent educational websites on the Internet that provide unbiased information. If you have already spent a considerable sum of money on coins but do not own any coin books, spend $500 on a basic library of general and specialized books.

Correction:

Buy a core group of coins books and, more importantly, read them. If you collect gold coins, you should buy my series of books on branch mint issues. If you collect other types of coins, there are many good books available and I would be happy to suggest them to you. For pricing information, I would suggest you refer to Coin World Trends Online (www.coinworld.com). For rarity information, the PCGS Online Population Report is an excellent source (www.collectorsuniverse.com). For excellent photos and information on all United States issues, try www.coinfacts.com.

All beginning collectors make mistakes. Some of these mistakes are costly, some are not. Hopefully, reading this article will make new collectors step back and analyze their numismatic behavior. If you are making one (or more) of these mistakes, do not despair. Instead, think what you can do to correct them and move forward.

How Rare Gold Coins Are Priced

One of the most confusing areas for a new coin collector to understand is pricing. Many collectors have experience in purchasing stocks and are used to being able to open a daily newspaper and seeing accurate price quotes for a specific item. In most cases, the coin market operates on an entirely different basis. Stocks and bonds are easy to price because they are commodities. Every regular share of IBM is the same and is valued accordingly. Most gold coins are not regarded as commodities due to their rarity and the fact that coins which are graded similarly may have significant differences in value due to their appearance.

The easiest United States gold coins to price are very common issues like Uncirculated St. Gaudens double eagles. As an example, a Mint State-63 1924 is a coin that has a fairly standard value. It may trade on a wholesale level for $375 and on a retail level for $390. In fact, the buy/sell spread of such a coin is generally within 5% and there is little difference in price for these coins among sellers.

Slightly rarer United States gold coins are still relatively easy to price. An example is a common date Mint State-63 $5.00 Indian Head gold piece. This is not a very easy coin to find but it is certainly not a "rare" issue. Generally speaking, an average quality example common date in Mint State-63 sells in the $1,100-1,300 range. But there are exceptions to this rule that may prove confusing to the novice collector.

In an auction, there are two PCGS graded Mint State-63 1909 half eagles. One is a average quality coin and it sells for $1,150. Another is a very high end coin and it realizes $1,800. Why is there such a big difference in price? The answer is simple: at least two bidders felt that the high end example had a good chance of becoming a Mint State-64 if it were removed from its encapsulation and resubmitted. In a Mint State-64 holder, the coin is worth $2,500-2,750. The buyer of this coin is, in essence, gambling that he can upgrade it and, in the process, sell it for a nice profit.

High end or "PQ" coins are anomalies that do not neatly fit into pricing structure. Generally speaking, pricing guides (see below) reflect price levels for average quality pieces.

There are numerous pricing guides for United States gold coins that are available to the collector. There is no one single source that is "the best." Most experts, myself included, use a variety of pricing guides as well as instinct for pieces that are particularly hard to price.

"A Guidebook to United States Coins" (aka "The Redbook")

This is an overlooked but surprisingly accurate pricing guide that is both convenient and reasonably priced. Each edition of this annual publication has suggested valuations for most United States gold coins in four grades: VF-20, EF-40, AU-50 and MS-60.

The valuations include the input of many experts, including myself. These valuations are meant to be "retail" prices for average quality coins. There are good and bad points about the prices in "The Redbook."

The good points include the convenience of this book (it can be bought in any good book store or on-line), the impressive credentials of its contributors and the broad scope of its information. The negative points include the fact that the pricing is done at least a year in advance and there are not enough grades listed for each issue. A problem that I have always had with "The Redbook" is it continues to list prices for coins that do not exist in a specific grade.

Overall Rating: Very good for beginners but probably not likely to be used very often by advanced collectors.

"Coin Dealer Newsletter" Monthly Quarterly Newsletter

The "Coin Dealer Newsletter" (www.greysheet.com) is a pricing guide for United States coins that is published weekly. In addition, its parent organization publishes a more in-depth newsletter, referred to by most dealers as "Quarterly," that focuses on series that are collected by date.

The newsletters that are of interest to United States gold coin collectors are "Quarterly II" which includes pricing for gold dollars, quarter eagles and three dollar gold pieces and "Quarterly III" which has pricing for half eagles, eagles and double eagles. Each issue lists prices for "VF," "XF," "AU", MS-60, MS-63, MS-64 and MS-65 as well as four grades for Proof issues where applicable.

According to the editors of the CDN, they "report prices on national dealer-to-dealer buying and selling information. These wholesale prices result from our monitoring all possible sight-seen transactions and offers to buy and sell."

The best point about CDN pricing is the fact that it is carefully monitored and changed to reflect confirmed transactions. It is also very good for pricing coins that fall into the category of semi-better dates. Another good feature about the CDN is the fact that it lists prices for eleven different grades of Liberty Head gold coinage and eight different grades of pre-1834 issues. Negative points include the presence of just one XF and AU grade (making it especially hard to figure the values for EF-45 and AU-58 coins using these prices) and the fact that these supposedly "wholesale" numbers are available to any "retail" collector willing to subscribe to the CDN.

Overall Rating: An essential pricing source for the advanced collector.

Online Pricing Guides

With the advent of the Internet, a number of online pricing guides have become available to collectors. The best-known of these are Numismedia (www.numismedia.com) and the PCGS Daily Price Guide (www.collectorsuniverse.com).

These are extremely comprehensive price guides that are monitored and updated by knowledgeable consultants. They are meant to be "retail" guides for the collector.

In my experience, the values in these guides are fairly accurate for lower grade rare issue United States gold coins (Very Fine and Extremely Fine) and generic issues but tend to be somewhat inflated for higher grade coins.

At the present time, the jury is still out on these on-line price guides. There is no doubt in my mind that within a few years, one of these guides--or maybe an entirely new guide--will become the accepted industry standard for rare coin pricing.

Overall Rating: Some day, an online price guide will be the industry standard. But not just yet...

Coin World Trends

Coin World is published weekly and it has the largest circulation of any numismatic publication. One of the most popular features of this publication is its weekly "Trends" valuations for United States coins. Prices for United States gold coins are published every three weeks.

"Trends" is a retail guide to coin prices. According to its editors "sources for pricing include actual transactions, public auctions, fixed-price lists and any additional information acquired by Coin World staff." For Liberty Head issues, there are a total of ten different grades, ranging from Fine-12 to Mint State-65.

Most specialists in United States gold coins use "Trends" extensively. If you look at the inventory section in my web site you will note that my pricing is listed in relation to "Trends." I use it extensively when I am buying coins. I rate "Trends" as the most important pricing source for United States gold coins and strongly recommend that any serious collector have a copy of the current "Trends" pricing whenever he is making a purchase.

Overall Rating: Currently the single best pricing guide for rare United States gold coins.

Auction Prices

For certain issues, prices realized at auction is an extremely important way to determine price.

A number of United States gold coins are rare enough that the majority of offerings are at auction. If you do not have this information at hand, it is hard to price such coins. And, more often than not, if you are offered an example of a very rare coin, the chances are good that the exact piece you are looking at was recently sold at auction.

I would recommend that serious collectors receive each catalog issued by Heritage, Bowers and Merena, Superior, Goldberg and Stack's. Make certain that you also receive the prices realized lists issued by these firms a few weeks after the sale.

Overall Rating: A very good secondary pricing source, especially for esoteric, infrequently-traded items.

There are a few important factors to consider when using coin pricing guides. These include the following:

The prices in all of the guides discussed above reflect coins graded by reputable services such as PCGS and NGC. Coins that have been graded by less reputable services are often worth considerably less.

The prices in these sources are guidelines, not offers to buy or sell. In some cases they are too high; in others they are too low. As a collector, it is important to learn which issues are undervalued and which are overvalued.

Prices in the Coin Dealer Newsletter are representative of sight-unseen dealer-to-dealer transactions. In other words, if a published price level for a certain issue is $1,800 in "EF" this value equates to an offer that I would make another dealer without seeing the coin and assuming that it just barely qualifies at that level. A very nice EF-40 example could be worth more and an EF-45 could be worth multiples of this amount. Collectors should not expect to be able to buy many coins at CDN prices.

Unless you (or your dealer) has seen coins from a specific auction, the prices realized can be misleading. High end or "PQ" coins often sell for significant premium at auctions. But not all "PQ" coins upgrade and some turn out to be bad deals for their owners. There are also unique circumstances at auction, such as when two collectors both "have to own" a specific coin and wind up paying an enormous price in a battle of wills.

Coins in "name" auctions (such as Eliasberg or Bass) often bring more than in "ordinary" sales. Just because an 1855-C quarter eagle in EF-45 at the Bass auction sells for 30% over Trends does not mean that you should pay that much for a piece you are being offered.

It is always harder to price esoteric or infrequently-traded items than common issues. It is especially hard to price finest known or one-of-a-kind items. There is not set formula that says, for example, than an AU-55 is worth x% more than an AU-50 and x% less than an AU-58.

There are also no firm "ground rules" in regard to what to pay for a certain coin relative to its value in "Trends." Some coins are worth 65% of Trends while others are worth 150% of Trends. The best ways to determine that you are getting fair value are to establish a good relationship with a reputable dealer and to learn as much as you can about how the series you collect is priced.