Why Are Rare Coins So Popular?
Posted by Jeff Garrett on 8/4/2011
When I tell someone what I do for a living, they are often surprised I can make a living selling rare coins. Most are very surprised that the market for collector coins in the United States and world is so large. Often, thoughts of a tiny little shop or something more akin to a pawn broker operation comes to mind. Rare coins are by far the largest collectible category in the world. The size of the market is estimated by most experts to be in the billions per year. There are few hard statistics, but any review of the largest dealers in the country would confirm this estimation. NGC grades and authenticates over two million coins per year. The market for rare coins is clearly huge!
Many ask why the rare coin market is so large. That is a good question worth examining. I think the primary reason is that the rare coin market is the most liquid collectible. There are virtually no other collectibles that can be traded sight-unseen over the telephone or internet. Rare coin certification has played a significant, if not vital role, in that development. Collecting rare coins can be educational, exciting and extremely interesting. They can be collected with enthusiasm on almost any budget. Young collectors spending $20 per month can have just as much fun as the millionaire spending $20,000 per month.
The market for rare coins is also amazingly transparent. Today, there is tremendous information available to collectors. There are very accurate price guides, auction records, books on every specialty, and population data to guide would be buyers. No other collectible field in my opinion offers buyers so much opportunity for research when making a purchase decision. The profit margins on rare coins are also much lower than in other collectible fields. Purchase a painting in an art gallery and then go back six months later and try to resell your acquisition. The same applies to almost every other field of collecting.
Most rare coin collectors also have a keen interest in the investment potential of their purchase. Every collector is an investor in the sense that they or their heirs will one day sell their coin collection (if not donated to a museum). As any examination of the price history of rare coins would prove, numismatics has been an excellent investment over the last few decades. The value of the US dollar has come under tremendous pressure. Most know that trillion dollar federal deficits will have some consequences in the near future. Rare coins are viewed by many as a so-called “tangible investment” and a hedge against the devaluation of our currency.
For many the closet thing in rare coins to a pure investment would be generic gold coins. These are US gold coins struck prior to 1933. Generic gold coins usually consist of five dollar, ten dollar and twenty dollar gold coins. The average grade for these coins is MS 61 to MS 65. They are among the most highly traded and liquid rare coins. The coins were struck in 90% pure gold and the intrinsic value represents a large portion of their values. Gold prices have risen dramatically in the last two years and the average premium for most of these issues is near all time lows. Much of this has to do with price points and an over supply due to more sellers than buyers. This is probably temporary as the new higher gold prices become the norm.
Many predict that some day generic gold coins will trade much like other commodities or stocks. There has been interest in the field by hedge funds and others controlling large pools of assets. As stated above, interest in tangible investments is extremely high and sure to increase as the US and the world deals with fiscal promises that are almost impossible to meet. People seeking safety are very likely to view rare coins favorably. The category has performed very well in the past and the future does indeed look bright. In the not too distant future it might be possible to look up MS 63 St. Gaudens double eagles that are being traded in an exchange-traded fund (ETF) account. Technology, along with the security of certified rare coins may indeed make this possible someday soon.
Next time: The Future of the Generic Gold Market