Coin Dealer? Or Mint Lackey?
Posted on 9/1/2006
We are in the midst of a multi-tiered coin market that has many dealers wondering
if they are real numismatists or just unpaid representatives of the U.S. Mint actively
supporting the secondary market for mint products. The recent release of the $50
Gold Buffalo has taken well over $300 million out of the coin market. This is money
that potentially could have been used to buy U.S. Gold, along with other bullion
related items. Presumably, some of this money could have been used to purchase real
numismatic rarities as well. This has created one of the best buying opportunities,
possibly in numismatic history; at least in the recent history of numismatics. Some
numismatists have voiced concern that the coin market is drifting lower because
of a lack of demand. This could well be the case as buying philosophy has certainly
shifted over the last several weeks. Since demand has been so high for the $50 Gold
Buffalo, dealers have had to participate in this market even though they really
do not care for it. This is a market of survival. Whatever it takes to make money
is what dealers are prepared to do.
While the $50 Gold Buffalo (and other limited edition products from the mint) has commandeered much of recent spending, many areas of the traditional coin market are left to languish as demand has subsided and supplies are readily available. Dealers aggressively marketing their coins at new levels are keeping ahead of other dealers waiting for potential customers to jump into a specific area. When a series is hot, nearly all grades will be active. It may start with some of the higher grades as dealers market MS64s and 65s to busy collectors. But the collectors wanting to participate in this series yet cannot commit necessary funds soon look to the lower grades that seem more affordable. The demand filters down and everyone gets involved. The FMV rises due to the excessive demand and fervent activity creates more interest. However, when the market softens in this area as dealers and collectors take profits, the direction can change very quickly. The latest example of this is the $5 Indian where supplies have certainly increased as demand subsided over the last two months. We have not seen any turnaround as of yet as the FMV appears to be creating new buying opportunities.
The recent activity in modern issue bullion gold has caused a weakness in demand for generic U.S. Gold coins minted prior to 1933. The most common U.S. Gold coins have seen a drop in premiums like we cannot recall in many years. Heritage did a recent study on the current market for generics compared to the high point of gold bullion at $720 near the beginning of May. With gold of $620 at the end of August, we can see some very startling changes in current prices of common date gold coins. With gold down about 13%, we have found several issues that have fallen well over 30% in the same timeframe. The $5 Indian in MS64 has fallen 38%, while the $2 ½ Liberty in MS65 has dropped 35%. The $20 Liberty in MS64 has adjusted down 37% and the MS66 Saint has lost 29%. There are numerous other issues with like results; are these buying opportunities or simply lost profits? The future will dictate where we are headed and only you can determine how well your collections will perform.
One of the prettiest coins you will ever see is the 1907 High Relief $20 St. Gaudens. It is also one of the rarest coins that is easily marketed, but at the same time is readily available. It has constantly gone up in value over the last couple of years; that is, until now. It has suddenly hit an FMV resistance point and we are now seeing some discounting in the most popular grades: MS63 to MS65. This coin can take up a lot of value in inventory and some dealers need cash for other areas of the market. We are seeing wholesale dealers normally trading only in traditional rarities now offering buy/sell spreads in the $50 Gold Buffalo. The quantities are massive, so cash flow is very important. When you can sell hundreds of $50 Gold Buffalo coins in a day, it does not make sense to tie up inventory in $25,000 to $50,000 coins that require a specialized buyer to attract. The fact may be that the temporary market is in the modern bullion issues while true rarities take a back seat. If this is the case, those collectors with the most money to spend will certainly have the opportunity to find those rarities they have been coveting. There are still many rare coins coming up in future auctions that we are sure will not be reasonably priced when the final hammer hits.
Despite what may seem like a negative tone to the near future, we think, as many dealers do, that the market is in a transition (cycle, if you will); when buyers cannot find the coins they really want at the prices they want to pay, their interests tend to shift. We feel the avid interest in the modern bullion coins is temporary and will quickly shift back to the more traditional coinage once collectors are tired of looking at the same old stuff. Of course, if the metals continue to rise, it will help the entire market and market psychology will be enhanced. For the time being most dealers will go with the flow and market whatever is most popular. If FMV gets too cheap in some areas of the market, the buyers will quickly move in and prices will adjust. We still do not see (excluding High Reliefs) true rarities selling at discounts, nor do we expect to at any time soon. There is still plenty of money in the market to purchase anything that smells of old and rare.
Major auctions continuing to locate and offer expensive rarities and many records have been set and then broken. This is an ongoing pursuit by those who can afford only the best numismatics has to offer. It is a philosophy that is not likely to change under the current market atmosphere. We are not likely to see bullion retreat to yesteryear prices as long as the world economy is status quo. Most analysts do not expect the world economy to get better before it gets worse. This in itself is good for numismatics. We are in the best market we have ever seen, even if there are some areas of weakness. These areas of weakness are simply areas of opportunity. To take advantage of opportunity the only ingredient needed is market timing and the timing may be different for each of us. Today, tomorrow, next week; the future still looks promising for numismatics.
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