Rare Coins Determined by Demand
Posted by NumisMedia on 10/1/2006
As we enter the last quarter of 2006, many numismatists are asking, "What in
the world has happened to the coin business?" This has to be one of the strangest
markets we have ever encountered. As seasoned veterans with 50 years or more of
numismatic involvement, many dealers are questioning, "What are rare coins?"
We always thought rare coins were either low mintage issues, or coins that may have
had higher mintages but then were melted or lost to attrition, or simply key dates
within a specific series that gained recognition and were hoarded. Of course, the
highest grades with low populations make natural rarities even rarer.
Now we are finding out that modern issue coinage without these attributes can be rare and very expensive. Oh sure, some of the modern issue coins have a low mintage of say, 1,000,000. That makes it rare compared to the rest of the series. But remember, all of these coins are new. Attrition now means they did not make the "70" grade. Some of the lower graded coins wind up selling for less than what you would expect a raw circulated coin of the exact same date and denomination. When you consider the time it takes to send in a coin for grading and the expense, some of these modern coins that do not make the intended grade should have been thrown in the street instead of sent for certification. But that is the ultimate answer to the unasked question. How can a graded coin sell for less than its original cost in the government packaging? Once these coins are certified and do not make the required grade, the owner just wants to recoup some of the expense; so these coins get sold at discounts.
Over the last few months, we have seen a shift in demand from what we call traditional rare coins to modern bullion-related coins. We have seen the FMV fall for MS65 Morgan Dollars from $220 in August to a current FMV of $190. Not that these are especially rare, but they did seem like that as they raced across the $200 level from about $140 earlier in the year. Demand had dried up the large quantities and there were few large hoards around. Now, many numismatists are taking the attitude that they want to make a quick buck by having modern issues certified and collecting the profits before the large masses of coins are available at lower levels. With gold bullion drifting downward, these coins have headed down as well. This is bound to happen in the short term if they do not make the 70 grade.
In fact, even the 70s are worth less as the populations increase. Many of the PR70 $50 Gold Buffalo coins that sold for $5,000 or more are now retailing at under $3,000. The strongest buyers of these high-grade rarities have already purchased the coins they want, so the secondary market for these coins is at a lower cost. Eventually, if the populations are high enough, all the coins simply become bullion-related and will follow the ups and downs of the metals. On a positive note, there are still many analysts that feel the metals will turn around and head back to much higher levels in the future.
What has transpired recently is that much of the money that had been spent on traditional rarities has been channeled into the modern bullion coins. This has not necessarily hurt the market for expensive rare coins because as we all know, the prices realized in most major auctions exhibits many millions of dollars and the true rarities are still bringing premiums of our listed FMV. That tells us that knowledgeable numismatists continue to search for these rarities and have the ability to put them away for the future. In the meantime, the market for average coins or common coins has softened considerably. If you go to a coin show and see quantities of the same coin in every showcase, you can be sure that some of the dealers are willing to discount certain coins in order to create sales. This is the market that has been hurt during the rush for modern bullion coins.
As a numismatist, what do you do in today's market? It really depends on where you are in your collecting stage. If you are advanced and are looking for those difficult coins, you are going to have to search and pay the premiums if you are serious about staying ahead of others desiring the same rarities. If you are just starting out, then this is a good time for you because you can find bargains out there. When the market is soft for common coins, it is much easier to be selective and price-conscious. If you are looking for bullion-related coins, it is a good time to watch for those peaks and valleys and jump in when the market appears to be down. As we mentioned last month, the premiums for U.S. gold coins are at minimal levels. If you feel that gold will eventually rise in dramatic fashion, then it might be a very good opportunity to buy while there are lots of coins for sale at reasonable levels.
Despite the fact that we are finding a lot of discounted prices across the coin market, we see much to be positive about these days. When you can go out and purchase coins at $25, $50, even $100 cheaper than you could a few months ago, it offers lots of dramatic opportunities for collectors interested in acquiring coins. It allows the collector to acquire more coins than previously for a fixed amount of money. Adding more coins to your collections is what numismatics is all about. We have not seen anything to indicate that the coin market is less popular in the last few months. In fact, we have seen more coins trading on a wholesale basis than in previous months. If dealers were not selling coins in large quantities, they would not be buying as much as they are doing. On the dealer trading networks, we constantly observe offers to buy and sell massive amounts of coins along with bullion. Much of it does not last long as buyers and sellers get together. Again, if coins were not selling to the public, dealers would not be able to buy as much as they are.
Most dealers made a lot of money as the metals made the long run from where they were in December of last year to the highs for this year. Where they are now does not matter to the coin business. What does matter is how much of the available supply of surplus income goes into modern issue coins versus traditional coinage. In the long run, all U.S. coins will become traditional and collectable as such. It is just a matter of time.
So what are rare coins? The truth is they are what demand dictates.