Stocks Down, Coins Up
Posted by NumisMedia on 3/1/2007
There has been plenty of excitement in the stock market this past week as the Dow took a major hit and fell over 400 points in just one day. And that was after making a comeback from over 500 points down. Investors felt the pressure of losing billions of dollars shake their confidence in owning stocks. This also points to the fact that Americans have little to no confidence in the direction of the economy and will look at other potential investments, such as rare coins. We have seen this happen before and the coin industry becomes the welcome beneficiary.
With thousands of novice collectors migrating toward numismatics, the simple truth is that they are being bombarded with information on newly minted bullion coinage. This has fostered a shift in demand for many coin dealers who previously only dealt in, well, rare coins. As this demand has increased over the last year or so, these same dealers have seen the handwriting on the wall and have succumbed to their customer demands. Now, nearly every major numismatist must handle some sort of modern issue coin in order to satisfy their best customers. Along with this fueled demand, we are seeing many new opportunities for the more astute collector. As competition moves away from classic coins (in this case, coins minted prior to 1940), the number of available coins may tend to rise as some sellers lose interest, take profits, or fresh coins are certified. The additional supplies will tend to do two things. First, if the coins are of a more common nature, prices could adjust downward if the demand does not absorb them quickly enough. Second, if the coins are low-census specimens and rare in the specific grades, sellers will raise their prices and aggressive buyers will still make purchases in fear that someone else will beat them to the punch.
When monitoring the coin market, we are often overwhelmed with how much disposable income there is coming into the market. Even in the 1970s, the excess disposable income seemed to have a budget. Today, this does not seem to be the case. We hear from numerous collectors who are starving for rare coins and they have millions of dollars to spend on the right coins. We have seen hundreds, if not thousands, of high-grade rarities increase over the last few years and especially so in just the last year. Nearly every major auction sets at least one new price record for a specific issue, mainly because of the demand for low-census rarities by so many avid collectors. Not only has the FMV increased on many coins, but we have also been able to discover prices for coins that had not previously been listed.
High-grade U.S. Gold is as popular as we can ever remember. Early $5 Gold has been a consistent winner this past year. A year ago, the 1813 in MS66 had an FMV of $260,000. Today, it is $344,500. This jump is based on many factors that we have presented over the last several months, not the least of which is the fact that there is only one graded this high and none higher. These are the kinds of coins that are bringing record prices. Some of these FMV increases are based on trades of lesser-quality coins and because market makers are trying to locate the higher-grade coins, so their buy prices tend to force the FMV to higher levels. Such is the 1795 Small Eagle $5 Gold, listed with an FMV of $204,380 early last year in MS64 and now lists at $275,000. In MS65, it was $318,750, and now has an FMV of $500,000. Where are these coins and how can you buy them? Market makers try to answer these two questions by raising their prices high enough for potential sellers to be tempted to take profits.
Not only are the high-grade issues rising, but the trickle-down effect creates activity in lower grades as well. These issues are truly rare due to the original mintages but also, because of attrition, the number of available coins is minute in comparison to modern issues which come nearly perfect from the mint. Modern issues will never have the same rarity consequences as coins from the 1790s and early 1800s. So the opportunities are dwindling everyday. A look at the 1795 Small Eagle $5 Gold in AU58 indicates a rise in the FMV from $45,000 to $60,630 over the same time period. Even in XF40, the FMV moved from $25,000 to $33,440. What is even more interesting in some cases is that some of the modern mint coins have a so-called low mintage compared to some early gold coins (1810 and later). The problem with this comparison is that all of the modern issue coins are of extremely high grades (in proof, usually 68 and higher, while the mint state coins are 66 and higher). They will never be rare in the same vein as early U.S. coinage.
Deep Mirror Prooflike Morgan Dollars is another conventional series that has seen tremendous growth in the past year. Like Early Gold, there are numerous collectors wanting the finest grade and depth of mirror that money can buy, and most of these collectors have massive budgets. When coins with these characteristics become available, most knowledgeable dealers know where to go to maximize profits. Competition is stern and the final price is not the main objective. For example, the 1888 S moved from $11,250 in MS65 to the current FMV of $13,130 in the last year. The 1878 S in MS65 rose from $5,250 to $6,440 and the 1879 O jumped from last year’s FMV of $18,750 to today’s $24,380. In most cases, the highest grade of any date will command almost anything that may resemble a reasonable price in relation to the current FMV.
Dealers are encountering more and more collectors self-educated in the nuances of numismatics. These collectors understand that rarity is the number-one asset in locating coins for future growth. Now rarity comes with many faces; it may have a low original mintage, infrequent availability, small census report figures, low value relative to other coins within the same series, or quality. Some factors may be more important than others, but they all play a significant role in value and potential.
The common thread we are finding among the coins that bring premiums of our reported FMV is that most of these coins have rarity potential. Many are already rare, but others need to be viewed beneath the surface. They have at least one of these other factors we previously mentioned that attract the competitive buyers. There are thousands of collectors with millions of dollars in disposable income to spend for just the right coins. Back in early 1970, many numismatists felt that charting various coins was not beneficial because of the sporadic nature of supply and demand among so few. Today’s market is one of continuity and as long as the base of collectors continues to grow, the demand will outweigh the overall supplies of rare coins. The future is very bright for rarity.