Numismatics: The Emerging Market
Posted on 5/1/2006
The coin market has everything going for it right now. The future of the overall economy looks bleak: oil prices are destroying disposable income; interest rates for savings do not entice investors to maintain as much in savings as in previous times; inflation will begin to rear its ugly head (it already has in our opinion and it is not yet exposed in the media); the metals are blistering; while the stock market attracts investment money, investors are looking for diversification; interest rates on loans are on the rise; and the war goes on.
The coin market has the lure of history behind it and the attraction of future profits. Now, we do not recommend that anyone buy coins strictly for investment, but the data speaks volumes from research on past price performance. The coin market is outperforming any and all comparatives and many numismatists believe we are still in our infancy when it comes to price increases. Historical price movements were based on a constricted dealer market, while today the coin market is dominated by the multitudes and a confident supply/demand orientation. The magnetism of holding history in your hand cannot be discounted; we are a people of possessions. We like to not only feel rich, we like to hold it and show it to others. Moreover, we have millions of collectors not only wanting to diversify their investments; they are looking to diversify their coin collecting as well.
If you look at any of the great collections that have been sold in major auctions over the last 20 years, you will see an astonishing diversification from all areas of numismatics. Yet, 20 – 30 years ago, there were maybe three major sales a year spread amongst the top auction companies across the country. That is because the market could not handle more than $5 – $10 million a year of fresh inventory to market to the limited number of true collectors. Today there are major auctions every month and sometimes 3 or 4 within a one-week period. Auction results can be upwards of $50 million or more and the beat goes on and on. New coins are absorbed and quickly off the market into new major collections. There are thousands of major collections being built today and these astute collectors are all vying to be the best in show. We may not be able to garner a total of money spent in a year on numismatics, but we can venture forth an observation that we believe we are a billion dollar industry.
Past comparisons of prices are only an indication of things to come. In previous years, dealers would carve up a major auction and prices realized were limited by the low numbers of real buyers. Today, it is the dealer who is carved up in many auctions, as collectors are bypassing them and bidding on their own. Don't misunderstand, dealers are still a major influence on auction prices, but the amount of coins they are able to purchase in auctions has diminished considerably over the years. The "collector is king" is an expression that has been used in numismatics for many years, but it never had more meaning than it does today. Collectors rule this market and as long as they continue to put up their hard-earned money in the fashion they have over the past 3 – 5 years, this market should continue to blossom.
One area that has really blossomed over the last year is $5 Gold Indians. There have been major increases in the FMV of most dates. The 1909 O has moved from $12,190 in MS61 in June 2005 to $28,560 today. In MS63 the FMV has gone from $43,130 to $66,880. In higher grades, if you can find the coin, the FMV would probably be only an indication of what the coin could actually trade for since they are so rare; they are the key to completing this set. Overall, the Type coin has moved from $2,410 in MS63 to $4,310 in the current market. FMV for the MS64 was $4,250 versus today's $6,250. Last year the entire set of $5 Indians had an FMV of $168,560 in MS63, while today the same set is listed at $271,580. Yet, if you were to offer a complete set in a major auction the market would probably see a premium on this number due to the extreme rarity of several dates in this set. The market is hot.
One of the most popular areas of numismatics has always been Morgan Dollars. Today is no different. This is an enormously active series in all grades with the MS63 and higher grades showing considerable strength. Retailers are moving thousands of coins right now and this demand is forcing FMV prices higher and putting severe pressure on available supplies. The MS64 & 65 grades are strong and prices are very fluid, meaning that buyers are quick to pay in advance of the FMV if they can get the quantities they need. We are seeing some dealers offer to pay as much as 10% above our listed wholesale levels for solid grade MS65s. And, they are still not getting enough coins to satisfy their current needs. This is having a carryover effect on the MS64 and MS66 grades. Further, the demand has moved into the Peace Dollar series where we are seeing the MS64 to 66 grades advance in the FMV.
This is a well-rounded coin market and it looks like it could get even better if this demand remains. If you put more pressure on this market with added collectors the effects are exponential. We believe that has been the case of late and that is why the market for specific issues is so flexible. There definitely are higher buyers out there if you can find them. The multi-tiered market is functioning rather nicely right now and there are many levels of buyers for the same product. Everyone has to make a profit and it seems like there is enough room for this to continue for some time to come. As long as we see expensive rare coins bringing these prices we can expect to see the trickle down effect we have today. Everybody wants a piece of the pie and they are willing to step up and pay their tuition to learn how and what to collect. As more collectors move into the advanced stages of acquiring coins, the tremendous pressure placed on the rarer issues will be evident.
We are already seeing more collectors looking to the Census Reports of the major grading services trying to identify the coins with the most opportunity to rise; there are thousands of different coins that have potential. When you have populations of under a hundred coins within a grade and there are a thousand collectors of this issue, it is very understandable that the FMV could rise considerably. Of course, this is all relative to how much the coin has already increased in FMV and what the prices are on either side of the specific coin. The spreads from one grade to the next play an important role in whether a coin has the potential to rise. If the spread is wide between grades and the population numbers are minimal, you have a good combination for a coin to close the gap to a reasonable level over time. This is a generalization that does not always work but is the philosophy that is being adopted to help identify the areas with the most future potential.
NumisMedia is the Official Price Guide of NGC.