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NEW BULL MARKET IN U.s. Rare CoinS? .....

( November, 2001)

Even as financial markets have decimated the retirement plans of millions of Americans, the investing pendulum has not swung sufficiently toward the tangible asset ledger to proclaim a new bull market in tangibles has begun.  U.S. rare coins have been performing much better during the recent 1997 to 2001 period than the preceding major bear market period of 1989 to 1995 where they lost almost 70% of their value.  While rare coin prices ceased declining like a’s 2000/2001 income statement, the subsequent recovery in prices has been modest on both a cumulative and annual basis.  By most measures, U.S. rare coins have advanced a mere 20% to 30% over the last 5 years, so we have a bounce, but not a verifiable bull market at this junction.  While we can all appreciate positive returns over any given period after the stock market debacle most have experienced since March, 2000,  we need rare coins to recoup dealers’ margins in a 1 to 2 year period, not over a 5 year period.  So the rare coin purchaser of 1996 is still looking to just break even in many cases were he or she to resell in today’s market.  No bull market there.

Where there is a lot of bull is in the rare coin industry itself.  Interviews with dealers after the September 11th terrorist attacks provide statements that business was dead immediately afterward, but it has gone back to normal or better thereafter.  The very honest and forthright dealers that I have conducted business with over the last 5 years tell me quite the opposite.  Business is just crawling forward, except for generally inexpensive material in the $1,000 or less category which includes most modern super-hyped and over-priced U.S. coins.  These are the State Quarters, Franklin Halves, Kennedy Halves, West Point Mint American Gold Eagles, Proof Silver Eagles, and any other post-1933 American coin that was produced in the millions and thousands and will never be rare, even in high states of preservation.   And this includes the super high-grade modern coinage placed in MS67 to MS69 PCGS or NGC holders, then pushed onto unsuspecting neophyte collectors as a genuine investment.  Bullion coins such as American Eagles were never intended for circulation, so who should be surprised when one finds them in high Mint State grades.  The impartiality of the grading services comes sorely into question when they get involved in promoting the certification of any type, series, date, or mintmark of U.S. coin.  Bluntly put, this industry has more whores than the Red Light district in Amsterdam.

On the opposite side of the spectrum, the semi-key and key date classic rarities such as Bust Dimes, Quarters, and Half-Dollars are doing quite well.  Early dollars of the 1796 and 1997 ilk are also doing well, but no one should be surprised here either since even in Very Good condition these artifacts are immensely collectible and almost always popular.  In this higher priced zone, the thought emerges that fairly affluent collectors continue to accumulate high quality material (versus super high grade, “condition rarities”) in both good times and bad.  Attractively toned coins, say rainbow or multi-colored Morgans, are also selling well, but this may say more about the historically solid demand for this large, attractive silver dollar than any change in buyer preferences post September 11th.  One of my favorites, Deep Mirror Prooflike Morgans, are also doing well, but their trend has been generally up in price over the last 4 years, a reflection of solid, persistent demand.  So very attractive coins such (as lustrous, original patina gold coins), in general, almost across all series, that are modestly priced at no more than $3,000, are finding a home quickly in this environment.  And I am not talking about Blast White silver coins here only, since those that shine the brightest have likely seen the dip at some point in their lengthy lives.

Surprisingly, some investors are buying St. Gaudens Twenty Dollar gold coins as a bullion play, but only a Very Fine or lesser grade / common date coin could serve this purpose to any extent without the buyer paying a premium over melt that would stand little chance of ever being recouped at a future sale.  Unfortunately, the level of knowledge of newcomers to numismatics and precious metals is not sufficient to shield them from the hucksters out there.  And the hucksters are as legion as the biblical locust that swarmed the farmers’ field in the days of old.  It does not speak well of the moral fiber of our society when rare coin dealers and precious metals brokers use a terrible tragedy to misrepresent the intrinsic value of any product.  Claiming that certain European gold coins, of which thousands survive in Very Good to Extremely Fine condition, will carry a numismatic value as well as provide the perfect vehicle in which to own gold, is disingenuous at best.  There are other more accurate adjectives I could use, but my lawyer is on vacation.  If you are interested in truly rare coins, buy them for their rarity and not their bullion content; likewise, if you are interested in acquiring gold and/or silver bullion, stick to American Eagles, Canadian Maple Leafs, South African Krugerrands, bullion bars in both gold and silver, and 90% Junk Silver Bags.  Kind of like avoiding buying a motor vehicle that is advertised to be smooth as silk on the highway, yet be able to climb 55 degree inclines with aplomb.  I think they are called SUV’s.  Not really good value on either terrain.

The effects from September 11th on both business and consumer travel and on the delivery of mail and parcels could be even more damaging to the rare coin industry, at least in the near-term.  As evidenced by the recent Long Beach show in early October, many habitual attendees did not feel comfortable boarding a jetliner to pursue their hobby.  I think an honest evaluation of the show would be “mediocre”.  Once again, the middle segment of the rare coin pricing spectrum in the $3,000 to $10,000 zone, did poorly during the show.  To me, as an former registered investment advisor for some 16 years at this junction,  I perceive this “good liquidity” zone as the cornerstone for any sustained bull market in U.S. rare coins.   This is the price region where financial market investors have been making regular trades for their accounts for the last 20 plus years, and where investors are now comfortable about making an individual financial (or tangible) commitment.  Not until more of these investors re-allocate 5% to 10% of their available funds (after a begrudging realization that stocks aren’t re-entering a new bull market any time soon) will the overall U.S. rare coin market enjoy a traditionally inclusive bull market.  Forget about the spectacular bounce we have had in October from a grossly oversold condition in stocks.  As a bear, I want to thank all of those impatient and possibly uninitiated investors out there that have bid stock prices back up.  Bear market rallies provide superb shorting opportunities (for the experienced investor only).

I recently mailed a coin via Registered Mail from Leesburg, Virginia (40 miles outside of Washington, D.C., and outside the nuclear blast zone) to New Hampshire, and after 9 calendar days the prized parcel has not arrived.  This is disruptive to business, all business, but in particular that of the rare coin industry that relies on the secure and timely delivery of product to other dealers and customers.  A new client who purchases a rare coin from me will become concerned when his payment has cleared his bank, but his purchase has not made it to his front stoop.  Not insurmountable, since many aspects of this business are based on mutual trust, but what if all mail goes through irradiation centers for biological cleansing?  Could coins in plastic slabs be even minutely altered in this process, and are the grading services on top of this one?  Hey guys, take a breather from Homeland Promotion and spend a few moments on Homeland Preservation!  I know my thought process here is about as sunny as a Nor’ Easter, but I think both consumers and dealers should be aware of and address the changes to the numismatic landscape brought about by recent and unfolding events.  Be Prepared.

The question about the fear of traveling also adversely affects the rare coin industry.  National and regional coin shows are probably the best venue for any collector/investor to study, compare, and bid on a large selection of “sight-seen” coins, and likewise, for dealers to make substantial dollar sales and want list/inventory purchases in a short period of time.  Aside from the internet, they are the difference between a good and bad year for many in the industry today, and the demise of coin shows through reduced attendance will not positively assist this already fragmented rare coin market.  Furthermore, the ability of dealers to take multiple or overweight luggage full of wares onboard planes today, not to mention the tricky question of actual searches of luggage by security personnel, will be problematic going forward.  Dealers will search for other means of transporting coin show or client specific inventory, and lead times for getting material to its destination will be significantly increased.  Or if insured overnight services such as Federal Express or USPS. Express Mail are utilized, then operating costs will increase which will likely be passed on in coin pricing, if they can be passed on at all.  Higher operating costs mean less capital available for inventory purchases, which means lessened demand at the dealer or wholesale level, and so on.

Don’t get me wrong.  I still think a genuine bull market in U.S. rare coins will eventually lift all numismatic boats, but we just had some tragic boulders throw in our path.  If we could just get rid of the manipulations in both the gold and silver bullion markets, we could bulldoze the remaining obstacles easily.  When people become uncertain, they search for stores of wealth that have excellent liquidity.  From my own professional experience, rare coins priced over $10,000 are not particularly liquid.  Coins priced in the $3,000 to $5,000 range are much more liquid, and are effectively the calves that will eventually turn into bulls.  And this is the range ($5,000 to $10,000 lesser so) that is primed for receiving old dollars and new dollars that traditionally would have gone into stocks.  I rest my case.





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