Compound Rates Of Return	January 1, 1970 through June 30, 2006
12-Piece U.S. Gold Set	12.94% per ANNUM  (Over 36.50 Years)
S&P 500 w/ Dividends Reinvested	10.87% per ANNUM (Over 36.50 Years)
Out-Performance by 12-Piece U.S. Gold Set	96% more dollars gained over the 36.5 year period!
Percent Off All-Time High	As of June 30, 2006
12-Piece U.S. Gold Set	53% Off All-Time High
S&P 500 w/ Dividends Reinvested	18% Off All-Time High

This set is comprised of the 12 most common date coins for each gold type which have the highest combined surviving populations in MS65 "gem" or "investment" grade.  So these are not particularly rare U.S. gold coins in some instances, but represent a very collectible and marketable set nonetheless.  The $1 Gold, Type II, the $3 Indian Princess, and the $5 Indian Gold are the notable exceptions, with the $1 Gold, Type II wholesaling for around $28,000 in MS65.

Based on the 15.2% gain in 2002, the 10.5% gain in 2003, the 9.7% gain in 2004, and the whopping 21.3% gain in 2005 for the 12 Piece U.S. Gold Set, I can finally say that the rare coin market is "hot", with many bidders vying for the same rare coins at coin shows and auctions.  And movements in wholesale prices such as the CDN "sight-seen" bids used for this analysis actually understate the extent of overal price advances since the new bull market in numismatics truly began in 2002 with an interim bottom in 1994.  The market for U.S. rare coins literally "based" in a prolonged consolidation for almost 8 years!

And it is my prediction that we have many more years to go before this current U.S. rare coin Bull Market runs out of steam!  At one time I thought that the economy rolling over into recession would signal the end of the current bull market in U.S. rare coins, but now I know that the Central Bankers of the world will keep the global financial system pumped full of liquidity for as long as possible.  More than adequate liquidity will be made available to collectors & investors in one form or the other to send U.S. rare coins prices well beyond the old April, 1989 highs.

Please note that during the very strong bull market for U.S. rare coins in the late 1980's where gold had been in a pronounced bear market for almost a decade, the 12-Piece U.S. Gold Set was soaring to all-time highs.  So the correlation between this popular set and gold bullion is not perfect by any means; rare coins operate more within their own bull market fundamentals due to alternative, tangible investment demand and new collector demand as is the case during the present period.  A sharply rising bullion price is actually just icing on the cake, but should provide some very thick icing in the immediate years ahead.  Some of the most experienced and brightest precious metals analysts predict gold could exceed $1,650, $2,500, and even $3,500 per ounce.  If you adjusted the old spot gold high of $850 per ounce for the actual inflation debasing the Dollar since 1980, you would have an inflation-adjusted high of $2,100 per ounce!!!  The world has never seen the degree of leverage and debt imbalances that exist today in the United States, so the old gold high is likely just a starting point for further new records in the gold price in the immediate years ahead. 

It is the advisor's contention that the two competing investment arenas of U.S. Gold Coins versus U.S. Stocks will diverge increasingly as we enter the Fall of 2006 with a pronounced resumption of the secular Equity Bear Market in Stocks to eventually retest and exceed the 2002 lows, and another acceleration in U.S. rare coin prices as just occurred in 2005 along with the gold bullion price and exponential investor demand.

All investors should realize that the full 36 plus years of price behavior for the 12-Piece U.S. Gold Set shown above is very representative of typical bull markets in rare coins where prices increase three-fold to five-fold before entering a corrective or bear phase.  The recent bull market in the U.S. stock market, however, has not been typical in virtually any respect, especially with an annual appreciation rate that continues to exceed the 70-year historical rate of 10.6% with dividends reinvested, dividend yields representing less than 15% of total return (over 40% of total return historically), and valuations still at 21 times very questionable earnings reports (historical norm of 14 times with cycle lows at 8 to 10 times earnings).  Not to mention that the stock market has MERELY completed a typical equity bear market rally of 60% from its October, 2002 interim low around 780 on the S&P 500.  Since the S&P 500 set its all-time high in March, 2000, at 1527, stock investors are now only 6 years into a new bear market after a bull phase that many attribute to beginning back in August, 1982, ALMOST 24 years ago.  Major, secular bear markets in stocks have equally lasted over 20 years in modern history and retraced equity prices back to the level where the initial bull run began.  Sobering facts indeed and another reason to be diversifying out of financial and real estate assets.

Furthermore, great investment values are usually found in those asset markets that have just undergone major bear markets in both time and severity of retracement.  At a 53% discount to the all-time 1989 high, this representative segment of the U.S. rare coin market easily qualifies as a true investment value at today's bargain prices.  Many astute investors have already discovered this fact, and U.S. rare coin prices have been bid higher in many other gold and silver coin types and series since the market bottom in December, 1994.  From the graph above, one can make a case that a double  or triple bottom has formed in the 12-Piece U.S. Gold Set for a significant resumption of the bull market rally in the months and quarters ahead.  The strength of the precious metals markets themselves, and that of other tangible assets such as fancy colored diamonds further support this forecast.

The Era of Tangible Assets has not only begun, but is into its Second Phase of stellar future gains.  Buy now before Rare Coins adorn the cover of Time Magazine.

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On the silver coin side of the numismatic ledger, the Morgan Silver Dollar, Deep Mirror Proof-Like (DMPL) series has been one of the strongest performing sectors of U.S. silver coinage over the last 8 years. The number or population of surviving coins in Mint State 65 condition for DMPL's is less than 2% of the regular business strike population, giving this specialized area of Morgan Silver Dollar collecting an edge in scarcity and in reducing the potential for undiscovered hoards. The table below depicts the performance of an actual 18-coin collection of Morgan Deep Mirror Proof-Like Dollars that was targeted by the advisor, Wexford Capital Management, in March, 1998, and was actually placed into the advisor's portfolio beginning at that time.

The prices shown are based upon sight-seen, CDN or "Coin Dealer Newsletter" wholesale bid prices for MS65 grades and were compiled assuming the collection of DMPL's (a.k.a., dimples) were purchased on January 1, 1998. The advisor's actual portfolio's performance will vary from that shown due to having paid a modest mark-up over dealer wholesale bid prices to acquire the 18 coins and the timing of the individual purchases and sales within the portfolio.  As provided by recent "retail" or prices available to most investors, the final mark-up over dealer-to-dealer or CDN sight-seen pricing is averaging right around 30% to 40% for this series.

Based upon data supplied by one of the TAP contracted brokers and its own analysis, the advisor chose this subset of DMPL's, all with combined PCGS and NGC populations, at that time, of less than 70.  This collection has been aptly dubbed the Wexford DMPL Collection.  The portfolio's results could have provided a total portfolio gain of 77.0% in 8.5 years or a compound rate of return of a respectable 7.0% per annum.  Compared to money market yields struggling to stay above 4.0% per annum and without the associated risk of default or improper accounting, this tangible asset of historic significance has been a superior risk-adjusted investment for the last 8 1/2 years.  And we have just completed the first phase of a full-fledged bull market in U.S. rare coins where overall sight-unseen wholesale prices are approaching the April, 1989 highs (CCDN).

When this portfolio was priced on November 1, 2001, the 3.9 year cumulative gain at that juncture was 30.8%.  Two years later, in November of 2003, the portfolio's gain-to-date was 30.4%, a slight retracement at the 5.9 year mark.  This depicts a typically non-linear price movement for U.S. rare coins, where the Morgan DMPL series plateaued or retreated in price from late 2001 to recover to the prior valuation date of November 7, 2003.

And, frankly, typical coin dealer hype aside, the series is much stronger at the retail pricing level than as depicted in the rather flattish price increases in the Sight-Seen pricing trade reports such as CDN in 2006.  Actually, it is only in 2004 through to today in 2006 that price activity can be deemed truly bullish, as was the early bull phase pricing activity in 1998. 

It is becoming more and more apparent that many dealers that supply pricing data to the Coin Dealer Newsletter are failing to report weekly price increases since in doing so they will just be bidding against their most recent price submission(s) when they go to attempt to obtain material the following week.  Just one shred of evidence supporting this view is the fact that the CCDN, Sight-Unseen wholesale, dealer-to-dealer Rare Coin Index is just below its all-time high and the similar CDN (Sight-Seen) index is at least 20% to 30% below that watermark.  Auction results from such noteworthy auction houses as Heritage Auction Galleries show demand and slammed hammer prices to be well above prices suggested herein as "retail" defined as a CDN Sight-Seen bid price augmented by a modest 35% average margin.  Margins for the most sought-after, "original skin" examples of Deep Mirror Prooflike Morgans are going for north of 50% over CDN bid.  Auction environments can produce emotional results when several well-heeled bidders are competing for the same numismatic material, but they are truly the equivalent of the "open cry" system found in the commodities market for pricing $Trillions of assets every year; the coin auction setting truly finds the price at which a particular U.S. rare coin will sell.

Granted, the Carson City mint DMPL's have had one of the greatest gains during this 8.5-year plus period, averaging 142% or compounding at 11.0% per annum, but this fact is not at all surprising given that the "CC" mintmark is probably the most popular and sought-after of Morgan Silver Dollar pedigrees.   What is somewhat surprising in Morgan DMPL's (but not at all in Peace Dollars!) is the performance of the Deep-Mirror Proof-Like coins from the San Francisco Mint.  Their performance over this 8.5-year period averages a 154% gain (drug-down considerably by the 1897-S) or a 11.2% per annum appreciation; many coins struck at the San Francisco Mint historically have weak strikes in the Morgan series, so DMPL examples on freshly mounted dies are commanding a premium.  Coin collectors are a highly educated lot when it comes to discerning values amongst competing coins.

Does the price table below give you some ideas as to undervalued dates and mintmarks in the Morgan DMPL's?   Think 1880, 1880-O, 1882-O, 1889, 1897, 1898 and the turn-of-the-century 1900-O.  So rare coin marketers are not telling the whole story when they make the blanket statement that the U.S. rare coin market is hot to super hot across the board.  It has risen in fits and starts since 1994 overall and among individual coin series, BUT is now beginning to challenge the Old 1989 Highs at certainly the supply-constrained/demand-swollen retail and auction levels.  The best terms to describe the U.S. rare coin market in July, 2006 is, very hot.

Historically, true bull markets in rare coins appreciate by 300% to 500% before entering into a corrective bear market.   And, based on the frailty of many other investment classes in today's strained financial and economic landscape, these subsequent gains could occur over the next 3 to 5 years if history is any guide!  I would say we have plenty of room to the upside in U.S. rare coins, and in DMPL's in particular due to their intrinsic rarity as a subset of the ever-popular Morgan Silver Dollar series.

However, WCM still considers Deep Mirror Prooflike Morgan Silver Dollars as one of the most undervalued segments of the U.S. rare coin market today.  Partially because of the historical popularity of the Morgan Silver Dollar series itself, and especially because DMPL's are the rarest subset available within this sought-after Silver Dollar series.


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NOTE TO VISITORS:  The Wexford DMPL Collection will go to auction through Heritage Auction Galleries in the Fall of 2006.
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