| What You Must Know...
The Rare Coin Market- A 30 Year Overview
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The lesson from the history of high performance reflected in these surveys is an important one: You should learn enough about coin investing strategies and market cycles to enable you to derive both profit and enjoyment from your collection, and you should buy only from knowledgeable, reputable dealers who do not pay commissions to brokers and deliver coins at low mark-ups. There are some very fine full service gold coin brokerages in the United States. The only thing we discount is the price. We are knowledgeable and fairly priced.
This guide, we hope, will help you understand the internal and external forces that affect rare coin prices, including coin market cycles during which rare coin values rise.
GOLD AND RARE COINS: WHAT'S THE CONNECTION?
The relationship between the gold market and the rare coin market is one of the most misunderstood aspects of tangible asset investing. Many people, including some stock market "financial experts", think that the two markets are one and the same--responding to the same market factors at the same time in the economic cycle. That misconception could cause you to miss out on tremendous investment opportunities in rare coins.
There are marked differences between the rare coin market and the gold market. Knowing these differences enables you to increase the number of times in the economic cycle when you can profit from hard assets. A perfect illustration is provided by the extended bull market in rare coins that ran, with only minor interruptions, from 1982 through 1989. Ronald Reagan's economic expansion was the longest peace-time expansion in U.S. history. Generally, these were lean years for gold bullion investors. However, during this same period, rare coin prices set records. All of this occurred in the absence of high inflation and the price of gold actually declined in 1988 and 1989--two of the best years ever for rare coins.
Many bullion investors have been reluctant to buy rare coins because of they "COST" to much. All coins, including bullion coins such as Krugerrands, Maple Leafs and Eagles, sell at a premium to the "spot price" of the precious metal. The simple reality is rare coins are "WORTH" more. Rare coins are respected as vehicles of financial appreciation. The high quality examples are respected as works of art, to be treasured and revered (and to be sold when the price is right).
WORTH: Noun, (A level of superiority that is usually high.) Value, quality, merit, virtue, caliber, stature.
Rare coins sell at a greater premium known as the numismatic premium. The amount of premium depends on the quality and rarity of the individual coin and fluctuates with changing market conditions. It isn't unusual to find rare coins selling at prices several times their underlying precious metal value. After all, they are treasures from the past, works of art, and symbols of wealth.
The first reaction from some investors is, "Why should I pay a multiple over the value of the gold content of a rare coin when I can purchase a Krugerands for just a few percent over spot?"
The premium over gold content is a reflection of the market conditions that have enabled rare coins to appreciate during a falling gold market and even outperform bullion during bull markets in gold. Just as the price of gold fluctuates with changes in the market, premiums fluctuate with changing market conditions. The premium over gold content that exists when an investor acquires a rare coin may be greater or smaller when he or she chooses to liquidate.
Both rare coins and precious metals have attractive qualities. It isn't possible to say that one should be rejected in favor of the other. Both have vital roles in the diversified tangible asset portfolio.
Note: We believe that every diversified gold and silver collection should also have a financial "core" position of lower premium antique gold and silver coins. (See our question and answer section for more on this.)
THE REST OF THE STORY
If rare coin prices can rise at the same time that inflation is supposedly non-existent and the price of gold are falling, why do so many people believe that coins and gold are inextricably tied and that inflation is required for a real bull market in either?
The answer is that a bull market in gold always causes rare coin prices to rise, but a bear market in gold doesn't necessarily cause rare coin prices to fall.
The price of gold is determined by a number of factors, some of which have nothing to do with the price of rare coins. As an internationally traded commodity, gold reacts to supply and demand changes in much the same way as industrial metals and crude oil. As an industrial metal, gold is influenced by consumer spending and overall levels of consumer affluence. As a store of value, the gold price adjusts to inflationary expectations. As a monetary metal, gold prices fluctuate with currency values.
The rare coin market is, in many respects, driven by a smaller, simpler set of factors. As we have said, the market is driven by prosperity and/or inflation, and prosperity is, by far, the most important factor. Therefore, many of the same economic factors influence both markets. Inflation drives both of them higher, as does any increase in consumer confidence and concerns about currency values. However, increases and decreases in supply are a huge factor in determining the gold price, while the supply of rare coins is relatively fixed. Moreover, the rare coin market is affected by economic conditions that are peculiar to the United States, while gold is affected by worldwide considerations.
A bull market in gold can have a substantial impact on the rare coin market. A significant increase in the price of gold attracts thousands of new buyers to rare coins. Many investors who initially seek bullion coins decide that they would rather have the double-play potential of rare coins like the Saint-Gaudens Double Eagle. This large increase in demand sends coin prices sharply higher. That is exactly what happened in 1979-1980 when gold went to $850 per ounce and a broad index of investment grade rare coins appreciated over 1,000%.
WHY RARE COINS
Rare coins are classic appreciating assets with a history of long-term price increases. Furthermore, rare coins offer investors a variety of other benefits including privacy, liquidity, portability, aesthetic appeal and historical significance.
Mint State Gold
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Mint State Gold bridge the gap between gold bullion and the ultra-rare condition census coins. Similar to gold bullion, these coins offer a high degree of liquidity and the large issues, such as the $20 gold pieces, possess significant intrinsic value. Unlike the common bullion issues such as the Krugerands, these coins also possess real rarity. Their numbers measure in just thousands, not millions.
The market for Mint State Gold is influenced by factors which are independent of the price of gold. For example, collector motivation can be a significant source of demand for these coins, a factor completely absent in the bullion market. These factors have enabled these two sectors to appreciate during bear markets for gold bullion.
Condition Census Rarities
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The coins that make up this category are among America's most cherished works of art. They are so rare and of such high quality that they have historically produced the highest long-term investment returns in all of numismatics.
In many ways, the market for condition census rarities is more closely tied to the market for fine art than it is to the bullion markets. Because many of the coins in this category are one-of-a-kind, this is obviously a very independent market. Competitive bidding at auctions can sometimes send the price of a condition census rarity skyrocketing--regardless of the state of the overall rare coin market or the economy.
Condition census rarities are an ideal way to pass on large sums of wealth to loved ones. Their portability, combined with their well-documented privacy benefits, makes them popular alternative investments for investors interested in preserving wealth for generations.