The Economics of Coin Demand

A recent conversation with a good client about the impact of increased demand upon his area of collecting (Liberty Head quarter eagles) inspired me to write this blog. The economics of numismatics is simple: the value of a coin is largely based on simple supply and demand ratios. If there are 50 examples known of a specific issue, there must be at least 50 people who want to buy one for it to be of value beyond its most nominal worth?

In certain series, the supply vs. demand ratio is out of whack. This is why, as an example, silver commemoratives are valued at a fraction of their late 1980’s market highs. Third-party grading has quantified rarity and it is easy to determine that a low mintage issue such as a 1933-D Oregon half dollar (only 5,008 struck) has much of its original mintage intact. Let’s assume that at least 3,000 of these exist; for there to be any increase in price for average quality pieces (in this case MS63 to MS65) there would have to be hundreds of new collectors.

The supply/demand ratio is much more succinct in the Liberty Head quarter eagle market. I know of at least four or five new collectors who are especially interested in better dates with CAC approval.

Let’s take a look at a specific area of the quarter eagle market: Dahlonega issues in EF with CAC approval. According to my quick calculation, there are a total of 64 (8 Classic Heads and 56 Liberty Heads). I’m going to make the assumption that this number is slightly inflated by resubmissions and that there are just 50 or so coins. Now let’s make an assumption that at least half of these coins are off the market in tightly-held collections. This leaves us with just 25 Dahlonega quarter eagles in EF with CAC approval.

   1842-D $2.50 PCGS EF40 CAC

1842-D $2.50 PCGS EF40 CAC

If three new collectors enter the market and compete for these 25 coins, this has a HUGE impact on the supply. In fact, this would be the same impact if hundreds of new collectors suddenly wanted an MS65 1933-D Oregon half dollar. And in most any scenario, the chances of there being three new buyers of CAC approved Dahlonega quarter eagles seems a lot more feasible than 500 new silver commemorative buyers.

This increased demand is not limited to something as series-specific as EF D-mint quarter eagles with CAC stickers. The four or five collectors I know of in this space (and I am willing to wager that there are at least four or five others with whom I do not do business) have more general wants for their collections.

   1872 $2.50 PCGS MS62 CAC

1872 $2.50 PCGS MS62 CAC

Let’s say I purchased a neat coin like an 1872 quarter eagle graded MS62 by PCGS and approved by CAC. In years past, this was a reasonably difficult piece to sell, despite being obviously scarce and, in my opinion, very undervalued. Today, this coin is suddenly in greater demand as it is in the wheelhouse of a number of new collectors.

But a rising tide doesn’t lift all boats. Currently-unloved quarter eagles such as common date Liberty Heads in MS65 and MS66 fall squarely into the generic category and the new collector buying the aforementioned 1872 in MS62 is unlikely to care about a 1905 in MS66.

The major point of my blog is this: in thinly traded markets with limited supply, even a minor uptick in demand has a profound impact. We are seeing this right now with interesting, nicer quality Liberty Head quarter eagles and this is likely to continue as this denomination grows in popularity.

Do you have further questions about the economics of coin demand? Or perhaps you want to begin a nice collection of Liberty Head quarter eagles. If so, please contact me via email at dwn@ont.com and we can discuss your needs.