Are Gem Type Two Gold Dollars Underpriced or Overpriced?

I recently bought and sold a coin that I hadn't handled in quite a few years: a Gem Type Two gold dollar. For those of us of a certain age, this is an exciting coin and one that got me to thinking: is this a type that is underpriced or overpriced? My thoughts on this subject follow. Back in the 1980's, my mentor in the rare coin business, Paul Nugget, told me an interesting story about Type Two gold dollars. He said that in the 1970's, Type Two gold dollars were essentially unknown in Gem Uncirculated and were very hard to locate even in what, today, would represent the MS63 to MS64 grade range. I have always found it curious that this once-rare type became so much more available in the ensuing years; a subplot to this story that I'll touch on in a moment.

For those of you who are wondering "what is a Type Two gold dollar," it is a short-lived design type of gold dollar that was introduced in 1854 and replaced in 1856. It features a small Indian Princess portrait on the obverse and it is a type that is notorious for strike-related problems such as clashmarks and weakness at the centers as a result of a flawed design that made it nearly impossible to fully strike up.

The two issues of this design that are seen most often are the 1854 and 1855 Philadelphia dollars. When people refer to "Type Two dollars" as a specific type coin, it is likely that they are speaking about one of these. Type Two dollars were also made, for one year only, in Dahlonega (1855-D), Charlotte (1855-C), New Orleans (1855-O) and San Francisco (1856-S). The branch mint issues are scarce to rare and remain very popular with collectors.

When collecting gold coins by type was in its heyday, the Type Two dollar was the single rarest and most expensive member of the twelve-piece type set. I can remember Type Two gold dollars in MS65 trading for over $50,000; in some cases as much as $55,000 to $60,000.

Today, the same coin is worth $30,000 at most (if the coin is really nice, in a PCGS holder and CAC approved) and more likely around $27,500.

What happened?

As far as I can tell, there were at least four things that occurred, all of which conspired to really hurt this market. The first is gradeflation. When Type Two gold dollars were worth $50,000+, they were superb coins. Today, I see many (if not most) Type Two gold dollars graded MS65 and I go "meh..." The coins range from not-so-nice to decent but very few are what I feel are Gems. This lessening of standards has clearly hurt the market for this type.

The second factor is a change in collector taste. In the 1980's and 1990's, many rare coin firms encouraged new collectors and investors to assemble twelve coin gold type sets. When these sets were in vogue, the Type Two dollar was the key issue. But these firms have stopped selling Gem U.S. gold for type sets and the whole concept has, for all intents and purposes, fallen off the map. When no one is collecting gold type sets, the demand for Gem Type Two gold dollars drops appreciably.

The third factor is an inversion of the classic supply and demand ratio for these coins. A decade ago, there were always people looking for Type Two gold dollars in Gem for their sets but very few coins around. Today, there are few people looking for them but a reasonably large supply. As I write this article, PCGS and NGC have combined to grade 149 Type Two gold dollars in MS65. Even factoring in resubmissions, it is still likely that as many as 90-110 Gem Type Two gold dollars have been graded, not to mention another 37 combined by PCGS and NGC in MS66. Clearly there are not 100 collectors who want Gem Type Two gold dollars.

(Interestingly, the level of demand for branch mint Type Two gold dollars has soared in the last decade. By virtue of being scarce, interesting and numismatically significant due to theit status as one-year types, coins like 1855-C and 1855-D dollars have risen in value--dramatically in the case of the latter--and are far more in demand than high grade examples from the Philadelphia mint).

I think there is one more factor that has hurt the value of this type: its small size. Let's face it, coin collectors are not getting any younger and the typical demographic of collectors who can afford a $30,000 Type Two gold dollar is over 55 and unable to see a coin this small without strong magnification.

Before closing, I'd like to address one point I raised earlier in this article. I mentioned that there is an aura of mystery around Gem Type Two gold dollars. How did a type that was virtually unknown in Gem thirty years ago become a coin that is featured for sale in every major auction these days? Part of it is certainly gradeflation but I think the answer is deeper than this. I don't know for certain but I think there is/was a hoard of high quality Type Two dollars that was quietly and brilliantly released into the market, a few at a time, for years. I don't know the specifics about it but how else can you explain a coin going from virtually unknown to nearly ubiquitous?

So what's my conclusion? Are Gem Type Two gold dollar undervalued or overvalued? Given the current state of the market, I'd have to pick overvalued. At $30,000 or so for a real Gem, they just don't seem like a good buy to me. At $15,000 for an MS65 I am certainly a buyer and maybe even at $20,000 for the right coin. But at $30,000 I'd rather have a nice, well struck 1855-D dollar in Choice AU or a properly graded MS63 1855-O dollar.