If you ask ten knowledgeable people if coins are too cheap or too expensive, you’ll probably get ten different answers. I think certain coins are clearly too expensive but I think others are dirt cheap. Read on for my explanation. Coin prices depend a lot on perspective. I’ve been involved with coins since the 1970’s and in the market as a professional since the early 1980’s. I’ve seen markets go up and go down and watched the cycle repeat itself. As 2007 begins, I think there are certain coins that seem very pricey; primarily due to the fact that they’ve been promoted and that these promotions appear to have run out of steam.
Let me give you an example. Everyone knows that Indian Head quarter eagles have been brilliantly promoted for the last four or five years. During this period of time, the key issue, the 1911-D rose dramatically in price -as it should have. After all, hundreds of new collectors starting working on Indian Head quarter eagle sets and everyone needed a 1911-D.
When the Indian Head quarter eagle market was at its frothiest (in late 2005 to early 2006), an MS63 1911-D would have cost you around $30,000. When the Indian Head quarter eagle series was first being promoted, back in 2001, you could have bought a 1911-D in MS63 for $9,000-10,000. This coin tripled in value in five years and actually became somewhat more available during this time period due to relaxed grading standards. In retrospect, $9,000 for an MS63 1911-D seems pretty cheap while $30,000 for the same coin in MS63 seems pretty pricey. Or is it? If the promotion had continued for another five years, could the 1911-D risen to $50,000 or even $75,000 in MS63? My guess is that, yes, it could have (although I certainly wouldn’t have wanted to buy an MS63 1911-D quarter eagle for $50,000…)
Coin market observers (including, alas, myself) tend to think small and don’t often look at the big picture. The fact is that there is a tremendous amount of wealth in the United States right now and not a lot of places that wealthy individuals feel safe putting some of their excess cash.
If you follow the art market at all, you might have noticed that auction prices for Contemporary Art in the past few years have truly gone through the roof. It is not uncommon for good but not great examples of paintings by relatively good but not great Contemporary painters to sell for well over $1 million. In fact, in the upper echelon of the art world today, $1 million does not buy you very much at all.
We know who is buying many of these paintings. Hedge Fund managers and other successful Wall Street types have targeted Contemporary Art as their “Place To Make A Splash.” And why not when many of these individuals got $5 million, $10 million or even $20 million dollar bonuses this year? When you already own a killer apartment in Manhattan and a great weekend house in The Hamptons, what’s a million dollars here or there on a nice piece of art for the walls?
So what would happen if a small number of these Hedge Fund Superstars got interested in coins? They already have the perfect personality to be coin collectors and many of them probably dabbled with Lincoln Cents and Mercury Dimes when they were kids.
If you are brand new to the coin market and you have this kind of discretionary income, coins seem dirt cheap. Just the other day, I was talking to a client of mine about purchasing a major rarity in an upcoming auction. This is a true museum quality coin and one of the two or three finest known examples of an issue with probably less than a dozen known. To buy this coin, he’ll probably have to spend $125,000 or so. To you and me, that’s a lot of money. But to someone who sees “unspecial” paintings selling at Sotheby’s auction for $2.5 million+ this seems very cheap.
Clearly, these Hedge Fund guys will see their salaries come down to earth someday, possibly soon. But what if, in the meantime, a few of these guys started buying coins? And what if I told you a small but meaningful number of them already are?
The result of this, I suppose, will be an even further bifurcation of the market. The meat and potatoes coins that most of us buy and sell on a routine basis will go up and go down but shouldn’t be affected by Harry Hedge Fund’s foray into coins. But what about coins that are extremely rare or those with great stories or those which are finest known? My guess is that coins like this could get really expensive. Because, if you really think about it, the truly great coins out there actually are dirt cheap when you compare them to other collectibles.